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Three Snapshots of Chinese Innovation

Three Snapshots of Chinese Innovation

In a recent McKinsey Quarterly article “Three Snapshots of Chinese Innovation”, authors Kevin Wale, Robert Dvorak, Steve Yang et all discuss how industry in China is following different innovation models suited to each industry. The largest market in the world is no doubt attracting much attention and talent. Why is it that the world does not trust China and imposes so many barriers to transfer of intellectual property?

Chinese innovation has adopted a number of different models. The article summarized in this review looks at the automotive, semiconductor and the pharmaceutical sectors.

Automotive Sector Innovation

The focus in this sector is more on bringing new concepts to market and developing new opportunities rather than on technical innovation. It is well established that the Chinese are experts in commercialization of an idea. Instead of taking time in perfecting a system, they bring it to the market and use customer feedback as the driving force for improvement. It is accepted that the first version will not be perfect. A good example is the electric car project where the development will continue even while the car is sold and customer feedback is carefully analyzed. This, the authors say, is an innovative way of doing innovation.

General Motors China is also using small task teams to drive innovative ideas. With the OnStar vehicle safety, security and information service system, the team introduced the latest version into the market in spite of the risk that the market could absorb and support the technology.

GM is keen to use the large numbers of Chinese engineering graduates to drive development locally right inside the largest market in the world. With the emphasis on electric cars, GM has set up a battery lab where development is spurred by the realities of culture, business climate and governmental policies, being in China helps focus the research around local knowledge.

This approach is already paying dividends with a number of very successful models being developed in China for China.

Semiconductor Sector Innovation

While China purchases 33% of the world’s semiconductor chips, it has not yet had any significant success in manufacturing these. Chinese companies hold barely 4% of the important segments of chip designing. There are a number of obstacles and global chip manufacturing majors are reluctant to share manufacturing knowledge with Chinese industry.

However, since a majority of semiconductor chips are consumed in China, there is a movement to get chips designed specifically for Chinese needs.

Another difficulty Chinese industry faces is in acquiring leading edge technology. The US and Taiwan, for example, ban the export of equipment used to make chips below 65 nanometers. The state of the art is now at 32 nanometers thus making Chinese companies at least two generations behind the current technology. However, this ban is not as debilitating as it appears since very few devices require that kind of computing power. Chinese industry which produces entry level mobile phones and TVs in bulk can easily use the earlier generation chips.

Chinese semiconductor industry which was earlier spread into a number of different zones is now being concentrated into a few areas to pool expertise.

The Chinese are also taking major initiatives to develop their semiconductor industry. There are new initiatives such as in hybrid vehicles and cloud computing that represent opportunities work tens of billions dollars and there are governmental initiatives to reduce dependence on foreign inputs in equipment. Governmental procurement policies also favor equipment that has domestic technology.

Global companies are facing a dilemma wherein they can neither ignore the world’s largest market not give away their IP. One way being taken increasingly is the setting up of R&D facilities in China taking advantage of the rapidly growing pool of technically qualified personnel.

Pharmaceutical Innovation

There are a few unique aspects to China. The first of these is the disease mechanisms that are unique to China and Asia. Besides this, China (and India) have shown the world how to conduct R&D with greater monetary efficiency. Finally, the rapid urbanization of China with a rapid movement to megacities is throwing up unique challenges. This rapid urbanization throws up issues such as high density living and its effect on diseases and disease progressions.

A $100 million innovation center has been set up by AstraZeneca but this will take time to show its true impact due to long gestation periods in the pharmaceutical industry.

IP protection in China is rapidly evolving with regular amendments to policy and IP laws. The government has made new commitments to protection of IP though it is yet to be seen how those commitments will be honored.

The innovation center China is hiring talent both within China and getting it from abroad. Their mandate is to not only do good research but to become better managers.

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. http://www.mckinseyquarterly.com

The New Asia Innovation Team

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