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Managing Innovation in China

Managing Innovation in China

Recently, a study was done to check if the Chinese enterprises have innovation mechanisms in place that could possibly influence it’s innovation and the overall performance. The study also examined the different types of ownership structures, focusing on innovation in the Chinese firms as a whole. Why? Because the non-state-owned sector produces two-thirds of China’s gross domestic product while the number of state-owned enterprises (SOEs) is shrinking rapidly.

Today, one of the key challenges that most of the organizations face is – how to manage innovation? As the low-cost labor countries join the competition, the focus has turned from “what to innovate” to “how to innovate” and the standards of quality, speed and responsiveness have significantly changed. Innovativeness has indeed become the most critical factor for a company’s competitive advantage.

China is known as the largest manufacturer in the world, but when it comes to its technological innovation and innovative capabilities, they are not considered high enough. In this article, we look into how Chinese enterprises manage Innovation.

What drives Chinese Enterprises towards Innovation?

According to the study, it appears that the growing market power is the main reason that drives the Chinese enterprises to carry out technological innovation. An increasing open market and the customer’s demands make them innovate and this technological innovation has also contributed towards opening newer markets and expanding old market shares.

It was found that the three main sources of new innovation ideas are the end-user, the organization itself, and the competitor. Some of the less important sources of new ideas identified were the suppliers, purchased technologies, and research institutions.

How Do Chinese Enterprises Manage Innovation?

Chinese Innovation is based on a variety of factors namely:

Product Vs Process Innovation: While majority of the Chinese enterprises product innovate, there were a few enterprises that claimed to be active in both product innovation and process innovation.

Technology Acquisition: While most of the Chinese enterprises import technology from abroad, the study revealed that most enterprises developed innovation in-house, followed by collaborative R&D, and imported technology. According to the study, over two thirds of the enterprises had technology cooperative agreements signed with other firms, universities, or scientific institutions and half had the option of technology acquisition. The enterprises believed that the first source of technology is independent innovation, followed by imitation and assimilation, then improvement, and importation from abroad.

Human/Financial Resource: Needless to say, for any technological innovation, there is a high demand of capital input. Interestingly, the main sponsors in financing technological innovation in the company were investigated to be Chinese enterprises itself. This shows high interest of the Chinese enterprises in independent innovation.

Innovation Mechanisms: State-owned enterprises and non-state-owned enterprises differ when it comes to innovation mechanisms. They differ in things like – usage of management and design tools in the product development process. While there are mechanisms in place to ensure early involvement of all the departments in developing new products or processes, there is still room for improvement for Chinese firms when it comes to innovation mechanisms.

Innovation Strategy: According to the study, almost 80 percent of the respondents replied that their company’s innovation strategy was that of the market follower or imitator, rather than being market leaders.

Market Share: The environmental demands, the need to shape the environment, and the technical possibilities are the essentials in stimulating innovation. A variety of market factors trigger the Chinese companies to carry out innovation. It results in the introduction of new products to existing materials and still, China and Asia is the major market.

Today, almost half of the production is exported to different Asian countries. Chinese companies are always attracted to new markets whether it is located in the different regions of China or Asia, and even in Europe and the USA.

Another trigger for the Chinese enterprises is the globalization of the market. Many of the surveyed companies wanted to enter new international markets in the future. According to the study, all the managers who participated in the survey think that they have conducted innovation activities.

Innovation Performance Measures: The main resource allocation of the investigated enterprises was into breakthroughs or developing new products. The core development projects only receive low development resources.

However, the main thing that stimulates the Chinese enterprises to innovate is the drive to satisfy customers and for a new, bigger market share.

What Factors Affect Chinese Innovation Today?

The Chinese government innovation policies affect the country’s innovation performance – the more supportive the government is, the better its performance in the local and international markets.

High R&D Input: Technological innovation is an important corporate strategy and has been on the Chinese enterprise management agenda for years. Enterprises with rapid product upgrade like telecommunication and bio-medical technology pay more attention to R&D.

Start-up SMEs have a head start in Technological Innovation: During the study, it was found out that SME managers have good professional and educational backgrounds. They worked as technology engineers under multinational companies before starting their own company. Their working experience gives them an advantage.

Weak Product Portfolios: Majority of the studied projects were not focusing on platform or next generation product/process development, thus, lacking in strong R&D and technology core competency.

Today, Chinese enterprises turn from manufacturers to major innovation entities. The Chinese government policies have triggered innovation nationwide and it pushes the Chinese enterprise towards increased R&D and commercialization. In spite of numerous bottlenecks, the Chinese industries are striving to satisfy the customers and the market competition. But their quest for innovation does not end here as the new technology from multinationals penetrates.

Note: The preceding is a summary of an article found though our research, and is provided here with editorial comment for members only. Please see the full article at the following link for full original content:

The New Asia Innovation Team