When thinking of innovative businesses, you probably think of US companies. After all, the country is home to the infamous Silicon Valley, as well as the largest share of ‘unicorn' startups in the world.
But you may be surprised to learn that, in contrast to its image as the land of copycats, China is well positioned in the innovation arena. As it stands, the country ranks second place for its number of unicorn startups. It contains 301, which is an impressive 200 more than the next country on the list, India.
What's interesting is that China's approach to innovation is very different from America's. According to the book Pioneers, Hidden Champions, Changemakers, and Underdogs: Lessons from China's Innovators (by George Yip, Mark J. Greeven, and Wei Wei), Chinese corporations:
- Approach proven opportunities, rather than find unique (and uncertain) opportunities.
- Work to better meet existing demand, rather than develop new ideas.
- Prioritize local success, rather than follow international ambitions.
But this only skims the surface. To help you learn from innovation in the East, we've collated further practical insights from Yip, Greeven, and Wei's book.
What Is China Doing Differently?
“With the increasing importance of digital innovation to companies all around the world, China may be well-positioned to lead the global digital innovation arena.” – Pioneers, Hidden Champions, Changemakers, and Underdogs
The authors of Pioneers, Hidden Champions, Changemakers, and Underdogs identify 6 distinct innovation methods:
Swarm innovation involves a large number of companies copying proven opportunities, products or services and updating them with minor changes. It's a very fast and ruthless process; companies strive for a share of the market, rather than differentiation. Oftentimes, only one or two businesses dominate the market in the end.
“Ten thousand people in China see an opportunity, a hundred of them start a business, ten keep tinkering, and one wins the market in the end.” – Pioneers, Hidden Champions, Changemakers, and Underdogs
Swarming sets a completely different model from Silicon Valley's classic approach where companies try to find (and be) the unique disruptor by competing on differentiation (”How are you different from the competition?” is one of the first questions founder must answer) and strong technology.
This consists of rapid market testing and trial and error (often at the same time). Organizations don't plan for specific objectives using fixed resources; they use the resources available to them to listen to customer needs, tinker iteratively, and learn as they go.
Unlike experimenting, tinkering has a low failure rate. Most mistakes are small and easily overcome.
3. Strong Customer Focus
“Chinese companies not only respond more quickly than multinationals do to the needs of local customers but also cater to a larger variety of needs.” – Pioneers, Hidden Champions, Changemakers, and Underdogs
Chinese innovators focus more on local customers (within China) than those further afield. They're also more likely to pay attention to diverse consumer demands. Instead of inventing new products, they create new versions that solve niche problems. This is facilitated by the scale of the Chinese market (both in terms of geographic size and population) which allows very specific needs to become genuine profit-generating niches.
4. Quick Upgrades
Simple products and sound business models are key to a company's success. But in order to surpass copycats and appeal to consumers, Chinese innovators continually and rapidly upgrade their products. This is particularly important for the technology industry.
This ability is facilitated by organizational innovations which reinforce the value of fast over highly controlled decision-making.
5. Centralized Decision Making
Chinese businesses innovate faster than multinational companies, with organizations pushing out new products in extraordinarily short time frames.
This is due to:
- The prioritization of fast decision-making over quality and processes.
- A sense of urgency and competitiveness amongst innovators.
- Strong leadership teams that champion top-down approaches.
- Flat or flexible organizational structures, even for large innovators.
6. Network Mindset
The ability to network effectively with external partners allows Chinese innovators to identify emerging opportunities quickly. They tend to look for resources, models, and supply chains beyond the confines of their own corporation.
5 Chinese Innovators You Can Learn From
So, what do these tactics look like in practice?
Here are five examples that appear in Pioneers, Hidden Champions, Changemakers, and Underdogs. However, the list of well-known and ‘hidden' Chinese innovators extends far beyond this list.
This global powerhouse is one of the leading providers of technology and smart devices. Huawei currently runs 16 research and development centers across the globe.
Here are the reasons behind Huawei's success:
- They have significant and growing research and development investment [Quick Upgrades].
- The company changes its CEO every 6 months, cycling through 3 vice-chairmen. A committee makes all big decisions, giving a sense of shared leadership [Organizational Innovation].
- Huawei's employees collectively own most of the company.
- Huawei builds some technical components of their devices themselves, saving time and money.
This organization sells video surveillance equipment.
The founder prioritizes fast technology upgrades and R&D. Over half of the organization's employees work in research and development [Quick Upgrades]. On top of this, Hikvision filed for intellectual property (IP) cases long before many Chinese businesses. This helps them avoid any copycat situations.
Hailide is a particularly niche provider of industrial materials. It sells polyester yarn, plastic, and tire cord materials.
Admittedly, the organization doesn't have much room for expanding its product range. So Hailide focuses its efforts on tinkering with product quality and production operations [Tinkering]. That may be why they supply 90% of the world's polyester yarn.
GeneChem's culture focuses more on science than business. This emphasis on research and learning - rather than business processes - may be the secret to its success.
According to Greeven, Yip, and Wei, “Over half of the company's 350 employees are from Fudan University, the alma mater of the founder, and 40% have a master's degree or above.” [Network Mindset]
Mobike is the world's largest shared bicycle operator.
The founder focuses her efforts on market expansion rather than profit. As such, the company prioritizes:
- Optimizing its supply chain [Tinkering].
- Creating competitive benefits for its customer base [Strong Customer Focus].
- Reducing operational costs.