The rise of China as an innovation superpower – part two
This is the second of a two article series on the rise of China. In the first part we looked at the rise of China and the development strategy for the country that drives the next generation of products and systems.
Now we will look at the rise of China as it dominates manufacturing and the development of systems that are world leading. The opportunity and challenge is for them to then lead the world as they come out of China – a stage I refer to as ‘Enter the Dragon’.
The new silk road
Over the years, China has gone from manufacturing inexpensive items to instead dominating high-level manufacturing markets such as sophisticated electronics and energy. The country is now producing mobile devices, solar panels, drones, high speed trains etc. and is the workshop for the world with very strong supply chains and ecosystems.
In my book, Purpose to Performance, I outline how China has built its capabilities in many industries using the example of wind turbines. A government policy decision in the 1990s focused on partnering and developing capabilities in this field. By 2011 China had four of the ten largest wind turbine manufacturers in the world.
China’s growth model in the wind turbine market has been replicated many times in other sectors. A leading corporate we work with made early investments in alternative energy in the early 2000s. They have since divested from their endeavours, writing off billions, because the Chinese manufacturing base was too strong to compete with in terms of producing solar panels.
Similarly, a consumer goods business we are working with has over 95 per cent of its manufacturing for next-generation products based in China – and, importantly, 80 per cent of the patents for those products exist within the region as well. For these reasons and more, understanding the ecosystem supporting China’s growth engine is critical to corporates looking to invest in and develop their global innovation.
‘Enter the dragon’
Thanks to expansive domestic growth, Chinese companies now have the potential to expand out of their home markets and both create and dominate significant new markets. An example is Huawei Technologies Co., Ltd. (pronounced “Wah-Way”), a telecommunications business.
Over the last decade, Huawei has moved from a telecom business similar to Cisco or Ericsson to a dominant IT technology infrastructure business, also building market share in devices such as mobile phones. Huawei has introduced its 21st Century Network in the United Kingdom, providing devices and infrastructure for telecom businesses around the world.
To accomplish this task, the company had to both build on existing technological capabilities and expand geographically, dominating in Africa and other emerging markets. It also had to ensure its operation was scalable and able to fit into older economies. Although its presence is not as large in the United States and some other locations due to barriers imposed on national security grounds, the leading capabilities of such Chinese organisations in new tech like 5G pose a significant challenge to other businesses.
The business of the future
Huawei is not alone in its approach. Tencent’s social media advancements via WeChat, for example, have allowed the company to build new capabilities and solutions around the sales side of social media – forming new relationships with consumers as well as creating entirely new business models. Jeffrey Li, managing partner of Tencent Investments, has spoken extensively at my academy programme about his company’s efforts in developing the ecosystem with venturing for the business of the future.
Chinese companies lead in new technology and business models in many fields. In drones, one Chinese company – DJI – has over 70 per cent of the global market share for the consumer drone industry. China manufactures and purchases over half the world’s electric vehicles, is leading in facial recognition, Artificial Intelligence, and mobile payments. On this last note, mobile payment services like WeChat pay and Alipay totalled over $41tr in China in 2018. This represents 54 per cent of the country’s transactions, while cash stood at 21 per cent and cards 25 per cent.
Chinese companies have also been entering and growing in Southeast Asian markets, India, Africa and developing countries. This builds on the next generation technology and business models which have been created in China and launched in its rapidly growing home market.
Organisations should now be considering how they address the China challenge. Important questions include:
- Where is China driving new tech and business models that will challenge your current value chains?
- How are your industries going to be impacted, like the effect of EVs on transport, or mobile payments on financial services?
- What can you do to scout new technologies, review business models and learn from China?
I host a series of podcasts – Gaule’s Question Time – that share perspectives on innovation and venturing globally.
Insights on China Innovation can be found with:
- Eva Yoo – Chinese tech watcher and writer, who also cycled from Shanghai to London!
- Oscar Ramos – China Accelerator, venture and investment ecosystem
- Cha Li – iStart fund and incubator who has been a partner of Aimava for over 10 years
- Tim Hardin, VP of Silicon Valley Bank in China
- Min Zhou, General Partner of China Materialia Fund with 6 corporate investors
“Global Innovation and Venturing – China. Understand the rise and partner”
Join this Aimava programme on 22 January 2020 in London: https://www.eventbrite.co.uk/o/aimava-is-a-global-advisory-firm-11938296163
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Read more from Andrew Gaule here.
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