emerging markets are now being differentiated with their individual consumers and demands; and, with this, myriads of innovation opportunities to cater to them. Still, this does not appease foreign firms who fume angrily at the Chinese government’s procurement policies; especially when talk of their double-digit growth pops up. Reason being, to enter the great market of China, many firms have to give up their intellectual property, and so their inventions themselves. In 2007, state television unveiled a new Chinese fighter jet, suspiciously similar to the Russian SU-27, that they suddenly stopped purchasing. Whilst an amazing feat of reverse engineering, this dilemma is mirrored in many other industries; the imitators are free to undercut competition and vastly profit in international markets. However, this Shanzhai culture is quickly becoming an image of the past. As China’s catch-up growth slows down, the government is focussing evermore resources on indigenous innovation. Plans to attract professionals back to China, with tax-free allowances and permanent visas in the 2008 Thousand Talents Program - as well as last year’s extension to ‘Foreign Experts’ - demonstrates a clear desire to spark off innovation. Beijing also houses Microsoft’s global research centre and, more importantly, 95% of employees there are Chinese. Therein lies plenty of opportunities to spread knowledge, technical capabilities and, in essence, the potential for homegrown innovation to indigenous firms. Already, China have become global leaders in green technology, exporting to the US and
Canada. And with billions of dollars of continued investment, imitation will continue to beget innovation. Incremental versus Disruptive Innovation? Then what is the difference between the two? Throughout, there has been this distinction, between incremental and disruptive innovation. The usually American ventures, such as the Internet are heralded as disruptive innovation, radically changing our use of technology; on the other hand, developing nations’ ‘incremental’ efforts are almost always looked down upon. But whilst larger firms in the West are capitally endowed, equally novel products are being created in developing countries at a fraction of the cost. We have looked at new business models developed, with levels of productivity even Western business leaders strive for. Perhaps we have grown too familiar with minimalist advertisements proclaiming the technological breakthrough of a generation, but
the smaller steps, tweaks perfecting goods to specific markets, are all the more important in tackling today’s global and diverse markets. Emerging economies are indeed hotbeds of such business innovation, mirroring Japan’s story in the 1950s. Presently though, the emerging have emerged and so now ponder as whether to remain with imitation or ‘advance’ to innovation. The US certainly decided decades ago, though comparing their growth with that of China’s, some economic commentators are already calling for a rethink. In fact, it is not a question of either or the other, but an inherent coexistence. The very nature of innovation - be it incremental or disruptive - is ever-changing. Both will spur each other on, and, rather than kill creativity, propel this virtuous cycle onwards. As we see the story develop in China, the nation is itself also evolving, architecting new sources of innovation for the rest of the world.
Image courtesy of Pixomar / FreeDigitalPhotos.net
Markets | the analyst
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