Is China the next Innovation Hub ?

Posted on by Ajeet

Technology disruption is ahead. The persistent parade of “next big advancement” in technology is disrupting the status quo. “Industrial Internet”, machine learning, advanced robotics, cloud computing, 3-D printers, and IoT are beginning to combine with advanced predictive analytics to create massive unstructured intelligent data that connects assets and stakeholders.

To derive value from these shifts, nations are keen to set up and expand their own Research & Development (R&D) base to ensure their accesses to hubs of innovation. China is one of the nations that is becoming a new R&D powerhouse, and fast catching up with America. The R&D activities in China started back in 1988 when Procter & Gamble Co. (P&G) opened a research centre to develop its product for the global market.  Soon, other firms, such as Motorola Inc., International Business Machines Corp. and Microsoft joined to expand their Chinese R&D operations.

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What makes the foreign R&D centres blossom in China?

The answer is the accessibility of low-cost components in China because of efficiency, production scale and availability of inexpensive talent pool of engineers and researchers. Even China realises the amount of talent it possesses. It offers its students abroad incentives, in the form of research grants, to return once they finish studies thereby minimising brain drain. In addition, China is driving the R&D expansion in various sectors, such as automobiles, biotechnology, pharmaceuticals, nanotechnology, semiconductors, and genetically modified crops. However, some past incidences indicates China does not offer strong protection of patents and other intellectual property rights. The challenge for foreign companies is how to take part in China’s growth without foregoing valuable intellectual property?

China’s investment on R&D is small when compared to that of the United States. According to the Ministry of Commerce China spent about 1.3% of its GDP last year, on the other hand, it was 2.7% in the U.S. However, China’s scale of investment on R&D is comparatively more than its chief competitor India, which spent about 0.77% of its GDP last year.

When competing with China, low costs are major concerns for other countries. It creates huge trade imbalances. India can offset the trade imbalance if it attracts Chinese investment in manufacturing sector. Developed countries like America is almost unaffected as it has an unmatched pool of researchers and huge investments on R&D making it technology-enabled collaboration centre of the world.

Though China has some advantages, it has a long way to go. China is a place where R&D is considered as a global mission but it lacks to produce breath-taking discoveries. In March 2014 issue of Harvard Business Review*, titled “Why China Can’t Innovate”, the Think Tank argues breakthroughs are rare in China. The Tank agrees by the opinion of Jason Lim, an editor on TechNode.Com, who says, “Most Chinese start-ups are not founded by designers or artists, but by engineers who don’t have the creativity to think of new ideas or designs”. This is a flaw in the Chinese education system, which I believe, would take China away from some indigenous innovations.

Nevertheless, China does not lack “tech-preneurs” or market demand. Putting innovation on top in its five-year plans, China has been curiously searching for ways of designing its own products. With the help of government’s expenditure and political will, China can set the appropriate economic regulations, reform the education system and build advance research institutions to unlock new discoveries and create technological dominance.

Key Terms

  • “Next big advancement” – I use it to represent a major advancement/update in a sector.
  • “Internet of Things” – According to IBM, the “Internet of Things” or IoT represents an evolution in which objects are capable of interacting with other objects. See more at http://www-01.ibm.com/software/info/internet-of-things/
  • “Industrial Internet” – According to General Electric, the “Industrial Internet” is the convergence of the global industrial system with the power of advanced computing, analytics, low-cost sensing and new levels of connectivity permitted by the internet. See more at http://www.ge-ip.com/ii/industrial-internet
  • “Tech-preneurs” – I use it to represent entrepreneurs in technology sector.

References