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Article Excerpt
Introduction
"Do less, make fewer mistakes, do nothing, make no mistakes"--Traditional Chinese saying.
Building innovativeness into the business culture is imperative in today's competitive environment. Recommendations for encouraging innovation have been made based on government's role (Porter, 1990), the strategic management of innovation (Christensen and Raynor, 2003), and improved strategic planning (Hamel and Breen, 2007). Most agree that innovation depends on giving all employees the opportunity to experiment with new products and services, and not only those in the engineering department (Hamel, 2000). Yet there are significant institutional and cultural barriers to innovation and risk-taking present in organizations and society, particularly in emerging economies (Soto, 2000). This paper examines barriers to innovation faced by indigenous firms from Mainland China as seen by top management, engineers, and consultants there.
At first glance, such barriers seem paradoxical. It is hard to follow the business news without hearing about China's economic heft. Indeed, the rapid growth of China's economy has created a perception of numerous innovative Chinese firms poised to go global, following in the footsteps of the major Japanese and Korean firms in grabbing market share in numerous industries. Academic and policy researchers alike have argued that China's exporters are very competitive and will soon compete with the firms of developed economies (Schott, 2006; Zeng and Williamson, 2007).
In spite of official government pronouncements and marked optimism by some scholars and observers, (e.g., Williamson and Zeng, 2004; Schott, 2006; Zeng and Williamson, 2007), apart from low-cost production made almost exclusively for foreign firms, neither the private nor the state sector of China's economy is particularly competitive (Ahlstrom, Nair, Young and Wang, 2006; Gilboy, 2004; Huang, 2003; The Economist, 2007). Unlike their predecessors in Japan and Korea, few Chinese firms have developed well-known, competitive brands (Huang, 2005; Restall, 2006). Economist Peter Nolan (2001) adds that "the competitive capability of China's large firms after three decades of reform is still painfully weak in relation to the global giants." Despite the continuing impressive growth of the economy, China still ranks 49th in the world in the category of industry competitiveness (Enright, 2005).
The reasons cited for the uneven competitiveness of Chinese firms range from macroeconomic factors and the uncompetitive state sector (Steinfeld, 1998), market fragmentation and lack of scale (Huang, 2003), to culture and education in the East Asia region (e.g., Mahbubani, 2001; Ng, 2001). These arguments all have some validity and are a matter of discussion in Chinese academic and policy circles. Another anxiety within China regarding the uneven competitiveness of indigenous Chinese firms lies with their undeveloped strategic innovation abilities (Burgelman, Christensen and Wheelwright, 2004; Gilboy, 2004), thought to reflect a lack of commitment to product innovation and intellectual property. Concerns abound regarding the apparent difficulties of Chinese firms in encouraging risk-taking in their employees, carrying out research and development (R&D), product innovation, branding, and competing globally (Ahlstrom, Nair, Young and Wang, 2006; Ng, 2001; Hang, 2007; The Economist, 2007).
In spite of these concerns, some firms such as microwave oven maker Galanz and appliance producer Haier, are proving adept at product innovation and competing in global markets (Hang, 2007; Zeng and Williamson, 2007). Preliminary empirical evidence shows that among the largest indigenous Chinese firms, the more successful ones pursue disruptive innovations at the lower ends of markets and attempt to brand and sell globally, though these firms appear to be the exception (Hang, 2007; Sull, 2005; Zeng and Williamson, 2007).
A disruptive innovation is a new, lower-cost innovation, one that is usually simpler to use and more convenient than the established product or service with which it competes. The disruptive innovation is also usually a weak substitute for the established product--often called a sustaining innovation--and the disruptive product usually performs worse, not better, than the older product (Christensen & Raynor, 2003). For example, the personal computer was disruptive to the established mini computers of the 1970s. It performed far worse in terms of its computing ability. But it was inexpensive and came in a convenient package that brought many new customers into the marketplace for computing. The PC probably never surpassed the minicomputer in computing power, nor in pure economy of computer power per user. But it brought something new to the market, which also represents the final aspect of the definition of a disruptive innovation: it brings a new attribute to customers such as convenience or simplicity, which allows many more access to the product (Christensen and Raynor, 2003).
What hinders Chinese firms from developing indigenous technology and branded products? This paper examines innovation in Chinese firms, drawing on the strategic management of technology literature (Christensen and Raynor, 2003; Hamel, 2000). In doing so, it employs an exploratory research design while eschewing a rigid theoretical framework (Hambrick, 2007). Several common innovation-related problems faced by Chinese firms are identified though interviews with senior managers and consultants familiar with product innovation there.
Strategic Innovation
Increasingly, research in economics and strategy has reaffirmed the importance of innovation in building a competitive economy (e.g., Baumol, 2002; Baumol, Litan, and Schramm, 2007; Hobday, 1995). Work in the strategic management of innovation has shed much light on the how firms grow and produce innovative and competitive products (Burgelman et al., 2004; Christensen and Raynor, 2003). This research holds that broadly, firms can pursue three different types of product innovation (Christensen and Raynor, 2003). These include making sustaining innovations to established products, introducing lower-end, disruptive innovation to established markets, and creating new markets with entry-level disruptive innovations (Christensen and Raynor, 2003). Though innovation is not limited to the product side, for firms seeking to compete globally on something other than cost, product innovation is seen as a crucial capability to possess (Baumol, 2002; Porter, 1990; White and Bruton, 2007).
Regarding the type of innovation that firms from emerging economies should pursue, research sees more opportunities for firms in the newer, less-contested markets utilizing disruptive innovations (Hart and Christensen, 2002; Christensen and Raynor, 2003; Khanna and Palepu, 2006). These assertions about low-end positioning are not without controversy. For example, Harvard professors Michael Porter and Kim Clark encourage firms from emerging economies to benchmark the best offerings from developed economies and position accordingly (see Hart and Christensen, 2002). Yet recent case (Zeng and Williamson, 2007) and empirical (Hang, 2007) evidence bolsters Christensen's and colleagues' argument that firms from emerging economies like China's should focus more on developing and commercializing disruptive innovation (Christensen and Raynor, 2003; Hart and Christensen, 2002).
China and Innovation
China's economy has grown at a real rate of about 9% over the last 30 years, with a relentless rise in exports at rates in excess of 20% annually over the past decade (Enright, 2005). Particularly dramatic is the export growth of information technology, a category covering telecommunications equipment, computers, electronic components, audio-...
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