Innovation Leaders in China

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As the world faces many large and shared challenges, innovation is universally at the forefront of meeting those challenges. The foundation of innovation is built on culture and the environment it creates to support those efforts. China continues to emerge on the global stage as a leader in innovation. We have been interviewing different innovation leaders (i.e. centers, startup communities, and multi-nationals) to gain their perspective of what the innovation culture is like inside China. The insights gathered span several major areas of the overall environment. We will explore what these differences mean to China going forward and to companies considering working with and in China.

Innovation Focus: What is the focus of China’s innovation efforts?
Education: How does the education system affect China’s workforce?
Power Dynamics: How do cultural norms affect social interactions in business?
Innovation Infrastructure: What factors are affecting the landscape?
Government: What role is government playing in driving innovation?
Insights: Key take aways.

Innovation Focus

In China, the word “innovation” roughly translates to “technology.” This mirror’s the primary focus of Chinese innovation around the development of high tech. Other areas of the broad innovation landscape in the USA and Europe are much less represented in China. The strong focus on technology and the rise of large technology companies in the region shape many factors of society. This includes government programs, education systems, and the overall investment profile of the country. This concentration is also seen in the depth of digital capabilities and infrastructure that is rapidly advancing and can lead China to a leadership position in the digital realm over time.

Education

The education system, and its funding, are driven by the investment profile favoring high tech. While this will yield an ever increasing and highly skilled workforce in high tech, there are significant cultural differences that shape how this workforce will behave and perform in the innovation space. One of the largest characteristics of the education system is around how concepts are taught and applied that is engrained in the culture. In the USA, we teach the big picture and concepts, giving a broad context behind the approach, then we teach how to apply the concept to problems. In China, they focus specifically on the application of a concept. The focus is on gross repetition of application, but the students may not fully understand the concept or the constructs in which it was developed. While this focused approach teaches how to apply a solution in today’s challenges, it lacks the broader understanding of how to apply concepts to different situations or see future innovations of the concept applied forward. This form of education model creates more “I” profile workforce vs. the “T” shaped profiles of western workforces that have both depth and breadth of knowledge.

In China, prestige and compensation come from deep specific knowledge. Many students pursue PhDs focusing on depth vs. breadth. This culturally continues the pattern of narrow focus at the individual level. Today, four of the top ten engineering schools in the world are in China. This ratio could increase as more Chinese schools are leading as new technologies are developed from their industries. Competition to get into the top schools is very challenging. The best students go into engineering and technology. Those students that are not accepted go into business schools.

Power Dynamics

The Chinese culture is very hierarchical. Only the boss makes decisions and everyone else follows direction. Seniority is respect and you never speak up when seniors are present. To have an opinion or offer another solution is considered disrespectful. This has a profound impact on innovation where identifying many solutions collaboratively is central to exploration and discovery. In many cases, younger generations bring a fresh perspective on advancements and social impact, so to limit their involvement is a large handicap.

The business units in Chinese corporations are also very separate and, in many cases, there are very limited interactions between them. Engineering groups rarely have contact with clients and don’t concern themselves with the business aspects of the corporation. Engineers stay focused on their designs. This creates large gaps in collaboration between customers, business and engineering. China is changing through continued and increasing interactions with other countries.

The Chinese startup community is also growing rapidly. These startups are primarily being formed by younger professionals with flatter structures and evolving power dynamics. As these companies succeed, they tend to attract and hirer more progressive people. With many tech startups, some take off and grow quite large. These may be the new business culture pioneers that will transform China.

Innovation Infrastructure

The USA was very instrumental in the rebuilding of Asia post WWII. We helped build university systems and bring industry to Asia. One industry pattern early on was the rise of Industry parks. These were large campus-like areas where western companies could deploy in Asia and work with Asian companies. They attracted high numbers of foreign companies and industry concentrations started to form early clusters.

China continues to create new universities specializing in cutting-edge industries and large campuses designed to support innovation and global collaboration. The technology transfer coming out of these universities is happening faster than in the USA because of political and cultural implications. In the USA, our universities are filled with hundreds of thousands of patents that have not come to market. The barrier is really around patent ownership of the faculty and how they will receive profits from commercializing with industry. This is in contrast to China where the government owns all IP and can rapidly commercialize technologies. While both systems have many shortcomings, the Chinese system has expedited bringing new innovations to market.

A critical business difference is in the role patents play in innovation. The USA, for many years, has been patent-centric in terms of protecting intellectual property and its profitability. China lacks the depth of patent infrastructure, and with centralized communist control of all industry, IP is not protectable. This creates a competitive environment where everyone can leverage all IP and the winners are those that can commercialize it the quickest and/or best. Again, creating mass acceleration by putting solutions into the market and then constantly improving the solutions and business models as the only means of market leadership vs. patent protections.

China has also heavily invested in smart city infrastructure and created over 285 new cities for future expansion. While much of this development has been to drive the economy, each new city is a testbed for innovation and applying real-world solutions. Today, we also see the rise of Innovation Parks as a central theme of supporting innovation. These are large campus structures designed to bring industry, startups, education and government together around innovation. This is more than just cohabitation spaces. It is defined by services, programs and orchestrated innovation. It is a global trend across Asia, Europe, Middle East and South America and where North America is trailing and failing.

Government

President Xi continues to solidify his position and influence by placing large numbers of supportive officials in key positions through the government and city offices. This creates a great deal of alignment for this centralized government to drive the implementation of new programs. The government is also buying into many of the leading Chinese companies thus securing its place on key corporate boards.

The government also gives these companies mandates and funding around specific technologies and infrastructure they want them to provide to the country. This is very big business as it brings profitability and aligns those companies to the central government. While this maintains control by the Chinese communist party, it also creates strong integration and alignment of national priorities, investments, and implementation. This will lead to the acceleration of what China can accomplish in the next decade and transform the nature of global competition.

Insights

China has many advantages in the arena of innovation and competition. Specifically, it has a defined and aligned national vision around innovation. The government has focused on industry cluster development and cross-industry collaboration. Nationwide programs also align and concentrate investments that drive major advancements in key areas. The lack of IP protection makes the level of competition much higher. The intense focus on high tech is also propelling China into a leadership position in emerging industries like healthcare, energy, automation, artificial intelligence, big data, etc. At the scale they are investing, we will see world-class innovation centers and next-generation universities integrated directly into their industry clusters across the country. It is the scale of investment and long-term vision of the creation of new industries that is at the heart of their advantages.

The USA still holds many advantages of its own in this global competition. Our advantages are in our culture and social structures. We are educated to understand larger concepts and broad relationships between systems and society. This provides a stronger background for looking past current application of knowledge and into the exploration and creation of new knowledge. We also encourage our individuals to think and contribute, creating more collaborative working environments and partnerships. It is these social advantages that will keep the USA in the lead of the innovation space for some time.

While the world will increasingly face the grand challenges, countries like China will face many of them first. Their government, industry, education and social systems will also pivot its focus to solving them. This will increase their levels of investment in innovation and new solutions. The USA has the opportunity to play a leading global role if it studies how other countries are building innovation ecosystems and economies and leverages the best of those ideas.

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