China’s Next Strategic Advantage: From Imitation to Innovation

275 Pages·2016·2.14 MB·English

by  George S. Yip

China’s Next Strategic Advantage
From Imitation to Innovation
George S. Yip and Bruce McKern

The MIT Press
Cambridge, Massachusetts
London, England
© 2016 Massachusetts Institute of Technology
All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical
means (including photocopying, recording, or information storage and retrieval) without permission in
writing from the publisher.
Sset in Sabon and Helvetica Condensed by Toppan Best-set Premedia Limited. Printed and bound in the
United States of America.
Library of Congress Cataloging-in-Publication Data
Names: Yip, George S., author. | McKern, Bruce, author.
Title: China’s next strategic advantage : from imitation to innovation / George S. Yip and Bruce McKern.
Description: Cambridge, MA : The MIT Press, 2016. | Includes bibliographical references and index.
Identifiers: LCCN 2015039956 | ISBN 9780262034586 (hardcover : alk. paper) eISBN 9780262333498
Subjects: LCSH: Technological innovations--Economic aspects--China. | International business
enterprises--Technological innovations--China. | Leadership–China.
Classification: LCC HC430.T4 Y57 2016 | DDC 338/.0640951--dc23 LC record available at
http://lccn.loc.gov/2015039956
10 9 8 7 6 5 4 3 2 1
for Ng Chun (in memory) and for absent friends
Table of Contents
Title page
Copyright page
Dedication
Acknowledgments
1 China’s Drive for Innovation
2 How Chinese Companies Innovate
3 What Is Different About Chinese Innovation?
4 Multinational Corporations’ Innovation in China
5 How Multinational Corporations Can Organize for Innovation in China
6 Open Innovation in China
7 Protecting Intellectual Property in China: Legal Provisions and Strategic
Recommendations
8 Lessons in Leadership and Strategy from China
Selected Bibliography
About the Authors
Index
List of Tables
Table 4.1 Types of R&D in China: numbers of companies among the 52 we
studied.
Table 5.1 Organizational modes and types of R&D.
List of Illustrations
Figure 1.2 The four factors driving innovation in China.
Figure 1.3 Locations of China’s science and technology parks.
Source: http://www.gaoxinqu20.com
Figure 1.1 Su Song’s astronomical clock of 1094 AD.
Source: J. Needham, Science and Civilization in China, volume 4 (Taipei:
Caves Books Ltd., 1986). Image courtesy of the East Asian History of
Science Library, Needham Research Institute, University of Cambridge.
Figure 2.1 Evidence that Chinese companies have arrived as innovators
(answers to “Please rate the work performed in your company’s innovation
performance in Mainland China”).
Source: Strategy&, China’s Innovations Going Global: 2014 China
Innovation Survey.
Figure 2.2 Comparison of Chinese firms and multinational corporations by
type of innovation (answers to “Please rate the work performed in your
company’s innovation performance in Mainland China”).
Source: Strategy&, China’s Innovations Going Global: 2014 China
Innovation Survey.
Figure 2.3 Innovation for foreign markets in China (answers to “Your
company’s innovation efforts in Mainland China contribute to developing
products/services for foreign markets?”)
Source: Strategy&, China’s Innovations Going Global: 2014 China
Innovation Survey.
Figure 4.1 What constitutes R&D.
Source: Dominique Jolly
Figure 4.2 Three motivations for R&D in China.
Source: Dominique Jolly
Figure 4.3 Cost-driven R&D.
Source: Dominique Jolly
Figure 4.4 Market-driven R&D. Products and industries that need local
adaptation include cosmetics, automobiles, electrical engineering,
mechanical engineering, localized electronic products, and agriculture.
Production processes that have to be adapted include construction materials,
basic chemicals, and pharma clinical trials.
Source: Dominique Jolly
Figure 4.5 Knowledge-driven R&D in global businesses (same product all
around the world, no need for local adaptation): software, energy,
pharmaceutical companies for new drugs, specialized chemicals, global
electronic products, semiconductor industry.
Source: Dominique Jolly
Figure 4.6 Changing drivers for R&D in China.
Source: Dominique Jolly
Figure 5.1 Expatriates as percentage of staff.
Source: Dominique Jolly
Figure 6.1 Philips’ technology submission and selection process for open
innovation in 2013.
Source: Philips NV
Figure 6.2 The structure of Haier’s Open Innovation Center.
Source: Haier Group
Figure 8.1 The first two phases of innovation in China.
Figure 8.2 The third phase of innovation in China.
Figure 8.3 Learning from China.
Acknowledgments
There are many people we need to thank. The first are all those who were
involved in setting up the Centre on China Innovation (CCI) at the China Europe
International Business School (CEIBS), which has been the basis for all of our
research on the topic of this book. Annette Nijs, CEIBS Executive Director–
Global Initiative, made the major effort, with the help of CEIBS President Pedro
Nueno, to recruit the first four sponsors to fund the start-up of the CCI in 2011:
Akzo Nobel, DSM, Philips, and Shell. Each company provided a member of the
CCI Advisory Board, which provided invaluable guidance for our research
program. Of the board members, the originator of the idea for CCI was Dr. Frans
Greidanus, Chief Technical Officer, Philips Asia. Upon his retirement, Frans
was replaced by Klaas Vegter, Senior VP, Head of Philips R&D China. Kathy
Zhang, Director of Business Development sometimes represented Philips on the
Advisory Board. For Akzo Nobel: Chaodong Xiao, Research Development &
Innovation Director, Akzo Nobel (China) was their first Advisory Board
member, later replaced by Chen Ling, RD&I Director, China & North Asia,
Decorative Paints. For DSM, Jaco Fok, Vice President Business Incubator and
Director DSM China Innovation Centre, was the first Advisory Board member,
later replaced by Jan-Anne Schelling, VP Human Resources. For Shell, X. D.
Jing, External Research and Innovation Director, Shell (China) Projects and
Technology was the first Advisory Board member, later joined by Jaco Fok,
General Manager of Open Innovation (worldwide). The Bosch Group joined as a
sponsor in our second year, its Advisory Board member being Martin Brett, VP,
Bosch Engineering System, China, helped by Zhang Di, Senior Manager,
Innovation Management, Bosch China.
At the global corporate level of the sponsor companies, supporters of CCI
included at Akzo Nobel Graeme Armstrong, Executive Committee–Research,
Development and Innovation, and Marjan Oudeman, former Executive
Committee member responsible for China; at DSM, Feike Sijbesma, CEO,
Stefan Doboczky, former Member of the Managing Board, Rob van Leen, Chief
Innovation Officer, and Marcel Wubbolts, Chief Technology Officer; at Philips,
Gottfried Dutinné and Hayko Kroese, former Members of the Group Board of
Management; and at Shell, Gerald Schotman, Chief Technology Officer, and
Management; and at Shell, Gerald Schotman, Chief Technology Officer, and
Thijs Jurgens, Vice President–Innovation. At the China country levels of the
sponsor companies, supporters of CCI included at Bosch Peter Loeffler,
Executive VP, CFO, Member of the Board, Bosch China, and Henri Catenos,
Executive VP, Finance and Administration, Bosch China.
At CEIBS, Dean John Quelch appointed the two of us to co-direct CCI and
provided encouragement and support, as did his successors, Dean Hellmut
Schütte and Dean Ding Yuan. Co-Dean Zhang Weijiong and his staff provided
operational support for CCI. After Bruce McKern retired from CEIBS, Jian Han
helped to keep CCI afloat by taking over his role as Co-Director. We have had
had great support from the CCI team. Our center managers have been Jess X.
Zhang, Ivdis Tao (Tao Xiangyi), and now Wang Wingying, who all also
contributed research to this book. A key research assistant was Eleonore Yang
(Yang Yi). We have also had research help from two CEIBS MBA students,
Gary Liu (Lü Hui) and Lizzie Zhang (Zhang Wei), as well as from teams of
CEIBS MBA students. Kathy Xu has provided administrative help to the center
and the book preparation.
We are very grateful to those who joined us in co-authoring some of the
chapters: Yi Ta Chng, Dominique Jolly, Maja Schmitt, Lin Xu, and Yongqin
Zeng. Others who have contributed to our research and thinking include Weiru
Chen and Klaus Meyer of CEIBS, Max von Zedtwitz of GLORAD and Moscow
School of Management Skolkovo, Mark Greeven of Zhejiang University, and
Wim Vanhaverbake and Nadine Roijakkers of Hasselt University. Our ideas
were also shaped by collaborations with the seasoned China experts Steven
Veldhoen, Director of Strategy& (formerly Booz and Company), and David
Michael, Senior Partner and Managing Director, Greater China, for The Boston
Consulting Group. We also thank the hundreds of executives who have given
access to their dozens of companies, both Chinese and non-Chinese, and their
valuable time for our interviews, or have joined our research forum discussions,
as well as academic colleagues who provided comment and criticism of our
ideas in their early stages. All of these people helped make this book possible;
we alone take responsibility for its shortcomings.
We thank John Covell, Senior Acquisitions Editor for Economics, Finance,
and Business at the MIT Press, for signing the book, and for his insights and
encouragement. We also thank the anonymous reviewers. We thank the
manuscript editor, Paul Bethge, for his meticulous work.
Bruce McKern thanks colleagues at SKEMA, INSEAD, and Oxford’s
Technology and Management Centre for Development for their hospitality
during his stays. He thanks Stanford University’s Hoover Institution for its
generous support over several years and particularly David Brady, Deputy
generous support over several years and particularly David Brady, Deputy
Director, for his wise counsel and unfailing kindness.
Last, but not least, we are very grateful to our wives, Moira and Cathryn, who
have tolerated our frequent, long absences in China.

George Yip and Bruce McKern
August 2015