Innovation in China: winner takes all

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China's efforts to promote higher levels of innovation


<ul><li> 1. Innovation in ChinaWinner takes all Prof Seamus GrimesCentre for Innovation and Structural Change, National University of Ireland, Galway</li></ul> <p> 2. Innovation in the ChinesecontextO The political economy of innovationO Different views of the world, of capitalism,the market and the stateO An increasingly powerful one-party stateaggressively bargaining its position withwestern technological hegemony (until now)O National prestige, national security andgeopolitical role 3. Global innovation networks O Not territorially bounded O Knowledge flows within networks of key nodes like Silicon Valley O Multinationals seek to expand market share in China using local talent, but retaining benefits within the organisation O China in a strong position to acquire western core technology in exchange O A clash of two different ideological models 4. Objectives of the 5 Year PlanO Breaking the monopoly of MNCs andstrengthening national security (Liu, 2006)O Security and national power Chinas selfimage and conception of its role in theinternational system (Breznitz &amp; Murphree,2011)O Politics is the key to understanding howthings work in China 5. 2 main threats to the Chinese innovation systemBreznitz &amp; Murphree (2011)The technology concerns andthe political-economic ideologyof the government which viewsmastery of novel-productinnovation and new technologycreation as necessary forwealth and economic security. 6. McKinsey (2011)The Chinese endgame is clearlythe transfer of intellectual propertyand know-how to allow Chinesecompanies to compete globally notonly in China but on the home turfof MNCs. 7. Ze Zhang, the vice president of BeijingUniversity of Technology Everyone there was talking constantly of innovation. But I think we are only just beginning to understand what this word really means. Its like gears grinding against one another. Theres a lot of tension between the push for innovation and the capacity of the political system to deliver it. 8. Debate in the Party School? In private, they talk very honestly, with lots of debate They are good people, very open to ideas. Even so, you still have to play by the rules of the game. You have to make points in relation to Party doctrine. 9. A balanced strategy(The World Bank, 2009)O Job creation for 780m of whom 80% haveno higher than junior secondary educationO Clarity of the objective of innovation?O A means to an end: sustaining economicdevelopmentO Need to resist temptation of: being first,being high-tech, and being indigenousO A balance between technology creation andtechnology adaptation and adoption 10. A leading technology policy official (2007)[t]he majority of the market iscontrolled by foreign companies, mostcore technology relies on imports, thesituation is extremely grave as we arefurther pressured by developedcountries who use blockades andtechnology controls if we are not ableto solve these problems we will foreverbe under the control of others 11. % of retail value paid as royalties to patent holders by Chinese firms (MoST , 2004) O DVD players: 25-33% O PCs: 30% O Mobile phones: 20-40% O CNC machine tools: 20-40% O Much of the Chinese value share (10- 15%) is captured by Asian CMs and MNCs 12. A dualism(World Bank, 2009)Its hard to reconcile the lack of innovation inChinese industry with the stories of rapidlyrising Chinese innovators such as Huawei.Indeed, Chinese industry today is acombination of a small number of innovatorstogether with a large number of producers whoare engaged in manufacturing withoutinnovation. 13. By and large, firms in China are weak ininnovation (Gu et al, 2009)O Few have own brandsO organisational learning not encouragedO Passive, imitative and minimalist strategiesO Tried and tested technologiesO Avoiding testing and experimenting as muchas possibleO A hierarchical culture with little horizontalcommunication or networking 14. weak social capital(Gu et al, 2009)O Educational and social capital (values,norms and trust shared by socialcommunity) not marginal, but vitalO For interactive learningO A prerequisite for absorbing, diffusing andusing knowledge in the innovation systemO Necessary for creating new ideas and theeconomic value 15. Significant weaknesses in practice of corporate governance(Opper and Schwaag Serger, 2008)O Far-reaching judicial reform yes, but inpractice this is a laggard of institutionaldevelopmentO The need for an honest and functioningjudiciary systemO Shapes relationships within and betweenfirmsO Has a significant impact on innovationperformance in business 16. Microsoft R&amp;D 2009We are not sure that they areready to do the core product work.Four years of experience hasshown that different teams makegrand promises but fail to deliver.This creates major issues fordeveloping trust with HQ. We needto build up expertise. 17. Microsoft R&amp;D 2011All MNCs are in mixed mode right now. Wewant to make a big impact in China but we areafraid of entering the market. They dont knowexactly what to do. So we take the middleground and say we will put some R&amp;D inChina, but are not sure what to do with it. Letsjust test the water. Companies are at differentstages, with some more advanced than othersin R&amp;D. Microsoft is somewhere in themiddle. 18. US networking MNC 2011I dont think at this point any MNC would trust the IPRhere. I dont think they would willingly bring R&amp;D intoChinathat could be 10 years away. MNCs willdominate technology globally, but I dont think they willhave much traction in China. Because of the nature ofChinas legal system, no MNC CEO would put hisreputation on the line for China. They will try to build theChina product in China, knowing that the IP is likely tobe lost. They are fairly confident that Chinesecompanies wont be able to use this technology to sellinto the West.. 19. IPR, talent turnover and core R&amp;DO Increasingly difficult for MNCs to retain toptalent after a few years experienceO Engineers want to be managersO Want to be involved in cutting edge workO MNCs fearful of developing core R&amp;Dbecause of IPR issuesO The challenge of growing junior talent intomanagement talent 20. Huaweis research and development centrein Shenzhen 21. Humble Huawei (2007)Nonetheless, we at Huawei should be well aware thatwe still have a lot of catch-up to do in technology. Andwe have to admit that our international competition is byfar advanced technologically. This gap is a product ofhistory. First, with encouragement of the governments,innovation in developed countries is greatly promoted,making technology more easily accessible. Second,while we are still at the early stage of development,developed countries have already had a largeaccumulation of patents. Western suppliers are muchmore advanced whether it is the system implementationrationale or details of technical implementation. 22. the country is largely missing from semiconductor league tables(McKinsey, 2011)non-Chinese players (for example, Samsung,Intel, and Hynix) earn 96.3% of all revenues. Indesign, foreign players earn 96.1% ofrevenues. Even in the silicon segment, 93.0%of revenues go to non-mainland-Chinesecompanies. China has a decent share in onlytwo areas, back-end manufacturing andassembly and test, where Chinese companiesearn 28.6% of total segment revenues. 23. Setting unrealistic targets and notlikely to succeed (Ernst, 2011) O Chinas MIIT: We will significantly increase the self-sufficiency ratio to over 70% for integrated circuits used for information and national security, and to over 30% for integrated circuits used in communications and household appliances O Difficult to see how such an ambitious target should ever be realised (Ernst, 2011) 24. President Hu Jintao, 9 Jan 2006By the end of 2020 Chinawill achieve more science andtechnological breakthroughs ofgreat world influence,qualifying it to join the ranks ofthe worlds most innovativecountries. 25. There is a growing andrefreshing scepticism amongpolicy-makers in China abouthow much policy andplanning can actually deliverin relation to innovationTheres no longer a simpledichotomy between top-downand bottom-up. 26. Learning from earlier failures? O Government and industry investment in alternative DVD technologies had largely negative results O Implementation of 3G networks held back because MII insisting on developing TD- DCHMA O State interference in Chinas market 27. How long will it take to catch up? some viewsO 10-15 years to see outcomes: its not justabout pumping investment into R&amp;DO In less than 15 years; with the help ofTaiwanese management (in China) theycould leapfrog and you could see goodinnovation in semiconductors in 5 years.O You need basic research. You cannot copysoft competence. The US has a culture andenvironment that creates innovation. 28. Harry Shum, Managing Director,Microsoft Research AsiaWhen people say to me, How far isChina behind the US in terms oftechnology?, I say three months if youdont count creativity. If someone atMIT posts some results, then China canrecreate it in three months. But it takeslonger than that to train and instilcreativity. 29. Reduction in dependence on foreign technology a means, not an end(The World Bank, 2009, 20/21) The government is well advised to encourage Chinese enterprises to raise their capabilities for technology creation. But achieving the right balance between technological independence and openness means that the optimal level of independence from foreign technology is not the highest one but the one that contributes most to the development of technological capacity and ultimately to the sustainability of economic development. It takes the private market to find out and approach such an optimal level of technological independence. 30. Economist Intelligence Unit2011It has invested vast sums of money inexpensive projects that may notnecessarily have the requisitesupporting soft infrastructure interms of regulation, human capitaland experience in managing complex,risky systems. 31. In green industries, where thegovernment aspires to be a globalleader, massive subsidies havekick-started production ofeverything from wind turbines tolight-emitting diodes (LEDs). Yet,many wind farms sit idle,unconnected to the grid. Plenty ofexpensive LED-producingequipment has been imported butthere is a shortage of skilledengineers to run the machines. 32. The government would do well to accepta more realistic timeframe for China tobecome a high-tech power. By adoptingnumerical targets for patent grants, forinstance, the government is essentiallyforcing the pace of innovation. Chinamay have seen a tenfold increase inpatent grants over the last decade and iscatching up with the US in patentnumbers, but the comparability of thesepatents in terms of content and quality isstill low. A greater focus on other areas,such as education reform, will allow formore organic technological progress withsturdier foundations. 33. Chinas export growth will be drivenprimarily by demand from non-OECDcountries. Penetration of OECD marketsin high-end manufactures is likely to belimited, although China will see rapidincreases in market share in non-OECDmarkets. Western companies have inrecent years lost significant exportmarket share in non-OECD markets. In a related trend, foreign-invested firmsin China will relinquish their dominantrole in driving Chinas export growth.Over the coming year, the share ofChinas exports produced by domesticcompanies, currently at 48%, will crossthe halfway mark. 34. ChinaKorea, RepSingaporeIreland Score Rank ScoreRank Score Rank Score RankGlobal InnovIndex 2011 46.4 2953.7 16 59.6 3 54.11320093765 21Institutions 51.798 77.4 35 90.4 9 91.2 6Human capital &amp; research 39.956 59.97 74.7 1 57.810Infrastructure 35.433 48.26 47.6 9 39.523Market sophistication54.126 61.8 12 78.7 2 65.3 6Business sophistication49.329 49.8 26 79.1 1 73.8 3Scientific outputs 52.7953.77 48.915 51.211Creative outputs 40.935 42.2 27 41.430 34.258Population (millions)1,354. per capita $ 6,82827,168.550,632.8 41,278GDP (US$ bns)4,985.5832.5 182.2227.2 35. The Global innovation Index 2011 (INSEAD) ChinaIndia Brazil Score Rank Score RankScore RankGlobal Innovation Index 2011 46.4 2934.56237.7 4720093741 50Institutions 51.798 52.39454.187Human capital &amp; research 39.956 26.9104 33.976Infrastructure 35.433 27.76332.245Market sophistication54.126 44.64535.780Business sophistication49.329 30.88441.546Scientific outputs 52.7924.86025.258Creative outputs 40.935 40.33846.912Population (millions)1,354.11,214.5 195.4GDP per capita $ 6,8283,270.1 10,412GDP (US$ bns)4,985.51,310.2 1,573.4</p>


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