Wednesday, July 25, 2007

R&D and innovation in China

While China has been touted as an emerging innovation powerhouse, with hundreds of US firms establishing R&D Centers and partnerships, concerns about intellectual property and trustworthiness remain. Now, with product safety in the limelight, are companies going to hold back even more? Is this a wise move?

What is your opinion? Is your company changing its approach to China at all? How are you screening for quality and safety?

We asked Management Roundtable’s expert advisors to comment on the following post by Peter J. Williamson in Harvard Business Online. (Peter J. Williamson is a professor of International Strategy and Asian Business at INSEAD and coauthor of “Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition”.)

"the first lesson here: Don't panic over a few high-profile blunders by Chinese sourcing partners -- as damaging as they may have been. With smart management, there remains enormous opportunity for profitable relationships.

The second danger in the reaction to the latest recalls of Chinese products is that managers will give in to the myth that all Chinese competitors are simply low quality, low price. The lesson here is simple: don't allow such a delusion to cloud your thinking. If you do, you are likely to miss the fact that the best Chinese companies, such as Lenovo, Huawei, Haier, along with many others, are using cost innovation to rewrite the rules of the global competitive game. The very real risk to American business is that management will not see China's emerging dragons coming with high technology at low cost, variety at low cost, and specialty products at mass market prices until it's too late."

Here is what our experts say:

Lothar Katz, Founder and President, Leadership Crossroads; author, Negotiating International Business:
My two cents: couldn't agree more with Mr. Williamson. If you think of the 50's and 60's, the shoddy-quality arguments were almost identical about Japan back then with what's being said about China now. Twenty years later, Japan dominated several technology industries. The scale of China is bigger, making some of the challenges for its government more intimidating, but I'd be very surprised if China were unable to follow a similar path to that of Japan: learning, improving, getting it right.

Alan Paau, Vice Provost for Technology Transfer and Economic Development, Cornell University:
You couldn't be more correct. First Japan, then South Korea. Witness Toyota, Honda, Lexus, Accura, Sony, Toshiba from Japan; then look at Hyundai, LG, and Samsung from South Korea. They are kicking the US counterparts' butts. They take advantage of technologies that mostly originated from the US, overcome many hurdles, and eventually they dominate the markets with their products! China's Lenovo and Haier are following a similar path - first, keep the products inexpensive with reasonable quality to entice buyers, then improve quality to dominate the market.
Yes, indeed China is bigger and therefore is a bigger challenge administratively. Its infrastructure is still developing. Its centralized influence is still large and is a source of bigger growing pains. But it also represents a bigger market opportunity. In light of the fact that just 30 years ago, the country was totally closed and nobody except the government owned any thing, it's progress is actually very impressive. China will continue to have hiccups. But if we don't take it seriously and also take advantage of the opportunities it now offers, we will be too late to try to get in the future.