Economist China Summit: Innovation in China

The Economist magazine held its inaugural China Summit last week in Beijing, China. director Molly Castelazo attended, and here she reports back what she learned.

Stream 2, Session 2 – Pirate or pioneer: fostering innovation in China

“Long derided for being merely a copier of others’ intellectual property, China is emerging today as an important knowledge economy in its own right,” reads the conference program for the second break-out session at the Economist’s China Summit. 

“Given the size of its population, and the government’s investment in education, China produces more engineers and science graduates than any other country in the world.  Harnessing this talent in productive ways will be critical for China’s future success.  With wages rising rapidly, low-value producers are increasingly forced to seek out new countries for their production.  Will China’s economy move up the value chain sufficiently quickly to compensate?”

Moderator Thomas Easton, Asia business editor for The Economist, asked a panel of three experts to address those issues.  On the panel was Duncan Clark, chairman of BDA; Jeremy Burns, Greater China president for Dow Corning; and Mitch Barns, Greater China president for The Nielsen Company.

Mitch Barns began the session talking about new product innovation.  “Product innovation is often the most important driver of growth,” he said.  “73 percent of the growth in the potato chips market is from one new product.  58 percent of the growth in the cookies market is from one new product.  It’s much the same in the markets for cell phones, cars, etc.” Barns said.

Yet, new product innovation is a “costly and risky” endeavor.  “More than half of all new product ideas that get to the last stage in development never make it to the marketplace,” Barns said.  That doesn’t even account for all of the new product ideas that never get to the last development stage.  And, “70 percent of products decline or are withdrawn from the market within two years after they’re launched.”  Despite all that, the huge rewards from a successful new product launch more than pay for all of the failures.

Barns sees two trends in new product innovation in China.  First, he said that the difference between product innovation in China compared to the rest of the world is shrinking.  Second, he sees Chinese companies becoming more active in the innovation arena.  And, he said, increasingly Chinese companies are targeting the same consumers as the multinational companies.

Jeremy Burns, from Dow Corning, sees China as more forgiving for innovation because so much is going on there.  “Consumers are becoming more sophisticated, which forces suppliers to become more sophisticated,” he said.  What’s more, China’s high rate of growth “means that suppliers are constantly reinventing their processes – like how to get to market, for example – and creating new business models.”

Duncan Clark, of BDA, said that the biggest challenge for China is that innovation is born, not made.  “Real innovation is bottom-up – small companies making things to meet long-tail customer demand.  Yet the Chinese government is pushing top-down innovation.”

Clark challenged the idea that piracy and innovation are mutually exclusive.  “Pirates innovate because they’re paranoid,” he said.  “There has been a lot of innovation in the music industry in China, driven by music pirates.”  Clark suggested that IP lawyers are not helpful for innovation.  “The question is what lawyers do to innovation.”  Innovators in China, who are sometimes also the pioneers, act first then ask for forgiveness, Clark said.  “If they’re waiting for permission, that green light will never come.”

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