Forget the "made in China" cliché, innovation is in China

by Thibaud Andre

made in ChinaJoe Biden asked us back in May to name a single innovative Chinese project. Anyone who’s spent more than ten minutes watching China could name a few. China’s drive to achieve the coveted “innovative” adjective, while far from over is certainly open.

China has wanted to move past the “made in China” stigma for years, but it has remained doggedly entrenched in the public mind. Companies like Xiaomi and Lenovo are breaking the mould, with the support of a government that is pumping investment into moving China from “imitation to innovation.” While Western companies are quick to capitalize on American and European reputations for innovative strategies and products, China’s finding new ways to mobilize its assets. Perhaps the most positive sign of things to come is that its new approach to innovation isn’t just crimping from the West’s playbook.

Turning “made in China” into “designed in China”

Luckily for anyone in China looking to change the world, the resources are at hand. Its schools are often called into question, but China isn’t lacking for well-trained engineers and technicians. As domestic university rise swiftly in world rankings, more and more well-educated individuals with the ability to drive a technology surge are entering the work force. And most importantly, they’re cheap compared to their Western counterparts. Consequently, even smaller companies can afford to invest in larger-scale research and development cycles.

The government has been accused of stifling of China’s innovation, funding state actors at the cost of smaller companies. What may not be as obvious for outside observers is that the competition for government funding on both the provincial and municipal level is fierce. Since the government is actively seeking out the business leaders who can help them achieve their 5 year goal of turning “made in China” into “designed in China,” smaller companies have the incentive to push themselves to think creatively, to develop, to think outside of the box.

With a massive workforce and government funding pushing for innovation, Chinese innovation should be doing all right, and it is; 6 companies based in China on Forbes’ Most Innovative Companies list. But we’re still seeing foreign companies doing a better job at tapping into China’s talent. The R&D centers run by foreign companies are often the ones making the big breakthroughs. When a Chinese brand wants to pivot towards more cutting-edge technology, they hire a foreign specialist, like Hugo Barra’s move to Xiaomi.

Why does it seem like China isn’t being as innovative as it could be?

China IS innovative, but maybe not the way you think

The innovators like Xiaomi, Lenovo and Tencent that’ve made the big splash are, perhaps obviously, not like the vast majority of Chinese companies. Most research is focused on pricing, production and distribution. Local companies know exactly what is “good enough for China,” and try to find a way to make the same product as their competitors, except cheaper and easier.

Consequently, smaller companies, caught in a dogfight with hundreds of other competitors, are too focused on getting an incrementally better product out quick to capitalize on its short-lived commercial buzz before moving on to the next product. While the entrepreneurial spirit of China’s populace is much lauded, the competitiveness of the increasingly open market means that few of them are investing in a long-term research and development cycle. Everything from cell phone companies (like Huawei), automobile producers, energy firms and even some fashion labels pour their research assets into trying to undercut their competitors with lower priced products that are just as good, but rarely better.

innovation in China

The times they are a-changing

Chinese companies are making headlines now in things we can easily recognize. Lenovo’s Horizon table PC… thing is making waves, and their Yoga tablet and laptops have also been well-received for a cool design and good performance. But what’s less obvious is that the companies who succeeded in the unique conditions of the Chinese market have innovated in directions Western companies haven’t; pricing and distribution, exactly the things that seem to be drawing resources away from technology-driven development.

Xiaomi’s high level Mi3 is selling at impressively low prices for what it offers, and their flash-sale strategies mean that demand and sales remains high. In addition, these flash-sales provide instant and valuable data about what products do well with end-users. They’ve also cleverly side-stepped the mess that is China’s distribution network by only selling online, and directly from their website.

Tencent is dominating social commerce, a phrase a lot of Western companies aren’t even familiar with. In a country where 75% of internet users are doing so via smartphone, they’ve allowed consumers to rate ecommerce vendors using the same tools they use to pay for bills, order taxis, book restaurants, browse the internet and chat with friends. There’s no equivalent app in the West, and Tencent did it by approaching innovation from its own, unique perspective.

Comparisons will continue to be made between Xiaomi’s Lei Jun or Alibaba’s Jack Ma and Steve Jobs, but China’s going to continue developing and growing in fields that most Western companies are woefully behind in. Who knows, maybe the West will end up copying China.

image credit: news.cnblogs.com / dyzx.dyteam.com

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Thibaud Andre is a French consultant working at Chinese market research firm. Daxue Consulting. He is passionate about Chinese culture and likes to share insights about the many emerging markets of the Middle Kingdom. In particular, he likes to identify emerging trends and innovations that may change economic landscape in China.