Sustainable Development of Indigenous Innovation System in Chinese Enterprises: Angles

of View and Some CasesDr. ZHOU Yuan

National Research Center for Science and Technology for DevelopmentMinistry of Science and Technology, P. R. China

The 2nd Asian Science and Technology ForumChallenges for Science and Technology in Achieving Sustainable Development in Asia

September 8, 2006 Tokyo

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Content

I Background

II Angles of view

III Some cases

IV Conclusions

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I Background

1. Significance

--- At the beginning of this year, China published the strategy of developing innovation-driven economy

--- One of the strategic priority is to develop national innovation system

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I Background1. Significance

--- The core of national innovation system is enterprise innovation system

--- The success of the strategy for sustainable development in innovation-driven economy hinges upon the sustainable development of indigenous innovation system of enterprises

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I Background2. Complexity

China has vast territory with over 0.22 million industrial enterprises of various types belonging to about 40 sectors (2004). It is impossible to develop a unified framework of innovation system for all Chinese enterprises, but efforts should be made to seek key common ground for this system

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II Angles of view

At first, the angel of view to study this system is to be determined to seek the key points that indigenous innovation system for Chinese enterprises share in common

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II Angles of view

Taking relevant factors of enterprises’indigenous innovation system as a starting point, this system may be studied from the following angels of view, so as to find the common points that enterprises of different types in this system share in common

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Strategic directionOperation systemSupport system

R&D subsystemFinance subsystem

……

External technical co-operation network

II Angles of view

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External technical co-operation network Strategy

HR DatabaseFinance Culture R&D

Tech Non-Tech

CustomersSuppliersCounterpartsUniversitiesResearch centersGovernor

Operation system

Strategic direction

Support system

II Angles of view

Angles of View for Indigenous Innovation System of Chinese Enterprises

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HaierEstablished in 1984Products

96 product groups and 15100 types white goods, black goods and brown goods exported to over 160 countries and regions

In 2005, Haier was the No. 1 Chinese brand on the “Top Ten Chinese World-Class Brands”

1. Large enterprises (electrical household appliances)

III Some Cases

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Brand Strategy

DiversificationInternationalization

Strategic shift

1984－1991 1992－1997 1998 Time

three strategy shift in Haier

III Some Cases1. Large enterprises

(electrical household appliances)1). Strategic direction of Haier’s indigenous

innovation

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Network-based structuresConforming the economic relationship amongR&D, manufacturing and marketing

Process Reconstruction matters

III Some Cases1. Large enterprises

(electrical household appliances)2). Operation system of Haier’s indigenous

innovation

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With the structure change: linear function - a matrix structure - market chain structure

R&D organizations also have three stages

III Some Cases1. Large enterprises

(electrical household appliances)

3). The evolvement of Haier’s R&D organization

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The evolvement of Haier’s R&D organization

Technology section Microwave oven team

Washing machine team

Refrigera-torteam

R&D headquarters

S&T D

ept

IndustrializationD

ept

Trans of S&T

Dept

Low temperature Dept.

High design D

ept.

Model dept

Independent IPR

(b) Diversification(c) Internationalization

(a) initial

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R&D strategy of Haier: “producing one generation, developing and researching one generation, and conceiving one generation”R&D system: horizontal and vertical integration

III Some Cases1. Large enterprises

(electrical household appliances)

4). Indigenous R&D System

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Haier’s horizontal R&D system

Chips/ software

Basic stuff

Core

tech Core parts connectioncompetition & cooperation

environmental protectionsavinghealthy…

SOCControlsoftware……

products

DistributionAfter sale

Logistics

Basic research

Lasting research>5

R&D lasting 3-5 years

NPD in 3years

R&Dcenter

Tech center

Engineeringcenter

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Haier’s vertical R&D system

Intelligence household appliance

Waterproofing, anti-electricity, remote sensing on preventing gas leakage, and far control technology

Core common technology research

Industrial design: world leadingModels: world leading

Mold: world leading

User testing：world leading

Pilot base

Testing

TV setWashing machineAir conditionDishwasherRefrigerator

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Priority principles of S&T investment

Intensive R&D investment to create favorableconditions for Haier’s new product development

III Some Cases1. Large enterprises

(electrical household appliances)5). R&D investment of Haier’s indigenous

innovation system

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Proportion of R&D from sales in Haier

44.6 5.1

66.6

5.55

6

01234567

1997 1998 1999 2000 2001 2002 2003 2004

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6). External technical co-operation network of Haier’s indigenous innovation system

Network center (15foreign,8domestic)

Network center (15foreign,8domestic)

Design center(9)

Design center(9)

Strategy alliance (48)

Strategy alliance (48)

Transforming center(15)

Transforming center(15) External technical co-

operation network

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观念是基础观念是基础

人人有目标人人有目标

时时有激励时时有激励

事事有流程事事有流程

天天有创新天天有创新

Idea innovation is the base and sourceIdea innovation is the base and source

““all innovatorsall innovators”” is the is the organization baseorganization base

Organization Organization innovation is the innovation is the guaranteeguarantee

All time/space All time/space innovation advance innovation advance the speed and effectthe speed and effect

Institution Institution innovation innovation active active employeeemployee

An advanced foresight entrepreneur over the growth of firm is thAn advanced foresight entrepreneur over the growth of firm is the keye key

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11

897 282 295 301279

339 302

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679 198 222 223301

258291

2 111 54 70 78 82 85 102

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1984-1991

1992-1998

1999 2000 2001 2002 2003 2004

invention

utilitymodel

design

Improvement of Haier's patent rights

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Established in 1988, Huawei Technologies is a private high-tech enterprise fully owned by its employees. Huawei specializes in R&D, production and marketing of communications equipment, providing customized network solutions for telecom carriers in fixed, mobile and data communications networks. Huawei has turned their science and technology strategies from researching and developing hi-tech to focusing on application. 10% of their sales were used for R&D.

Established in 1988, Huawei Technologies is a private high-tech enterprise fully owned by its employees. Huawei specializes in R&D, production and marketing of communications equipment, providing customized network solutions for telecom carriers in fixed, mobile and data communications networks. Huawei has turned their science and technology strategies from researching and developing hi-tech to focusing on application. 10% of their sales were used for R&D.

III Some Cases1. Large enterprises (communication)

Huawei Technology

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project management

project management

optimizing investment &

analysis

optimizing investment &

analysisCustomers

demand analysis

Customersdemand analysis

Asynchronismdevelopment

mode

Asynchronismdevelopment

mode

team of across department

team of across department

the standard

the standard

Structuring processStructuring process

IT support systemIT support system

Factors

Huawei’s customer – oriented R&D management system – Integrated Product Development

Together with IBM, Huawei has established IPD process, making it possible to transform research achievements into products more quickly and efficiently to satisfy customers.

Aims of IPD：

Hard index: cutting developingcycle 15% to 30% in the trial stage, 40% to 70% one year later

Soft index: arriving at functionalstage one year later, making IPD regular and operating the company totally under the new managerial mode.

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Staff number: 2200085% received college education

Management and others: 9%

R&D staff: 46.5%

Productive staff: 13.5%

Marketing and serving staff: 31%

Huawei’s Personnel structure

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Huawei’s indigenous innovation and open cooperation

Huawei paid much attention to accumulating and protecting core intellectual propertyhas applied for 1021 patents including 132 in 3G field by the end of 2001has applied for foreign or domestic trademarks for 468 times.

Huawei seek for broad cooperation with international advanced enterpriseshas set up united labs with foreign enterprises such as TI, Motorola, IBM, Intel, Sun

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Huawei’s Global R&D systemHuawei Technology (headquarter)Beijing Research InstituteShanghai Research InstituteNanjing Research Institute Xi’an Research InstituteHangzhou Research InstituteChengdu Research Institute

Huawei Technology (headquarter)Beijing Research InstituteShanghai Research InstituteNanjing Research Institute Xi’an Research InstituteHangzhou Research InstituteChengdu Research Institute

Technical development and cooperation are globalized. Huawei pays much attention to integrated research of technologies and operational mode. Huawei has become a formal Sector Member of ITU-T (International Telecommunications Union)Huawei Indian Research Institute is the first R&D institution in China which has acquired CMM (Computerized Modular Monitoring) four – star international certificate. Huawei TELLIN intellectual net won the first prize of the national scientific and technological progress.

Technical development and cooperation are globalized. Huawei pays much attention to integrated research of technologies and operational mode. Huawei has become a formal Sector Member of ITU-T (International Telecommunications Union)Huawei Indian Research Institute is the first R&D institution in China which has acquired CMM (Computerized Modular Monitoring) four – star international certificate. Huawei TELLIN intellectual net won the first prize of the national scientific and technological progress.

American Silicon Valley Research InstituteAmerican Dallas Research InstituteSweden Research InstituteIndian Research InstituteRussian Research Institute

American Silicon Valley Research InstituteAmerican Dallas Research InstituteSweden Research InstituteIndian Research InstituteRussian Research Institute

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Lusheng Beef and Tianchang 3D game

Beef and 3D game seems to be irrelevant, butresource integration brings win-win to the twoirrelevant enterprises.

III Some Cases1. Small enterprises (a combination of food industry

and network games)

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Reality

Vitality

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The Results:

--- Sales of the new product of Lusheng reached27 million RMB yuan in the first month

--- Tianchang 3D games were best selling, andmany venture capital enterprises poured inlarge amount of funds.

III Some Cases1. Small enterprises (a combination of food industry

and network games)

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Cgogo

--- 2002: established--- 2003.2: Beijing Cgogo R&D center was set

up and began to R&D wirelesssearch technology

III Some Cases2. Small enterprises (IT)

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Cgogo--- 2004.6: Cgogo R&D center (Zhejiang) was

established (by cooperation with ZhejiangUniversity)

--- 2004.7: the R&D of cell phone search engine met with success, Cgogo undertook business cooperation with China Unicom and China Mobile in succession

III Some Cases2. Small enterprises (IT)

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Cgogo

--- 2004.10: JAFCO invested in Cgogo

--- 2004.10: Cgogo R&D center (Europe)

was set up

III Some Cases2. Small enterprises (IT)

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Cgogo

By now, the technology developed by Cgogoenabling cell phone users to search internetinformation through cell phone has realizedbusiness application in China

III Some Cases2. Small enterprises (IT)

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Yahoo

GoogleBIRTH

GROWTH

MATURITY

BIRTH

GROWTH

MATURITY

BIRTH

GROWTH

MATURITY

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Cgogo

Transforming for Search Engine

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