Chinnovation

How Chinese Innovators are Changing the World

Yinglan Tan, Ying Tan

• Publisher: Wiley
• Year: 2011
• Print ISBN: 9780470827963
• eBook ISBN: 9780470827994
• Edition: 1
• Topic: Business
• Subtopic: Decision Making
• Index: Business

It is widely-believed that China's entrepreneur class has grown and their businesses are succeeding primarily due to their knowledge of the domestic market, quick adaptation to market changes, and their resourcefulness. But innovation? Forget about it. Well, not quite. Drawing on a wealth of on-the-ground stories and thorough research, Chinnovation: How Chinese Innovators Are Changing the World shows how Chinese companies of every stripe have dispelled this myth and overcome the barriers to successful, profitable innovation.

• How did Neil Shen, co-founder of CTRIP Capital China, see the opportunity for a Chinese travel site?
• How did Ray Zhang, CEO of Ehi, scale up one of the most innovative hybrid car-rental companies in China?
• How did Zhang Tao, CEO of Dianping, start a ZAGAT-inspired user-review site for restaurants and establish a continuous process of innovation?

Yinglan Tan has spent more than five years learning the secrets of Chinese innovators, a fast-growing subculture playing key roles in China's transformative transition from "Made in China" to "Innovated in China." Learn:

• What is the path that an innovative Chinese private-owned enterprise take?
• How blue-chip innovators remix business models successfully in China?
• What are the capabilities that these innovative companies acquire?
• How they harness the necessary resources and navigate around legal restrictions?
• How do they attract, train and retain talent?
• How do these companies experiment with innovative approaches and also manage the risk of innovation?
• What are the lessons learnt and how would these entrepreneurial innovators advise others who are embarking on the same journey?

China's rapid economic growth has made it a crucial market but multinational corporations are now competing with China's own homegrown businesses. Chinnovation: How Chinese Innovators Are Changing The World uncovers the common threads amongst Chinese entrepreneurs as they reach into a wider world.

Chapter 1

Welcome to the World of Chinnovation

What does anybody here know of China? Even those Europeans who have been in that Empire are almost as ignorant of it as the rest of us. Everything is covered by a veil, through which a glimpse of what is within may occasionally be caught, a glimpse just sufficient to set the imagination to work and more likely to mislead than inform.

—Lord Macaulay, c. 1790

To begin, it's useful to present a short history of China's growth enterprise and how innovation first sprouted, covering the second half of the 20th century. How have the innovators left their mark and changed the nature of industry? This book distills the blueprint for innovation.

Imagine that this is 2030: a world where China is a working democracy with a $4 trillion economy. Ubiquitous, unseen nanodevices record everything you say and do. Flying delivery drones with powerful wireless communication have replaced the car as king of the road. If you do need to drive yourself somewhere, you SMS your coordinates and receive a list of the nearest rental car options with various models and color selections. Your chosen car is delivered to you by a GPS-powered robot and you unlock the car via fingerprint recognition. And if you're observed violating the rules of the road, say by parking in the wrong place, the ticket shows up in your e-mail in-box complete with payment options.

Professional knowledge becomes obsolete almost as quickly as it's acquired. Instead, you have downloadable modules on your nano-implants. You'll do everything you do today from your online semantic desktop. Your calendar will hook to all your activities, so it can keep up with you automatically and work with others' calendars to help you coordinate your schedule. You can use any cellphone to log in and access all your contacts and finances. Sounds impossible?

Flash back a few thousand years to the 4th century B.C. Sometime in that century, the Chinese developed a lodestone compass to indicate direction. By the 1st century B.C., the Chinese had developed the technology for deep drilling boreholes. The first woodblock printing press was invented in China. The next few centuries saw the Chinese invent movable type, paper (one of the first recorded accounts of using toilet paper was during the Sui Dynasty in 589), fireworks, and cannon. And the list goes on. I recently visited an exhibition of “sky lanterns,” nifty aeronautical contraptions invented by Zhuge Liang (a military strategist in the Three Kingdoms) and was further impressed by innovation among the Chinese. The cycle of innovation was once very strong here, and now it seems to have gone full circle back to China.

Why This Book?

Books on China crowd the shelves. Unfortunately for the would-be innovator in China, the academic books have generally failed to capture the true reality of innovation in Asia because the data was too patchy, while those that captured the life stories of successful Chinese entrepreneurs haven't adequately distilled the full essence of innovation. This book focuses directly on the key concepts and winning techniques used by innovators in China, translating what really goes on in an innovator's mind into structured processes that you can use to promote your own ideas.

Not that long ago, it might have been possible to cover the whole topic of innovation in China in one white paper. Now, not even a book can provide comprehensive coverage. Entire industries in China have flourished, as China's enterprises have ascended the innovation chain. In the face of increasing international and domestic competition, companies strive to outperform one another and to increase their performance and innovation capabilities via myriad strategies. Many industry veterans have encapsulated various facets of innovation in China with zingy buzzwords. Haier's CEO, Zhang Ruimin, has coined the term recombinative innovation, which is the combination of ideas and technologies in novel ways rather developing products from scratch. Huawei, a leading global telecommunications solutions company founded and based in China, has coined the principle of the pressure point, which is the tactic of expanding strategically via cost-innovation into the area where the global players are weaker and chipping away at adjacent sectors. These terms capture salient points of China innovation, but to make the topic manageable and targeted, I have decided to focus on high-growth Chinese businesses in this book.

Why high-growth Chinese businesses? First, research on innovation tends to overemphasize patents, inventions, and scientific publications in research labs and large multinational firms. The study of high-growth Chinese businesses provides a window into the middle level of the innovation game in terms of product, processes, and know-how, making it possible to identify some of the distinguishing features vis-à-vis other levels. Second, the study of high-growth Chinese businesses provides insights into the use of high-tech innovations by low-tech companies. Many of the companies weren't producing high-tech products; they were either customer-facing low-tech businesses producing services in an innovative way or were adept at product innovation. Third, all of the enterprises whose people I interviewed were experiencing rapid growth—really rapid, mostly between 30 percent and 50 percent per year. (One was growing at a staggering rate of 166 percent year-on-year.) While the growth of the China economy played an important role, the particular ability by these multinationals of the future to innovate and satisfy unfulfilled demand provides a useful view of the economic drivers of the innovation game in Asia.

That may still seem broad, but I've found a surprisingly high degree of agreement among interviewees on the key characteristics that entrepreneurial innovators were looking for when identifying innovation opportunities, their thought processes, and the steps they took. Despite vast differences in background, company stage, and sector, a consensus quickly emerged. Aimed specifically at Western and non-Chinese businesses, managers, and entrepreneurs, this book offers a practical guide to best innovation practices for business success in China. The book is organized around the journey that entrepreneurial innovators embark upon while building a company, with each chapter encapsulating the key takeaway points at that specific stage of the journey.

It is through this process of innovation under uncertainty that unbelievable fortunes are made in China's march toward global supremacy. Chinnovation takes readers into this world of translating ideas into globally competitive companies. For those who want to innovate like the best, Chinnovation distills key points from real-life innovation experiences, revealing the unique strategies, the implementation mechanisms, and the measurements the best innovators use. It discusses some of the best and worst experiences, the pitfalls inevitably encountered when risks are taken, and the ways individuals can use the lessons they've learned.

Impossible? Since its economic reform began in 1978, China has gone from a poor, developing country to the second-largest economy in the world. Yet when it comes to science and technology, most people have the impression (not helped by CNN images) that China is a country with massive steelworks and vast smoking factories. Very quietly, China has become the world's second-largest producer of scientific knowledge, surpassed only by the United States, a status it has achieved at an awe-inspiring rate. If its progress continues on its current trajectory, China will overtake the United States before 2020.

There are quality concerns. In university education, only slightly over 10 percent of faculty members have PhDs, and only 40 percent have any postgraduate degree.¹ In respect of R&D personnel, McKinsey Global Institute has found that only 10 percent of China's young white-collar workers are fit for employment at multinational corporations. Of total R&D personnel, less than 4 percent have PhDs, and only 10 percent have master's degrees. A 2007 McKinsey survey also indicated that poor enforcement of commercial laws and intellectual property (IP) protections continue to worry executives in China.

The Innovator's Playbook

Capitalists and enterprises build dynamic economies and innovation. However, this fundamentally rests on the innovators and entrepreneurs who assume and accept the benefits and risks of an initiative. Based on my interviews, I see a few common denominators that define the innovator's playbook. The best entrepreneurial innovators nurture a childlike mind. They are playful, open-minded, and unrestrained by the inner voice of reason, collective cynicism, or fear of failure. They also aspire to be at the forefront, as the proverb says, preferring to be the head of the rooster rather than the tail of an ox.

But they maintain a dose of sensibility in managing innovation teams, akin to parents teaching their children to ride a bicycle. That is, they teach, support, and help, but what is most important is that they learn when to let go and maintain fine balance. They refrain from giving their staff a crutch to rely upon, which would stifle the innovation process. These entrepreneurial innovators often accelerate the innovation process by ensuring that the organization reaches “escape velocity,” thereby unleashing its energy and transforming latent ideas to create new products and services.

In a large, growing market, these entrepreneurial innovators can revolutionize industry structures. Large incumbents typically listen to their customers, who are not likely to express a desire for radical innovation. By contrast, entrepreneurial innovators identify a niche where there is demand for radical innovation and then rapidly introduce changes and start challenging leading players to catch up. The top Chinese entrepreneurial innovators benchmark the best in their businesses as well as in other lines of businesses. A healthcare screening company gained new insights by studying service modules and automation of a semiconductor foundry. A sports retail company adapted the traits of the hospitality industry and custo...

Table of contents

• Cover
• Advanced Praise for Chinnovation: How Chinese Innovators Are Changing the World
• Title Page
• Copyright
• Acknowledgments
• Introduction
• Chapter 1: Welcome to the World of Chinnovation
• Chapter 2: The Star Innovators' Call to Adventure: Starting Up: How Star Entrepreneurial Innovators Smell Blood and Meet Market
• Chapter 3: Star Innovators Recognize Scope Innovation
• Chapter 4: Star Innovators Choose the Right People for the Right Jobs
• Chapter 5: Star Innovators Learn from Mistakes and Make Calculated Bets on Cross-Disciplinary Innovation
• Chapter 6: Star Innovators Spread Their Wings: Innovations in Scaling
• Chapter 7: Star Innovators Become Industrial Evolutionists: Maximizing the Returns of Innovation
• Chapter 8: Conclusion
• Bios of Interviewees
• Index