ON A SCALE OF 1 TO 10 WHERE DO YOU
PLACE CHINA’S ECONOMIC GROWTH AND
POTENTIAL IN TERMS OF INNOVATION?
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THE GREAT DEBATE | ON A SCALE OF 1-10 WHERE DO YOU PLACE CHINA’S
ECONOMIC GROWTH IN TERMS OF INNOVATION?
10 is the easy bet!
4 in the short-term
7 a more sober estimate.
8 in the long-term provided
an in-depth reform of
institutional framework.
By IMD Professor
By Marc Laperrouza
Bill Fischer
Predicting China’s economic growth and innovation
is not a new question for me. Although I’ve spoken
for more than three decades about what China has
accomplished, throughout that entire period, many
audiences have always been really interested in a
completely different topic: What will China do next?
Of course, the two are not unrelated, and I’ve
learned to rely on two simple rules of thumb in
gauging China’s future impact on the rest of us:
1. One can almost always safely rely upon a simple
straight-line extrapolation of China’s growth to
predict the point where it will arrive at in about a
decade’s time. That is not to say that their won’t be
surprises along the way, but more often than not the
end result will be close to what you’ve extrapolated
to.
2. Always be sober in predicting the China growth
phenomenon; when in doubt, stop and ask yourself:
Why would the past no longer be a good predictor
of the future?
If I apply that advice to the questions raised above,
then there should be little doubt as to the likelihood
of China’s continued economic growth and its effect
on us all. I would say -- 10 -- is the easy bet. But,
how will that growth be achieved, and what role will
innovation play in all of this, that’s an entirely
different proposition, and in this instance I think 7 is
a more sober estimate.
China has already rewritten economic history by
enjoying three decades plus of nearly consistent
double-digit GDP growth, and there is little nearterm reason to believe that growth will slacken in
any significant degree. This growth, however, has
largely been investment-fueled, and tied almost
IMD – www.imd.org
Evaluating the innovative potential of a country is
devilishly difficult. Should one look at the
multinationals, at the SMEs or at the research
institutions? Should one look at product
innovation or process innovation? Of course, the
answer is that all concur (to different degrees) to
the innovative potential of a country. Let us take
a quick look at them in turn.
For the past 5 years, Huawei, China’s leading
telecommunication equipment manufacturer, has
been listed among the top 10 patent seekers by
the World Intellectual Property Organization
(WIPO). In 2010 Huawei, was joined in the ‘top
5’ WIPO ranking by another Chinese company
(ZTE). Seeing these two near the top brings
about another revelation. In 2011, while one can
find the two Chinese companies among the top 5
patent seekers, one would have to scroll far
down the ranking (beyond the 100th position) to
find another Chinese company. One would have
to scroll even further down to find a Chinese
research institution with any significant patenting
activity at the international level.
It’s hard to say whether this signals incapacity to
innovate or lack of interest to patent innovations.
At a minimum, it shows that there are a couple of
world-class Chinese companies with world-class
research capacity that are now playing the
intellectual property game. But it also highlights
the massive gap between top-notch companies
and their followers.
Focusing only on large firms and research
institutions runs the risk of missing what goes on
in smaller firms – for many the locus of China’s
phenomenal growth during the past three
decades. For sure, with more than 42 million
SMEs – which is equivalent to the combined
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THE GREAT DEBATE | ON A SCALE OF 1-10 WHERE DO YOU PLACE CHINA’S
ECONOMIC GROWTH IN TERMS OF INNOVATION?
directly to China’s burgeoning exports. So,
continued export success requires continued export
market appetite for Chinese products and that
means Europe and North America.
Assuming that we can navigate some challenging
near-term economic conditions, I think there will be
few surprises. The one big “catch” in all of this is
China’s desire to “decouple” from increasingly lessreliable trade-partners (such as ourselves) and that
means a transformation of China’s economy from
reliance upon low-priced export initiatives, to more
value-adding, branded, activities. That raises the
spectre of the past really no longer being a good
predictor of the future.
China’s challenge will become: “how to continue
growth but in a different way?”
The answer is more independent creation of
innovative value, rather than a focus on merely
“capturing the value of others’ (imitation), and then
moving these new products and services to the
world market through their own, rather than foreign,
channels, realizing the emergence of Chinese
brands in the world market. This is a considerably
more difficult proposition than merely filling the
world’s supply chains with unbranded, me-too
products. Here is where China’s scarcity of
cosmopolitan managerial talent will be a significant
liability.
I am less optimistic about a rapid global presence of
Chinese players. Supply-chains will have to be built;
reputations established; insecurities among valuechain partners allayed; and Chinese firms will have
to become more worldly. However, I have no doubt
that this will all happen, but possibly just not as fast
as we might have expected.
Also read Bill’s column on Forbes: China’s long
march to innovation success
(http://www.forbes.com/sites/billfischer/2011/07/26/c
hinas-long-march-to-innovation-success/)
number of SMEs in the United States and Europe
– there is a phenomenal potential for innovation
and economic growth to be tapped.
Unfortunately, most of these SMEs often face
formidable barriers to innovation in the form of
restricted access to capital, asymmetric
competitive environments and, more generally, a
lack of support system.
The limited number of product innovations
emanating from the majority of Chinese firms
should not cloud our assessment of the country’s
innovative potential. Akin to their Japanese
counterparts in the 70s and 80s, Chinese firms
have done plenty of process innovation. Many of
them have also set their eyes on improving their
capacity to conduct product innovation. They are
strongly supported in this endeavor by the
government, whose drive to develop indigenous
innovation often comes with extensive access to
funding.
Last but not least, if there is one lesson to be
learned from the tremendous innovative capacity
of Silicon Valley and other innovation clusters, it
is their capacity to attract and keep the best
talent from all over the world. More often than not
this attractiveness rests on an eco-system of
academic institutions, access to (venture) capital
and free circulation of people and ideas.
With more than 700,000 engineers graduating
each year from Chinese universities and a strong
desire to turn the factory of the world into a
knowledge economy, China already has at its
disposal all the hardware aspects of an
innovation powerhouse. How quickly institutional
reforms can take place to foster an innovation
eco-system is all together another question.
Marc Laperrouza is a Special Advisor to the
Evian Group at IMD and lecturer at the University
of Lausanne and Swiss Federal Institute of
Technology.
Bill Fischer is Professor of Innovation Management
at IMD and the Program Director for Driving
Strategic Innovation. He has a regular column on
Forbes.com called The Ideas of Business, inspired
from his latest book, “The Idea Hunter.” Follow Bill
on Twitter @bill_fischer.
IMD – www.imd.org
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