Innovation: Is it China's next competitive advantage?
Source: Booz & Company , Author: Posted by BI-ME staff
Posted: Tue June 19, 2012 9:19 am

UAE. Chinese companies are becoming serious innovative competitors and China is becoming an innovation engine, according to the findings of a survey of multinational and leading Chinese businesses released today.

The 2012 China Innovation Survey, conducted by Booz & Company, a leading global management consulting firm, together with Benelux Chamber of Commerce, Wenzhou Chamber of Commerce and CEIBS (China Europe International Business School), aimed at finding out whether Chinese companies were catching up with global competitors in their capacity to innovate – and if so, what would be the implications for both Chinese companies and multinational companies (MNCs).

Steven J. Veldhoen, partner and leader of China innovation practice at Booz & Company says, “the survey’s most surprising finding was just how far many Chinese companies have moved beyond their shanzhai or copycat reputations.”

He added, “many global companies perceive Chinese companies as possessing strong innovation capabilities. Among the MNCs interviewed, 45 percent said some of their Chinese competitors were equally or more innovative than themselves. “

“One of China’s key objectives is to develop an innovation-based economy, and it seems to be succeeding.  Fueled by enormous and growing spending on research and development (R&D), companies, both foreign and domestic, and the government are scrambling to build key advantages in the vast, highly competitive and quickly developing China market,” Mr. Veldhoen added.

Booz & Company along with its partners interviewed more than 100 leading Chinese companies and MNCs across five sectors – industrials, automotive, health/life sciences, consumer goods, and chemicals and energy.

According to Booz and Company’s annual study on innovation, The Global Innovation 1000, all innovative companies fall into one of three categories:

• Need Seekers – first movers who proactively discover their customer needs and then use this understanding to shape new products.
• Market Readers – second movers who focus on incremental improvement in already existing products.
• Technology Drivers – deliverers of new technological achievements, who realize both breakthrough and incremental change but have less direct contact with customers.

The traditional view that Chinese companies are Market Readers is challenged, as 38% of them are actually Need Seekers. On the other hand, 50% of MNCs tend to follow a Market Reader approach.

Key findings of the survey:

• Many MNCs already perceive Chinese companies possess strong innovation capabilities. Of the MNCs interviewed, 45 percent said some of their Chinese competitors were equally or more innovative than themselves.
• MNCs see Chinese companies as having key advantages in two separate areas: first, government support, and second, in their ability to deliver products rapidly to markets via their decisiveness, speed-of-action and proximity-to-market.
• It was previously established that Need Seeker is the most powerful of the three types of innovation strategies, consistently outperforming Market Readers and Technology Drivers in both profitability and enterprise value. Therefore, by circumstance rather than design, a high proportion of Chinese companies have found themselves in the most powerful category of innovators. 38% of Chinese companies are Need Seekers, compared to 30% among MNCs  and 27% of The Global Innovation 1000 average. Remarkably the only other place in the world with an above average number of Need Seekers is Silicon Valley.
• While Chinese companies see research into cost reduction as declining slightly in importance by 2022, MNCs see both cost reduction and process improvements as rising significantly.
• The importance of China for companies as a regional and even global hub for innovation is clear. Some 40 percent of MNCs surveyed and 50 percent of Chinese companies already develop products in China for markets outside China. This trend is set to intensify, with the survey finding that by 2022, more than 60 percent of all MNCs and local companies expect to conduct R&D in China for global markets.
• Chinese companies are broadening their R&D from China to the world - opening new R&D centers outside China. Almost 70% of all surveyed companies are planning to extend their R&D abroad in the next 10 years. Some 53 percent of Chinese companies said they saw themselves collaborating with foreign partners, though a large minority – 40 percent – envisaged setting up their own R&D operations.
• Asked what they saw as the key obstacles to conducting innovation in China, MNCs and Chinese companies gave broadly similar answers: talent, IP protection and cost are the challenges today; talent will remain the key issue in the future.

About Booz & Company
Booz & Company is a leading global management consulting firm focused on serving and shaping the senior agenda of the world’s leading institutions. Our founder, Edwin Booz, launched the profession when he established the first management consulting firm in Chicago in 1914. Today, we operate globally with more than 3,000 people in 60 offices around the world.

We believe passionately that essential advantage lies within and that a few differentiating capabilities drive any organization’s identity and success. We work with our clients to discover and build those strengths and capture the market opportunities where they can earn the right to win.

We are a firm of practical strategists known for our functional expertise, industry foresight, and “sleeves rolled up” approach to working with our clients.

Our award-winning management magazine, strategy+business, is available at www.strategy-business.com.

For the Ideation Centre, Booz & Company’s leading think tank in the Middle East, visit www.ideationcentre.com

For more information, please visit www.booz.com and www.booz.com/me.

 

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