Wednesday, 2 November 2011

Innovation in China

Huge opportunities, but subtle and nuanced

I’ve just got home to London from my 8th trip to China – ?What if! have a thriving office in Shanghai and visiting them every 9 months or so is sufficiently irregular to really get to feel the change in this vast country.

Here are my top five observations for anyone interested in innovation in China, these are things well known inside the country and experienced everyday by my colleagues in Shanghai, but not easy to glean from outside.

1.   Yes China is big.  With a population four times the US or Europe, a rapidly growing middle class (300 million people will move to the cities in the next five years) and the world’s largest market for lap tops, autos and mobile phones……every statistic is mindboggling and yet the country is still growing (10% GDP growth pa).  So yes, the market is big but it’s the pace of change that throws up so many innovation opportunities.  Increased competition means brands have got to stand out, they need relevant features – overnight companies in China are having to swap their distribution skills for branding and critically innovation skills.

2.   Like all Asian countries China has a tradition of government direction and assistance to certain sectors.  The technology transfer policy so unpopular with foreign companies has a limited shelf life, the latest Five Year Plan promotes ‘indigenous innovation’ and sets aside $1.7tn for high tech, bio and green energy sectors.  Within these sectors local companies are free to compete and make a lot of money.  This is innovation strategy on a grand scale; set the strategy at the top, allow entrepreneurs to run free within a few focus areas.  The need for innovation is on the top teams agenda!  I have lived in Bangkok, worked all over Asia and have a home in Kuala Lumpur – I’ve seen up close how effective this tight-loose sector priming can be.

3.   Chinese are great consumers, they love brands, they love gadgets and the latest technology.  Commercial TV is now national, everyone can see what the wealthy urbanites are wearing, eating, driving – and given that only 25 years ago there was very little to buy and everyone was more or less equal there is a volcanic force of consumerism that will erupt for years.  But choosing, buying, paying, consuming and gossiping about products is very different to the West.  The rules of global brand management don't always work in China and we’ve worked many projects unpicking the Western import idea and recalibrating it for local consumption.  Potato based snacks, buying on credit, DIY – sound familiar?  Not in China – try rice, ‘pay now’, ‘find a man who can’. 

4.   Innovation is often fueled through questions, argument and stepping onto the boundaries of peers and turf of other departments.  These are concepts alien to the polite Chinese way where respect for the boss and avoidance of loss of face is ingrained.  We have a creative technique called ‘Revolution’ which you won’t be surprised, we don't use a lot of in this part of the world.  It takes real skill to work innovation projects in this environment, our people need to be able to navigate the path between empathy and leadership like I’ve seen nowhere else.

Final observation is that just as many parts of China are still poor many parts of China are visibly wealthy.  This BMW driving, Gucci wearing set will act as a magnet for many urbanites.  Allied to the inevitable drive for more sophisticated products and services are more complex business models.  Chinese entrepreneurs have traditionally jumped sectors following the fastest buck with simple products but many are now faced with longer value chains.  There are new opportunities to segment markets according to new types of consumers and finding a niche in new links of the chain.  Better bigger cars for instance give birth to a host of new needs; servicing, cleaning, driving lessons, insuring and pimping.