ArticleBiz Time: The next 60 years (3)
Challenge 3: Innovation
We now want to look at another aspect of the Chinese economy that poses both risks and opportunities for Chinese firms - that is, the development of management expertise. Continued economic growth in China depends on the successes of Chinese companies. And the success of Chinese companies depend on the skills, expertise - and global competitiveness -- of Chinese business leaders.
Dr. Xiaonian Xu, CEIBS
Moving forward, labor and land would no longer be cheap. You need to think about your firms' long-term strategy. How will you compete with international firms? There 's only one way and that's through research, development and technological innovations. Innovation in marketing, and the organization of your products, production and sales. Innovation is the key.
To evaluate whether a company has growth potential, the venture capital or private equity it receives might be an indicator. Some figures show that PE so far has invested over 1 trillion yuan in China. 24% of that is in traditional industries such as manufacturing. But recently, IT and green energy businesses have become new favorites.
Dr. Xiaonian Xu, CEIBS
R&D the key; innovation is a key. Innovation is not only technological innovations, but also the business model. Like Wal-mart, Wal-mart is a huge innovation in the retail industry. It changed the landscape of the retail industry, from a mom and pop shop into a huge compound supermarket. There's not a lot technological innovations in Wal-mart. But there's a big innovation in the business model.
In order to push Chinese firms to be more innovative, the government needs to stop protectionist policies such as the current tax rebates for Chinese exporters.
Dr. Xiaonian Xu, CEIBS
With that tax rebate, they think we can do old products, we don't have to invent anything new. the old business model can go on forever. The government should stop tax rebate and force exporters to think about innovations seriously. Otherwise, if you live too comfortably, you lose any drive to change.
China is holding a leading market share worldwide in nearly 1,000 product categories. But all these products tend to be low-tech, low value items. Arther Yeung, Professor of Human Resource Management from CEIBS says the key to the success of Chinese enterprises going forward will be a new emphasis on innovation, and on quality over quantity:
Prof Arthur Yeung, Associate Dean & Professor of Management, CEIBS
For many Chinese firms if they want to pursue further in the next 60 years I think the major challenge is how to elevate them into the next level of success. Not only in terms of being big --in terms of quantity -- but also in terms of reputation -- in terms of quality. I think the key challenge for many Chinese firms is how to change the image of low cost, low quality.
Chinese firms are warned to stop "destroying the ecology," cutting the sale prices of products so much that the profit margin is too thin for the product to survive. Instead, Chinese firms should focus on value creation for customers.
Prof Arthur Yeung, CEIBS
Many Chinese firms -- I am not saying all but a certain segment of Chinese firms, now are big enough. They can afford to invest in R&D. For example, a company like Mindray, they are the leading player now in china in medical devices. They manufacture design and sell products like patient monitors. They invest 10% of the sales every year in R&D. It is justified, nowadaysm, first of all they are big enough they can do that. Secondly, the market in china is huge, the scale can help you justify the cost.
Human resource management is another key for success. Chinese firms can take advantage of one of the under-used assets of China -- the nation's abundant supply of smart, hard-working and relatively low cost knowledgeable workers. But in every business, one person makes the business decisions, the Manager. Leaders in corporations are advised to take a long term view on investing in R&D.
Prof Arthur Yeung, CEIBS
If you as a business leader want to earn quick money, you want to look good in the short-term financial report. of course you don't want to persist for the long term. But if you want a real breakthrough in technology, at least it takes you 3 or 5 years to develop new stuff, new tech, new product. Mindray, for example, takes 3 to 5 years for a new core technology. But once you develop your first generation product The second generation, it uses 18 months. The third generation, 12 months, so the 1st one you need to commit and persist rather than give up too fast.
Since 2006, a number of Chinese companies have been active in mergers and acquisitions overseas. But before going global, companies are urged to first develop their competitive edge and core competencies at home in China.
Prof Arthur Yeung, CEIBS
In order for a company to be a truly globally competitive, my personal recommendation is you try to get more resource from outside to truly build your company in China at globally competitive level first before you go outside. Otherwise, it's too risky. Nowadays, China is also competitive, very open, any major players in the world can come into China. Why don't we practice and build our strength first? Not only just based on low-cost -- build up your core technology, build up your brand, your channel management. Build up your channel management know how your system, your process, your talent, international talent so that they are much more well educated and more strategic thinking. Once you establish the base, then you go outside.
In other markets such as Holland and Singapore where the domestic market is small, companies in these countries have to go out fast to seek more demand. But China's market is so huge, overseas companies come into China for the market share. So Chinese companies have the opportunity to strengthen world-class competitiveness just within the domestic market. They can then go overseas.
Prof Arthur Yeung, CEIBS
I'm very optimistic about Chinese firms. I think. The last 60 years, especially the last 30 years, were very good for many Chinese firms to lay their foundation, so that they don't just compete locally, they now have the capability to compete globally. But in order to do that, my suggestion is focus on your internal strength, technology, brand, also focus on your talent, your company culture, your management system process, those are very important.
So for companies in China, going abroad for resources - such as funding can be a wise step. But the key is, keeping business operations and focus in China until your company is strong enough to take on major players in international markets.