Despite China’s long and established demand for high-technology products, many leading global companies have become increasingly wary about operating in the Chinese market. They see unfair competitive practices, discriminatory regulation and intellectual property theft — all ostensibly condoned by the government — as part and parcel of the Chinese experience.1 Foreign businesspeople today routinely complain that in exchange for market access, they are required to transfer technology to favored Chinese competitors. And once such entities have the technology, they — in collusion with the government — will endeavor to seize market share not just in China but also in other markets.
We don’t deny that some of these claims are valid. After all, the Chinese government openly acknowledges its desire to establish companies that are market leaders and to do so, at least in part, through technology transfer. However, we see a different side of China, one that requires foreign companies to remain actively engaged.
Our research describes unique forms of China-based technology innovation, mastery of which is becoming increasingly indispensible for any company aiming to succeed in the global market. (See “About the Research.”) Anybody involved in international business needs to treat China not just as a place to sell, but also as a place to learn. In our view, companies need to lean in rather than pull back.
Innovation “China Style”
China today may not yet be the place to go for path-breaking R&D or radical new invention. But it’s becoming the best place to go if you want to learn how to make ideas commercially viable. Such knowledge — whether it involves product design for low-cost manufacturing, novel approaches to component sourcing or ways to accelerate speed to market — frequently lies at the heart of commercial innovation. We see innovation as linking invention — the origination of new ideas — with commercialization, the translation of new ideas into actual products or services that can command value.2 Each element requires creativity and distinct types of knowledge.
1. GE CEO Jeffrey Immelt’s comments in 2010 typified this view. See G. Dinmore and G. Dyer, “GE Chief Accuses China of ‘Hostility,’ ” Financial Times, July 2, 2010, sec. 1, p. 1.
2. For comparable views of innovation, see R. Henderson and K. Clark, “Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms,” Administrative Science Quarterly 35, no. 1 (March 1990): 9-30; and W. Aulet, “Disciplined Entrepreneurship” (New York: Wiley, 2013).
3. Comparable phenomena have been observed in earlier cases of East Asian development. For example, in the case of South Korea, see A. Amsden, “Asia’s Next Giant: South Korea and Late Industrialization” (Oxford, U.K.: Oxford University Press, 1989); and L. Kim, “Imitation to Innovation: The Dynamics of Korea’s Technological Learning” (Boston, Massachusetts: Harvard University Press, 1997).
4. Interview, Beijing, June 2013.
5. Scholars have observed comparable patterns in the Chinese automobile and construction equipment sectors. See L. Brandt and E. Thun, “The Fight for the Middle: Upgrading, Competition, and Industrial Development in China,” World Development 38, no. 11 (November 2010): 1555-1574.