news photo
Survey shows that change is blowing in the wind

A multinational corporation recently bought a Chinese company and brought its top executive to the company's global research and development center in Europe, where it showed him various prototypes. At the time, the multinational was not sure whether,[HK Corporate Registration] how and where it would launch these prototypes. And even if they launched, that could take quite a while.

The Chinese executive saw the prototypes and, to the executives' amazement, said he could sell one to a group of customers in China. He detailed the price point at which the product could be sold and how much money the company could make if more work was done.

The reason he could do that was because, unlike executives who cannot make decisions single-handedly, a Chinese executive at a small firm is in charge of many different things, ranging from product development to production process to pricing.

This was an example cited by Steven Veldhoen, a partner at Booz & Co, in talking about China's innovation landscape.

It showed how far beyond the real China is from the commonly held Western belief that it is a nation with little innovation.

Booz & Co's 2013 China Innovation Survey, which Veldhoen leads, shatters that stereotype.

Using questionnaires and interviews with 264 corporate executives of foreign and Chinese companies in China, 64 percent of respondents at non-Chinese companies said "some Chinese competitors are equal to or better than their own companies at innovation". A year ago, when Booz first did the survey (with fewer respondents), only 48 percent held the view.

Chinese companies also are innovating for the rest of the world, as 68 percent of Chinese respondents reported they are conducting product development for foreign markets, up from 41 percent a year ago. And 88 percent said they plan to do so in the next 10 years.

One major reason why this picture contrasts so strongly with traditional Western thinking, according to Veldhoen, is that the respondents are based in China, where they can witness the country's innovation prowess on a daily basis.

Veldhoen said that when he did the interviews, he observed a distinction between foreigners who have worked and lived in China continuously and those who just visit the country occasionally.

"Living here every day means you get to see Chinese products, whether they are Huawei phones,[Hong Kong Company Formation, Incorporation, Business Registration] Sany construction machines, people using WeChat on smartphones or the power of Alibaba going into financial services. You hear these things abroad, but here, you see them every day. That's a big difference," he said.

For those foreigners who worked in companies' Chinese divisions, the impression is compounded by their working experience, according to Veldoen: When they try to sell products here and have to compete with Chinese products on a day-to-day basis, they realize how difficult it can be.

Another finding that also went against traditional wisdom is that innovation in China does not necessarily focus on copying and making incremental improvements to existing products. Instead, many Chinese companies are pursuing the same kind of innovation strategies that are practiced by the world's most successful innovators, notably companies based in California's Silicon Valley.

These companies pursue what Veldoen called "Need Seeker" strategies: focusing their R&D efforts on consumer needs, developing products that meet those needs and then quickly getting the products to market.

Forty-four percent of the Chinese companies surveyed by Booz see themselves as conducting activities that make up the Need Seeker strategy, which reflects a higher percentage than the global average.

In Veldhoen's view, even if many Chinese companies do start out copying foreign products (which in China is known as shanzhai), as they grow, they make their own improvements, perhaps adding 5 percent more. And maybe, he said, that 5 percent is really important.

"They might not be doing a lot that is new, but they do a few things that are new, and that makes a huge difference. Is that innovative or not? I think it is," Veldhoen said.

Another interesting observation is that in China, individual companies may be not innovative, but at some point, [Hong Kong Company Registration Guide]a group of companies can become very innovative.

This is shown in the response from one foreign executive: "Although I can't identify a single Chinese company's innovation, if I look around at my 20 competitors, yes, they are very innovative."

While many people think of high-profile companies like Tencent or Alibaba when they think of innovation in China, Veldhoen noted there are many lesser-known companies that are truly innovative. For example, a medical equipment company he knows, utilizing both Chinese and foreign talent, develops sophisticated products at a lower cost than its competitors, and its products are available around the world.

At its heart is a Chinese scientist who was recognized as part of China's National Thousand Talents Program. Around him sits a team of researchers and innovators working out of R&D centers in Chengdu, Beijing and the US city of Cleveland.

Another thing that impresses Veldhoen is the way Chinese companies align their desire to innovate and grow with the way they develop products and services.

At many global companies, the innovation process is required to be not only creative but also as cost-effective as possible. But many Chinese companies are willing to "over-invest".

For instance, for many global companies, the testing and prototype centers are "bottlenecks" in the development process since such facilities require significant investment. But quite a few Chinese companies pour money into their testing and prototype capacities.

Hongkong Tel : +852-2537 7886 Add : 5/F Manulife Place, 348 Kwun Tong Road, Kowloon, Hong Kong SAR