Reflections on China and innovation.

There is no question that China has had an impressive record of economic growth in recent years. “Within just one generation, China has transformed itself from an economically impoverished and politically unstable country to the second-largest economy in the world,” observes Yasheng Huang of the MIT Sloan School of Management in his article “What’s Next for the Chinese Economy?” in this issue’s special report on business in China.

But Huang argues that the growth model that China has followed so successfully now needs to change and evolve. China, he writes, needs political and economic reforms — including better protection for intellectual property — in order to develop an economy that relies more on technology and innovations created domestically and less on low-cost labor and investments in fixed assets.

Other articles in this issue of MIT Sloan Management Review examine new approaches to innovation that are beginning to emerge in China. In their article “Accelerated Innovation: The New Challenge From China,” Peter J. Williamson and Eden Yin, both of the University of Cambridge’s Judge Business School, describe how Chinese companies are reengineering R&D and innovation processes to develop new products faster. “What’s noteworthy about the Chinese economy is its ability to achieve accelerated innovation, with rapid scale-up, low cost and ‘good enough’ quality across a wide range of industries,” Williamson and Yin write. “The results may not lead to fundamental breakthroughs, but that doesn’t mean that the innovations cannot powerfully disrupt incumbents’ profit models.”

In “Innovation Lessons From China,” Edward S. Steinfeld of Brown University and Troels Beltoft of Beltoft & Company also reflect on Chinese companies’ increasing prowess in developing new products. “China today may not yet be the place to go for path-breaking R&D or radical new invention,” Steinfeld and Beltoft write. “But it’s becoming the best place to go if you want to learn how to make ideas commercially viable.”

However, Steinfeld and Beltoft note that many multinational companies are growing “increasingly wary” of doing business in China because of concerns about unfair competition and theft of intellectual property. In their article “Protecting Intellectual Property in China,” Andreas Schotter of the Ivey Business School at Western University and Mary Teagarden of Thunderbird School of Global Management address that topic — and describe a number of approaches that companies are using to protect their IP while doing business in China.

In today’s global economy, there aren’t many large companies that can afford to ignore China in their plans for growth. The articles featured in this issue’s special report offer insights about how to learn from China, what the future may hold for the Chinese economy — and how to do business in China despite the challenges of protecting IP there. “By operating in China, overseas businesses expose their intellectual property to risk,” Steinfeld and Beltoft acknowledge. “But deciding to stay away entails the even greater risk of missing opportunities to acquire knowledge that is critical for competitiveness across a wide range of global markets.”

Martha E. Mangelsdorf
Editorial Director
MIT Sloan Management Review