What Drives Business and Innovation in China?

We are pleased to share with you an interview report on the topic of What Drives Business and Innovation in China?, which was published on Clariant Integrated Report 2018. It includes an interview with us that covers our perspectives on China’s innovations.

Q: Edward, what’s the biggest misconception Western companies have about China?

It’s the presumption that China’s development will follow the path of the West, and that they can simply copy and paste their strategy and business model to China. The typical Western stance is, ‘If this cookie-cutter approach results in success, that’s great and we know what we are doing! However, if it doesn’t, then the problem has got to be with China, and not our strategy’.

Q: What makes China so different?

It’s an ancient civilization going back 5 000 years, but its modern business development is exceptionally young. Only since the reforms and opening of the late 1970s has China started to reconnect with the rest of the world. That development is far from perfect, but it has lifted 700 million people out of poverty. The China that you’re seeing now comes from a rather unique background and makes for a very different context compared to that of the West.

Q: Is the role of the government as big as we think?

Going from a Soviet-style planned economy to a market economy takes time, and China is not entirely there yet. But today, relative to the state sector, China’s private sector is by far the bigger job creator and contributor to the country’s GDP. It’s also the primary source of business innovation. The reemergence of the Chinese entrepreneurial spirit is probably the most profound development in China’s recent history.

Q: It led you to write a book in 2015 about ‘China’s Disruptors’ What contributed to their success?

What certainly helped was the size and growth of the China market, which allowed for rapid scaling of their business models. The prevalence of digital technology, specifically the wireless internet through smart devices, was the critical enabler.

Q: What chapters would you like to add to this book today?

What’s special today is the fact that entrepreneurship is not just for the privileged. It has become the fabric of Chinese culture today. State-Owned Enterprises (SOEs) still play an important role, but many young people have realized that starting a business or working for a start-up rather than an SOE is a path for them to get where they want to be. If I were to write a new book about Chinese innovation today, it would be about the new era we’re entering with technologies like artificial intelligence, the internet of things, blockchain technology, and 5G. Those will have a profound impact on China’s innovation and business. The Chinese entrepreneurs will be at the forefront of that.

Q: Are Western executives in China less open to innovation?

Western executives are very keen – I would even say indoctrinated – to base their strategy on the doctrine of core competencies: ‘Focus on what you are good at and don’t divert your attention to anything else’.

Q: Why is that bad for innovation?

Because it limits what the company is willing to consider. Chinese entrepreneurs don’t necessarily have that ideological baggage. Many of them are happy to develop multiple business ecosystems even if they don’t have all the capabilities in place themselves. When they feel a new opportunity is worth pursuing, often they would rather jump before anybody else does and then fill the capability gaps along the way.

Q: Are the gold rush days over for Western companies in China?

China continues to evolve and to open up. China today is very different from China ten years ago, and it will again look very different ten years from now. There is major potential for more growth. But if you want to make the most out of that, you need to put China at the core of your global strategy and organization, which means making China a part of your corporate brain. Including the ability to evaluate opportunities and to design, innovate, and execute new ideas. It’s impossible for a corporate headquarter that is thousands of miles away to fully appreciate what’s going on on the ground in China.