China’s Rise in an Innovation Economy - Zunaira Munir PhD

Zunaira Munir by Fantake via Flickr

By Zunaira Munir

China is working towards becoming an innovation-oriented country. Chinese President Hu Jintao outlined plans for building China into innovation-oriented country at a national conference on science and technology in Beijing in April 2006. "Companies would play a principal part in the innovation, while research institutes and universities across the country would assume a key and leading role in the innovation," he said.
To achieve innovation oriented culture Hu said, “China will embark on a new path of innovation with Chinese characteristics, the core of which is to practice innovation, seek leapfrogging developments in key areas, make breakthroughs in key technologies and utilize common technologies to meet urgent requirements in realizing sustained and coordinated economic and social development. Also, fund frontier technologies and basic research with a long-term perspective.” China put forward independent/ indigenous innovation as a national priority because it relied heavily on introduction of advanced, foreign technology for its technological development. The word independent emphasizes reliance on own strength to achieve innovation goals, namely to have own core technology and access to own intellectual property rights of innovative technology.

Specific goals and strategies for transitioning China into an innovation-oriented country have been defined. These include;
Specific goals for scientific and technological development for China:

· To boost manufacturing and information industries, raise agricultural production capacity, make breakthroughs in energy exploration, energy-saving and clean energy technologies and optimize energy infrastructure.
Specific strategies for achieving China’s goals include:
· Raising the capability of innovation. Center it on serving the economic and social development.
· Developing technologies of energy resources, water resources and environmental protection. Obtain intellectual property rights for key techniques in equipment manufacturing and information industries as breakthrough points for competitiveness.
· Developing recycling economy, making breakthroughs in pharmacy and key medical equipment, developing technologies for national defense, and building advanced scientist groups, research institutions and enterprises.
· Improving innovation-related laws, regulations and scientific and technological development plans.
· Creating a favorable financial environment for companies to conduct innovation.

The present National Innovation System of China is unique in that it is not only to build up a linking mechanism adaptive to the socialist market economy, but also to upgrade the country’s innovation capacity rapidly and to establish a number of S&T innovation bases that are internationally competitive within a period as short as possible. The Chinese government continues to introduce initiatives to facilitate interactions among the innovation players and also incentive systems for both science and industry to improve their innovation performance.
The result, what had mostly been seen as a manufacturing center of the world for a long time, China has started its move towards a future innovation economy and thismove has already triggered a gradual but substantial shift in the global systems of markets, knowledge, growth and profit centers.
Coupled with the fact that China is the most populated country and the fastest growing economy in the world with more than 1.6 billion inhabitants , China’s internal market demand is far too great to be ignored by the Western world, especially now because of China’s recognition of its own potential. There is a huge blue ocean potential to be realized in China’s growing economy. The question is how to effectively capitalize on this opportunity. It has now become imperative for western companies to value innovate, firstly , to create new demand for their products in the Chinese market and secondly to make competition from Chinese indigenous businesses irrelevant to developing their foothold in China.
Value Innovation is about simultaneous pursuit of high value for the buyers while pushing for a substantial drop in the cost structure of the industry. Any classical differentiation or low cost strategy that is built on a trade-off between innovative value and costs will not suffice. Success for western companies in China hinges on their ability to offer exceptionally high value for the Chinese buyers at a cost structure that is substantially lower than the low-cost indigenous Chinese model.
Companies need to reconstruct buyer value elements for the Chinese buyer while breaking the trade-off between differentiation and low cost . They need to conscientiously consider four key questions to challenge their industry's strategic logic and business model:

1. Which of the factors that the industry takes for granted should be eliminated?
This question forces you to consider eliminating factors that companies in your industry have long competed on. Often those factors are taken for granted even though they no longer have value or may even detract from value.
2. Which factors should be reduced well below the industry’s standard?
This question forces you to determine whether products or services have been over designed in the race to match and beat the competition. Here companies over serve customers, increasing their cost structure for no gain.
3. Which factors should be raised well above the industry’s standard?
This question pushes you to uncover and eliminate the compromises your industry forces customers to make.
4. Which factors should be created that the industry has never offered?
This question helps you to discover entirely new sources of value for buyers and to create new demand and shift the strategic pricing of the industry.

The first two questions give insight into how to drop your cost structure vis-à-vis competitors. The second two give you insight into how to lift buyer value and create new demand. It is through this simultaneous pursuit of high value and low cost that western companies can possibly create blue oceans of profitable and sustainable growth in China.

Dr. Zunaira Munir is a senior member of the Global Blue Ocean Strategy Network . She is an internationally acclaimed expert and speaker on Blue Ocean Strategy. She manages Strategize Blue, a Blue Ocean Strategy consulting and training firm in San Diego and  works directly under Kim Chan and Renee Mauborgne, co-directors of INSEAD Blue Ocean Strategy Institute and authors of Blue Ocean Strategy, the book which launched a worldwide revolution in business strategy.

She is also a speaker at the China Speakers Bureau. When you need her at your conference, do get in touch.