This document discusses innovation in China and the country's efforts to become a global leader in science and technology. It outlines China's history with innovation and some criticisms of the current system. It then summarizes China's approaches to driving innovation, including top-down direction and funding from the government, bottom-up efforts by companies, and acquiring foreign technology and talent. The document concludes with key areas China needs to improve, such as strengthening intellectual property protection and reducing political intervention, to truly become an innovative society.

1. SML 702: MANAGEMENT OF INNOVATION AND R&D
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WHY CHINA CAN’T INNOVATE
And What It’s Doing About IT?
By
Regina M. Abrami, William C. Kirby, F. Warren McFarlan

2. About Authors
• Senior fellow - Wharton
School
• Director - Global Program
at Lauder Institute
• Senior Lecturer in Political
Science - University of
Pennsylvania
Regina M. Abrami
• Spangler Family Professor
of Business Administration
at HBS
• T.M Chang Professor of
Chinese Studies at Harvard
University
• Chairman of the Harvard
China Fund
William C. Kirby
• Albert H. Gordon
Professor of Business
Administration, Emeritus,
HBS
• Guest Professor - Tsinghua
University
• Co-Director - Tsinghua’s
Case Development Centre
F. Warren McFarlan
2

3. Aim of the Reading
3
Understand China
approach to Innovation
• Top down approach
• Bottom up approach
• Through Acquisition
• Next generation Approach
Conclusion and Learning
from Reading

4. China: History of Innovation and Criticism
 Chinese inventions: gunpowder, the compass, the
water, wheel, paper money and long-distance
banking
 Until early 19th century: China’s economy was more
open than the economies of Europe
 Today, China is largely a land of rule-bound and rote
learners. Criticism (True??)
 Engineers?? Most Chinese start-ups are not founded by
designers or artists, but by engineers who don’t have the
creativity to think of new ideas or designs
 Government?? Failure to protect intellectual property rights.
 Education System?? How can students so completely
focused on test scores possibly be innovators?

5. Innovation by Top Down (1/3)
Chinese
Govt. Vision
By 2020:
Transform
China into an
innovative
society
2050:
Transform
China into
world
leader in
Science and
Tech.
2006- Medium to long Term Plan
(MLP)
Use of Wealth and Political to Stimulate
Innovation. How???
Creation of Institution, funding
commercial university research
Financing development of high-
tech zones
Creating Policies/Environment to
shape nascent innovative industries
Increase domestic R&D funding
Investments in
ambitious
projects by
China Govt.
Jump Start in Innovation
5

6. Innovation by Top Down (2/3)
Medium & Long term Plan (MLP)
 MLP was launched in 2006
 Increased domestic R&D
 Reduced reliance on imported technology by 30% -
short term
 Strategic emerging sector
 Bio-technology, energy-efficient technologies, equipment,
manufacturing, information technology, and advanced
materials
 Export subsidies and preference to purchase from
local industry

7. Innovation by Top Down (3/3)
 Wind Energy: Nascent technology in 2002 in China
 Government invited global tender, big project launched
 Market flooded with import of wind energy components
 Govt. directive to source 70% components locally
 By 2009 – 6 out of top 10 turbine manufacturer were
Chinese.
 Domestic firm share of total sale– 51% in 2006 to 93% in
2009

8. Companies with R&D Opening in China
8

9. Innovation from Bottom Up (1/3)
Company Attitude: Why
trouble yourself when Rewards
& Growth for Incremental
Improvement are Large
Communist Party representative
in every company with more than
50 employees.
Adapting Technology has become standard and
highly Lucrative
9

10. Innovation from Bottom Up (2/3)
10
Innovation by Acquisition
Acquiring Technology Firm
rather than Licencing
Acquiring Talent
Recruitment of CTO of
Competitors
Opening R&D lab in
Developed Countries

11. Innovation from Bottom Up (3/3)
11
Innovation thru NextGEN
Existing universities are reviving
& New university are opening
Research Budgets of Chinese
Universities Increasing
More Enrolment of Chinese
Student in Home and Abroad Univ.
Challenges
Parallel governance
Party Committee Intervention in
key decision-making, hampers
innovation
No role of Faculty Member in
Governance
Xi-Jinping Visit: Increased party
Supervision of Higher education

12. Is China a Innovation Economy
 Produces more than a million engineering graduates a year—7 times
as many as America
 Is second in academic publications to America
 Invested tens of billions of dollars in research and has labs and
infrastructure
 Govt. focused on building an innovation economy – at any cost.
CRITICISM
 Questions raised on China’s patent & publication
 Is it more a ‘window dressing” innovation, as most innovations are
“incremental” and ‘ localisation”
 Can one manufacture “Innovation”
 Does it have a conducive environment & freedom to pursue ideas –
which is precondition for innovation

13. Key Learnings
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For china to become Innovation Society and leader in
Science and Technology, improvement in following areas
are required:
 Stronger/Stringent IPR to allow Chinese company to
Innovate rather than sticking to reverse engineering and
minor improvement
 Government (party representative) intervention from
enterprise and universities in key decision making
should be reduced to create innovative culture
 Reform in education sector from stereotype to liberal
education, focusing on humanities should be done to
create student more curious, thoughtful and skeptical.

14. 14

15. Innovative Companies of China (http://www.fastcompany.com) (1/2)
 1. Huawei Technologies
 Now the world's second-largest provider of telecom equipment-thanks in part to its success in the Indian market-China's
largest telecom company is at the forefront of the latest 4G mobile-phone technology.
 2. BYD
 The battery giant's cutting-edge technology-notably its lithium-ion ferrous phosphate battery-makes the Shenzhen-
based company a front-runner in the race to make mass-market electric cars.
 3. Alibaba
 Taobao, Alibaba's consumer arm, has more than 145 million registered members—that's 43% of China's Web users. In
2010, Taobao plans to expand its empire by launching a Taiwan-specific online mall.
 4. Huayi Brothers
 Huayi Brothers Media Group joined ChiNext, becoming the first film and TV company in China to list on any stock
exchange. On opening day, the company's stock rose 148%, putting the value of the production house at more than $1.5
billion
 5. Tencent
 China's largest Internet company by market value, Tencent first became a household name for QQ, its instant-messaging
software. It then leveraged its brand name to branch into gaming and online dating, helping it rack up its member count
to 450 million—more than either Microsoft's or Skype's messaging service in China

16. Innovative Companies of China (http://www.fastcompany.com) (2/2)
 6. Suntech Power
 Suntech's revolutionary Pluto technology decreases reflectivity of cells, ensuring that more sunlight is absorbed and
increasing output to record-breaking levels. Its solar photovoltaic cells have a conversion efficiency of up to 19%, versus the
industry average of 13%.
 7. Sohu
 In November, Sohu's Sogou search engine released a new input method editor that speeds up searches for Chinese speakers.
Based on cloud technology, it lets users type search terms in Pinyin (the Romanization of Chinese) instead of laboriously
entering Chinese characters
 8. Eno
 Since its start in 2006, Eno has become a go-to shopping destination for Chinese teens and a design outlet for Chinese artists
(it's one of the few online stores that sell local designs).
 9. Ctrip
 China's leading online travel-services company caters to the country's rapidly expanding middle class as well as executives of
foreign companies pursuing Chinese business. Coca-Cola, Panasonic, Sony, and Baidu have all tapped Ctrip's savvy
corporate-travel program to track employee trips
 10. Baidu
 The search giant lost clients in its transition to a new advertising system, Phoenix Nest, which lets clients track the
effectiveness of their ads more closely than before and differentiates paid ads from authentic search results. (The company
had been criticized for mixing the two.) Baidu should continue to dominate search in China, even if Google remains active