Ting Zhang, Founder and CEO of Crayfish.io, offers valuable insight into innovation in China – and what you need to know if you want to do business with China.
There are some characteristics that are unique to the way the Chinese interpret innovation, which in Chinese is ‘chuàng xīn’, meaning ‘creating something new’.
Why do Chinese innovators succeed?
Strategy: Strategic direction is often top-down – both within companies and in the country. And in China, strategy is typically executed very efficiently within an organisation.
Mass market: Chinese innovators have been able to capture a huge market share at a phenomenal rate, mainly because backers and inventors have access to a massive user base. WeChat by Tencent is a good example. In fact, WeChat’s core technology was not new, but WeChat captured the large market in China at a rapid adoption rate, such that no one else could get into that space. WeChat is also innovative – hundreds of millions of Chinese are using the ‘Red Envelope’ which is helping WeChat commercialise itself.
Resources: The strength and financial resources of big companies in China enable them to achieve their strategic objectives quickly. Alibaba has recently established the Damo Academy to work on quantum computing and AI chips, which sounds unlikely for an e-commerce company. However, it has been able to launch a quantum circuit simulator called Tai Zhang within a short period of time, which is amazing.
In China, innovative technologies can reach critical mass quickly. But there are cons as well as pros to the Chinese way of doing things.
The pursuit of short-term economic gains means there is much less appetite to invest in long-term basic research: in China, research investment is only around a third of that in the UK. Instead the emphasis is on application-driven development and commercialisation, so the top-down approach sometimes prevents innovation because new technologies may not be seen to be giving immediate commercial benefit. There’s also a lack of differentiation: in China, popularity prompts a lot of “me too” products and services.
If you want to do business with China, you need to know about:
The Chinese government’s global strategy: China is the world’s second largest economy, soon to overtake the US, according to some economists. China is unique; a perfect blend of ancient and modern society. More and more Chinese shows and programmes are being shared overseas – because the Chinese government would like more people to understand the culture, how people live, and how the country works. The strategic initiative everyone should be aware of is known as the “Belt and Road Initiative”, previously the One-Belt-One Road. It’s essentially a global development strategy for the Chinese government to spread its economic influence across the ancient Silk Trade route of South East Asia, with the UK included at the end of that.
China’s increasingly digital economy: Half of China’s population is online. The number of internet users is more than the population of Europe. And mobile payment is ubiquitous: if you are travelling to China, everywhere accepts mobile payment, and you don’t need cash to go anywhere. China is also the world’s number one consumer market – all the major brands, whether luxury or household brands, are there. There’s a boom in the middle class that’s shaping the way Chinese people buy things and consume goods.
Industries thriving in China include medical devices and AI-driven applications for e-commerce, which has led to the fast development of logistics. I think China now produces more unicorns (companies valued at $1 billion dollars) than the US. China has about one-third of the global share of industrial robots used in the automotive, electric and metal industries, and it is among the top seven countries for worldwide spending on the Internet of Things.
The Made in China aspiration: The Chinese government has a strategic ambition for the country to produce more of its own truly China-made core materials, to reduce its reliance on foreign technologies. It wants to focus on the pharmaceutical, automotive, aerospace, semiconductor and robotics industries, and Made in China 2025 has been the blueprint for the Chinese government since 2015. This has taken a back seat since the US trade war began. However, I believe this is something that will motivate the industry players in these sectors in the longer term.
And the government needs to spend more money on basic R&D. Over the past 15 years, China’s spend has risen about 2% globally to around 16%. And the trend is going to continue.
The Chinese attitude to work: In the West, people say: “work smarter, not harder”, but I think in China, people work harder – and maybe smarter too. The work ethic is remarkably strong. About one-quarter of the world’s engineering and scientist workforce is Chinese.
Huawei has overcome many of its competitors to become one of the largest suppliers in the world for network infrastructure, but also now smartphones. Apparently, when people are recruited into Huawei, they are encouraged to work overtime and most of them have a mattress under their seats – so it’s called the Mattress Culture. Huawei also incentivises its workforce by giving its employees shares. People really do want to work hard, contribute and make the company sustain long-term growth.
For small SMEs entering China, the labour cost is on the rise, and some companies have started looking at hiring the freelancing workforce. That’s where Crayfish’s network of freelancers comes in – they are working on a day-to-day basis for multiple clients on different projects, so the cost of talent is shared among companies.