Behind China's art for copying things may lie the seeds of innovation
Is China able to innovate? The question matters, and not only for Chinese-minded business scholars. As Asia's economic giant conquers the top spot in new industries every day, its ideas and initiatives could soon shape the future of many of them. What's more, with rising costs at home, China can no longer afford to be just the 'copycat' factory of the world - it must keep the lead by creating its own things.
But can it? For most observers, the answer is no. China has invented many great things - gunpowder and paper making among them - but in recent times it is said to be a place where innovation is at best copied, at worse looted.
The reputation is not completely stolen, of course. Mainly because, as Chinese officials themselves put it, ‘there are defects in the systems and mechanisms’ that are supposed to promote scientific creation. First, China often tries to dictates innovations by autocratic directives, or ordering people to create. It doesn't work: its push for a dramatic increase in number of patents deposed, for instance, has led to a dramatic increase in quantity - but not in quality.
Second, academic cheating, endemic corruption and the inadequacy of intellectual property law discourage private entrepreneurs. Just as foreign companies do, domestic businessmen feel that their creation can be easily stolen - so they may as well not bother investing time and money.
Third, the dominance of state owned enterprises (SOE), makes it difficult for smaller entrepreneurs to access funding (China's banks are told to lend primarily to SOEs), talents (ever more attracted by SOEs) and market (the state grants preferential treatments to SOEs for most tenders). They have no means to innovate. And SOEs themselves are not very good at innovation. When they do throw their weight behind research and development, absence of free market means it's often vast amount of cash thrown in the wrong direction.
The whole picture, however, is not all black. As a Mc Kinsey Quarterly report, mentioned in BeyondBrics today, illustrates, China may be getting on with innovation - but one of a different kind. Western corporations are better than Chinese firms when it comes to understand, and analyse, what customers want; they're also stronger at fostering innovation via internal collaboration. But they have a scarcity in foreign talents, and don't grasp very well what the real needs of the local market are.
This is where Chinese firms can help. China's capabilities and Western ones are, in fact, complementary: when multinationals use a lengthy, systematic theoretical approach to decide on innovation, their Chinese counterparts prefer to try out things in the market. Which means, they're often better at making things that work in China.
And this is why, behind the 'copycat' chat and desperation at the lack of a Chinese Apple or Facebook, innovation actually happens – but also why, so often, observers fail to detect it. A lot of what's created in China remains invisible to foreigners. Mainly because much of that product innovation stays there: with such a big market to explore, Chinese firms have now real incentive to embark on a global adventure.
Much of this innovation is also incremental. It often all starts by 'digesting' foreign technology: copying a product's base principle, improving processes, adapting it to the local market. But then entrepreneurs find ways to improve on the original proposition itself, thereby making a better, different product. And whilst these small steps deserve less publicity than, say, the release of computing tablets, they still have the power, one day, to become game changers. Mc Kinsey quotes here the example of the semi-conductor industry, where small, incremental change may soon give a global edge to a sector that has long been struggling.
So China has the means - intellectual, financial, and commercial - to innovate. And as its more creative industries keep on consolidating, and as China's huge domestic market develops, the forces behind this potential will gain even more clout. But for this potential to be unleashed, China needs to strengthen intellectual property laws, take better care of small and medium enterprises, create a corporate culture more supportive of risk taking, and loosen its grip on freedom of thought and expression. In other words - plant the seeds of political innovation.