China’s shift from imitation to innovation … 5 important lessons from the strategies and approaches of Chinese businesses?

April 29, 2019

Chinese innovators have moved from imitators to innovators.

Jack Ma himself, an English teacher in Shanghai with a big ambition, set off for America to learn from the technological revolutionaries of the West Coast, maybe even to get a job too. He returned home intent on bringing the revolution to China. His initial project, China Pages, soon evolved into Alibaba, a network for small businesses. And from there, inspired by Amazon, it became something much much more.

Indeed imitation is still frequent in China. Meituan Dianping, recently ranked as the world’s most innovative company, is led by Wang Xing who has spent the last decade trying to “copy paste” the best ideas from Facebook, Twitter, eBay, Groupon, and many more. He soon learnt that Chinese culture, infrastructure and consumers, needed some tweaks, and so learnt to “copy adapt paste”. Today he has realised that he can do better, “copy enhance paste” if you like, to the point where he is a true innovator.

In my blogs I have explored many of the fast growing Chinese companies:

Not only do such giants as Alibaba and Tencent, Haier and Wanda and Xiaomi, continue to thrive and grow through innovation, thousands of younger Chinese entrepreneurs are poised to enter the global marketplace.

In a new book Pioneers, Hidden Champions, Changemakers, and Underdogs: Lessons from China’s Innovators authors Mark Greeven, George Yip, and Wei Wei offer an insider’s view of China’s under-the-radar, globally competitive innovators.

The book explores four types of innovators in China:

  • Pioneers, large companies that are globally known. Companies like Haier and Huawei and Alibaba have created their own corners of the Chinese marketplace on the strength of their brand.
  • Hidden champions, midsize enterprises that are market leaders in their niches. They’re not exactly startups; often they’re as old as the pioneers but smaller in size, scope, and revenue. They may not be visible to most internationally, but they’re frequently top players in their verticals.
  • Underdogs, technology-driven ventures with significant intellectual property, typically focused on the B2B side. They are steadily, consistently producing new products and new technologies that have impacts across many global supply chains. Think AI or solar panels.
  • Changemakers, newer firms characterized by digital disruption, exponential growth, and cross-industry innovations. They investigate what kinds of innovations these companies develop (product, process, or business model), their competitive strategies, and key drivers of innovation. New companies run by millennial and digital-native entrepreneurs. They’re completely digital and frequently come from unexpected corners of the market to disrupt traditional business models – for example, ridesharing, food delivery or news aggregation.

They identify six typical ways Chinese entrepreneurs innovate, including swarm innovation (collectively pursuing opportunities) and rapid centralized decision making.

Finally, they look at how Chinese innovators are going global, whether building R&D networks internationally or exporting disruptive business models.

The book includes many examples of Chinese innovators and innovations, drawn from a range of companies—from pioneers to changemakers—including Alibaba, Haier, Hikvision, Malong Technology, Weihua Solar, Mobike, and Cheetah Mobile.

Comparing China to the West

So what is different from China compared to the West? Certainly, there are plenty of American equivalents to pioneers and changemakers – what is giving China the edge today?

A lot of it comes down to process. Western companies have more formal, bureaucratic structures. Chinese companies are far looser and more informal. In the West, innovation is driven by process, which is often slow by nature. In China, teams will huddle around a boss, who will then make a decision very quickly.

Because of this streamlined approach to decision-making, China just does things faster. Trial and error can happen faster. Failure can happen faster. Learning from mistakes can happen faster. And because the Chinese market is already growing rapidly, the pace encourages companies to move just as fast. In the West, you still have to jump through hoops to achieve innovation. In China, they go for it.

Working with Chinese companies

This doesn’t mean China is about simply going to dominate the world, and Western companies should be living in fear. Instead it opens up new markets – new consumers with latent needs, and new partners to satisfy them.

Chinese companies also have their challenges. They struggle with language barriers, cultural differences and general unfamiliarity with international markets and their habits. And while the largest Chinese companies have made moves to acquire foreign businesses as they enter into overseas markets, these mergers have generally moved slowly with limited beneficial exchanges of knowledge.

That’s the opportunity for Western companies. Microsoft has been very active building an AI ecosystem in China, Pfizer has developed some key partnerships with Chinese technology companies, while Johnson and Johnson has opened new R&D centres in the country. BMW’s innovation lab is in Shanghai, in large part because China has more cars and more traffic than any other country. What better place to experiment with automobile innovations?

5 lessons from Chinese companies

What are the lessons leaders could learn from Chinese innovators? In my experience these are the 5 factors that are most significant, and which western business leaders could learn from:

  • Ecosystems. First, it’s important to embrace the idea of ecosystems, to cast a wide net of potential partners and collaborators who can help you increase your innovation power. Look at companies like Alibaba and Tencent – they are Google, Amazon, Facebook, Paypal, and more, all in one.
  • Speed. Certainly, we talk a lot about speed in Western startup environments, but China’s large corporations provide a model for how to achieve that in enterprise settings. Focus on an issue and act decisively. Speed of decision making, speed of experiments, speed of action
  • Long-term focus. Partly because they are typically private companies, owned by entrepreneurs or families, who don’t need to pander to quarterly analyst reviews.  This enables big infrastructure projects like the Belt and Road Initiative
  • New worldview. They take a global perspective, unblinkered by legacies and localism. They see the world as an open marketplace, not just a gradual journey. Xiaomi for example defines its home market as any emerging economy.
  • Digital first. China doesn’t have an infrastructure legacy, which still biases companies to make digital platforms an add-on. They start by thinking digital, and then add physicality, ultimately all becoming hybrids. This means that the “online to offline” market is huge for consumers, but also makes next tech platforms very easy.

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