Innovation in China Winner takes all. Prof Seamus Grimes Centre for Innovation and Structural Change, National University of Ireland, Galway

Transcription

1 Innovation in China Winner takes all Prof Seamus Grimes Centre for Innovation and Structural Change, National University of Ireland, Galway

2 Innovation in the Chinese context O The political economy of innovation O Different views of the world, of capitalism, the market and the state O An increasingly powerful one-party state aggressively bargaining its position with western technological hegemony (until now) O National prestige, national security and geopolitical role

3 Global innovation networks O Not territorially bounded O Knowledge flows within networks of key nodes like Silicon Valley O Multinationals seek to expand market share in China using local talent, but retaining benefits within the organisation O China in a strong position to acquire western core technology in exchange O A clash of two different ideological models

4 Objectives of the 5 Year Plan O Breaking the monopoly of MNCs and strengthening national security (Liu, 2006) O Security and national power China s self image and conception of its role in the international system (Breznitz & Murphree, 2011) O Politics is the key to understanding how things work in China

5 2 main threats to the Chinese innovation system Breznitz & Murphree (2011) The technology concerns and the political-economic ideology of the government which views mastery of novel-product innovation and new technology creation as necessary for wealth and economic security.

6 McKinsey (2011) The Chinese endgame is clearly the transfer of intellectual property and know-how to allow Chinese companies to compete globally not only in China but on the home turf of MNCs.

7 Ze Zhang, the vice president of Beijing University of Technology Everyone there was talking constantly of innovation. But I think we are only just beginning to understand what this word really means. It s like gears grinding against one another. There s a lot of tension between the push for innovation and the capacity of the political system to deliver it.

8 Debate in the Party School? In private, they talk very honestly, with lots of debate They are good people, very open to ideas. Even so, you still have to play by the rules of the game. You have to make points in relation to Party doctrine.

9 A balanced strategy (The World Bank, 2009) O Job creation for 780m of whom 80% have no higher than junior secondary education O Clarity of the objective of innovation? O A means to an end: sustaining economic development O Need to resist temptation of: being first, being high-tech, and being indigenous O A balance between technology creation and technology adaptation and adoption

10 A leading technology policy official (2007) [t]he majority of the market is controlled by foreign companies, most core technology relies on imports, the situation is extremely grave as we are further pressured by developed countries who use blockades and technology controls if we are not able to solve these problems we will forever be under the control of others

11 % of retail value paid as royalties to patent holders by Chinese firms (MoST, 2004) O DVD players: 25-33% O PCs: 30% O Mobile phones: 20-40% O CNC machine tools: 20-40% O Much of the Chinese value share (10-15%) is captured by Asian CMs and MNCs

12 A dualism (World Bank, 2009) It s hard to reconcile the lack of innovation in Chinese industry with the stories of rapidly rising Chinese innovators such as Huawei. Indeed, Chinese industry today is a combination of a small number of innovators together with a large number of producers who are engaged in manufacturing without innovation.

13 By and large, firms in China are weak in innovation (Gu et al, 2009) O Few have own brands O organisational learning not encouraged O Passive, imitative and minimalist strategies O Tried and tested technologies O Avoiding testing and experimenting as much as possible O A hierarchical culture with little horizontal communication or networking

14 weak social capital (Gu et al, 2009) O Educational and social capital (values, norms and trust shared by social community) not marginal, but vital O For interactive learning O A prerequisite for absorbing, diffusing and using knowledge in the innovation system O Necessary for creating new ideas and the economic value

15 Significant weaknesses in practice of corporate governance (Opper and Schwaag Serger, 2008) O Far-reaching judicial reform yes, but in practice this is a laggard of institutional development O The need for an honest and functioning judiciary system O Shapes relationships within and between firms O Has a significant impact on innovation performance in business

16 Microsoft R&D 2009 We are not sure that they are ready to do the core product work. Four years of experience has shown that different teams make grand promises but fail to deliver. This creates major issues for developing trust with HQ. We need to build up expertise.

17 Microsoft R&D 2011 All MNCs are in mixed mode right now. We want to make a big impact in China but we are afraid of entering the market. They don t know exactly what to do. So we take the middle ground and say we will put some R&D in China, but are not sure what to do with it. Let s just test the water. Companies are at different stages, with some more advanced than others in R&D. Microsoft is somewhere in the middle.

18 US networking MNC 2011 I don t think at this point any MNC would trust the IPR here. I don t think they would willingly bring R&D into China that could be 10 years away. MNCs will dominate technology globally, but I don t think they will have much traction in China. Because of the nature of China s legal system, no MNC CEO would put his reputation on the line for China. They will try to build the China product in China, knowing that the IP is likely to be lost. They are fairly confident that Chinese companies won t be able to use this technology to sell into the West..

19 IPR, talent turnover and core R&D O Increasingly difficult for MNCs to retain top talent after a few years experience O Engineers want to be managers O Want to be involved in cutting edge work O MNCs fearful of developing core R&D because of IPR issues O The challenge of growing junior talent into management talent

20 Huawei's research and development centre in Shenzhen

21 Humble Huawei (2007) Nonetheless, we at Huawei should be well aware that we still have a lot of catch-up to do in technology. And we have to admit that our international competition is by far advanced technologically. This gap is a product of history. First, with encouragement of the governments, innovation in developed countries is greatly promoted, making technology more easily accessible. Second, while we are still at the early stage of development, developed countries have already had a large accumulation of patents. Western suppliers are much more advanced whether it is the system implementation rationale or details of technical implementation.

22 the country is largely missing from semiconductor league tables (McKinsey, 2011) non-chinese players (for example, Samsung, Intel, and Hynix) earn 96.3% of all revenues. In design, foreign players earn 96.1% of revenues. Even in the silicon segment, 93.0% of revenues go to non-mainland-chinese companies. China has a decent share in only two areas, back-end manufacturing and assembly and test, where Chinese companies earn 28.6% of total segment revenues.

23 Setting unrealistic targets and not likely to succeed (Ernst, 2011) O China s MIIT: We will significantly increase the self-sufficiency ratio to over 70% for integrated circuits used for information and national security, and to over 30% for integrated circuits used in communications and household appliances O Difficult to see how such an ambitious target should ever be realised (Ernst, 2011)

24 President Hu Jintao, 9 Jan 2006 By the end of 2020 China will achieve more science and technological breakthroughs of great world influence, qualifying it to join the ranks of the world s most innovative countries.

25 There is a growing and refreshing scepticism among policy-makers in China about how much policy and planning can actually deliver in relation to innovation There s no longer a simple dichotomy between top-down and bottom-up.

26 Learning from earlier failures? O Government and industry investment in alternative DVD technologies had largely negative results O Implementation of 3G networks held back because MII insisting on developing TD- DCHMA O State interference in China s market

27 How long will it take to catch up? some views O years to see outcomes: it s not just about pumping investment into R&D O In less than 15 years; with the help of Taiwanese management (in China) they could leapfrog and you could see good innovation in semiconductors in 5 years. O You need basic research. You cannot copy soft competence. The US has a culture and environment that creates innovation.

28 Harry Shum, Managing Director, Microsoft Research Asia When people say to me, How far is China behind the US in terms of technology?, I say three months if you don t count creativity. If someone at MIT posts some results, then China can recreate it in three months. But it takes longer than that to train and instil creativity.

29 Reduction in dependence on foreign technology a means, not an end (The World Bank, 2009, 20/21) The government is well advised to encourage Chinese enterprises to raise their capabilities for technology creation. But achieving the right balance between technological independence and openness means that the optimal level of independence from foreign technology is not the highest one but the one that contributes most to the development of technological capacity and ultimately to the sustainability of economic development. It takes the private market to find out and approach such an optimal level of technological independence.

30 Economist Intelligence Unit 2011 It has invested vast sums of money in expensive projects that may not necessarily have the requisite supporting soft infrastructure in terms of regulation, human capital and experience in managing complex, risky systems.

31 In green industries, where the government aspires to be a global leader, massive subsidies have kick-started production of everything from wind turbines to light-emitting diodes (LEDs). Yet, many wind farms sit idle, unconnected to the grid. Plenty of expensive LED-producing equipment has been imported but there is a shortage of skilled engineers to run the machines.

32 The government would do well to accept a more realistic timeframe for China to become a high-tech power. By adopting numerical targets for patent grants, for instance, the government is essentially forcing the pace of innovation. China may have seen a tenfold increase in patent grants over the last decade and is catching up with the US in patent numbers, but the comparability of these patents in terms of content and quality is still low. A greater focus on other areas, such as education reform, will allow for more organic technological progress with sturdier foundations.

33 China s export growth will be driven primarily by demand from non-oecd countries. Penetration of OECD markets in high-end manufactures is likely to be limited, although China will see rapid increases in market share in non-oecd markets. Western companies have in recent years lost significant export market share in non-oecd markets. In a related trend, foreign-invested firms in China will relinquish their dominant role in driving China s export growth. Over the coming year, the share of China s exports produced by domestic companies, currently at 48%, will cross the halfway mark.

34 China Korea, Rep Singapore Ireland Score Rank Score Rank Score Rank Score Rank Global InnovIndex Institutions Human capital & research Infrastructure Market sophistication Business sophistication Scientific outputs Creative outputs Population (millions) 1, GDP per capita $ 6,828 27, , ,278 GDP (US$ bns) 4,

35 The Global innovation Index 2011 (INSEAD) China India Brazil Score Rank Score Rank Score Rank Global Innovation Index Institutions Human capital & research Infrastructure Market sophistication Business sophistication Scientific outputs Creative outputs Population (millions) 1, , GDP per capita $ 6,828 3, ,412 GDP (US$ bns) 4, , ,573.4