Innovation plays an important role in Chinese companies’ globalization strategies. Chinese companies use new and tailored approaches to expand their global innovation capabilities.
Beijing, September 23rd, 2014 – Global consulting firm Strategy& (formerly Booz & Company) released 2014 China innovation survey together with the Benelux Chamber of Commerce, the German Chamber of Commerce in China, China Europe International Business School (CEIBS) and Zhejiang University School of Management. In China, innovation is the first priority for 42% of Chinese companies, compared to 21% of MNCs, according to a survey done to nearly 400 executives from Chinese and foreign companies this year. Chinese companies are increasingly turning to technology to deliver first-to-market innovations, building on their historic strength in understanding local markets and customer needs. On the other hand, multinationals also realize that local innovation must rely on deep understanding of local customer needs. Meanwhile, innovation plays an important role in Chinese companies’ globalization strategies.
Steven Veldhoen, Partner of Strategy& and lead of the firm’s China innovation practice, said, “This year’s survey shows how important innovation is to senior executives in Chinese companies. We see the ultra-competitive Chinese market engendering this razor-sharp focus on innovation”, he added “Innovation is already deeply engrained in business strategy. Innovation—not only in products but also in services, supply chains and business models—is truly table stakes in China.”
Bill Peng, Partner with Strategy& points out, “Chinese companies that want to globalize and MNCs seeking to be successful in China face challenges that are flip-sides of the same coin.., he said, “Chinese companies will need to carefully systematize while MNCs will need to make their comparatively rigid global innovation ‘machines’ more nimble and modern.”
China is a global innovation engine; innovation strategies are evolving
In 2014, two-thirds (65%) of MNC executive respondents say their companies face Chinese competitors that are just as or more innovative than they are. That number, close to last year’s result (64%), will continue to astound MNC executives outside China. While MNCs rated Chinese companies’ product innovation highly, they recognized even stronger competition in service, supply chain and business model innovations. For the vibrant innovation ecosystem in China, the rest of the world is its playground. Both MNCs (91%) and Chinese companies (84%) use China as a base to innovate products for other markets.
In this year’s survey about innovation strategy, we see Technology Driver as an equally frequent choice among Chinese companies (43% compared to 21% for Market Reader and 37% for Need Seeker), while more Need Seekers were identified in previous surveys. We won’t know until next year’s survey whether this is a temporary blip or a meaningful trend. The choice may demonstrate that Chinese companies are investing in advanced technology — and then using that technological foundation in addition to customer proximity and propensity to take the risks that have historically defined the Chinese model of innovation.
Innovation is key tool in globalization
Chinese companies prioritize innovation in globalization more than MNCs prioritize innovation in China. Innovation is the first priority for 31% of Chinese companies in the globalization, compared to 21% of MNCs. This strategic choice likely reflects the deep and well-trained reflexes of Chinese executives to innovate to succeed, regardless of the geography. As Chinese companies globalize, they will push the innovation bar higher. We see Chinese companies using innovation to demonstrate relevance for new customer segments, particularly in niche markets.
The 2014 survey also helps us begin to define the specifically Chinese approach to globalizing innovation. Chinese companies are more likely to globalize their innovation to access talent and technologies. The top driver (68%) for a Chinese company setting up an innovation center is to acquire or monitor a leading technology. For MNCs, that driver (90%) is to capture customer trends and insights. Chinese companies are more likely to partner with organizations outside of their regular value chains (e.g., universities, research institutes) as well as with those within their regular value chains (primarily suppliers but even competitors).
A majority of most innovative Chinese companies are from high-tech or internet industry
In 2014 survey, eight of the top 10 Chinese Innovators are high-tech or internet companies. The triggers for the high-tech momentum are multiple and complex, but the highly open and ultra-competitive nature of these sectors in China is key. This environment breeds and forces innovation writ-large.
In this year’s ranking of the most innovative Chinese companies, the top three remain the same, with different orders: Huawei, Tencent and Alibaba. Xiaomi, BYD and Meizu are new to the list. Among the top 10 MNC Innovators, Apple, Samsung and Volkswagen rank top 3. L'Oréal and Coca Cola are new to the list. L'Oréal is not usually included in lists of Innovative companies on a global scale. Clearly the company has created a pre-dominant position in China around innovative and tailored cosmetics products. This success speaks to the power of seamlessly combining a globally integrated innovation network with local insights.
For more information about 2014 China Innovation Survey, please visit www.strategyand.pwc.com/2014-china-innovation-survey.
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