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22 Apr 2013 Back

Profiting from Innovation in China

BOOK REVIEW: Germany's economic resilience since 2008 owes a lot to its growing business relationship with China. Germany has benefitted from access to China as both a market and a manufacturing base and China has benefited not just from access to German goods but through collaboration in advanced technology industries where Germany is strong and which China regards as strategically important.

With this context in mind, where better to go for advice on innovation in China than St. Gallen University, Executive School of Management, Technology and Law – the Swiss business school whose history is so closely aligned with German industry and entrepreneurship.  

This instructive book from St. Gallen University’s Oliver Gassmann, Angela Beckenbauer, and Sascha Friesike is a compelling read for any company considering innovating in China. Echoing the outlook of these two pragmatic and business-focused countries this is a serious book which, rather than promising vague up-sides, deals in considerable depth with the potential downsides and offers practical guidance for achieving success in this difficult but potentially very profitable arena.

The motivation for where to carry out R&D and innovation is either demand driven – innovate close to, and taking account of the needs of, the market that your product is aimed at. Or supply driven – conduct your R&D where the best innovators in your sector happen to be based, perhaps Silicon Valley for example. Added to these drivers is the concept of ‘Reverse Innovation’ the process by which inexpensive new products developed to meet the needs of developing nations with limited infrastructure, are repackaged for Western consumers, at low prices, creating new markets and uses for innovations, often supported by new business models.

Originally demand driven innovation was the sole reason for locating R&D in China, but recently the balance has started to shift from demand to supply too. Now, with China sending 6 million students to universities and investing 4% of its GDP in education and training (Germany being a key provider of training support), basing R&D activity in China is making sense from the supply side – then there is Reverse Innovation too.

Profiting from Innovation in China opens by describing why China is now  the ‘Number One’ place for new R&D, taking account of motivators – access to markets, supply of high quality relatively cheap research staff, closeness to a developing network of ‘innovators’ in several key centres – and some barriers and competing alternatives. The book moves on to look at the importance of Reverse Innovation and quotes at length the SMART approach taken by Siemens in China – Simple, Maintenance friendly, Affordable, Reliable, Timely to market.

The core chapters, two to five, consider the essential issue of intellectual property rights enforcement and protection from piracy. While the number of patents in China is growing steadily, the downside is the still insufficient protection of IP where the phenomenon of counterfeits originating from China has increased constantly over the past two decades. Professor Gassmann and his colleagues look at IP protection from several angles – legal protection, market-driven protection, protection via HR practice, technology driven protection, and finally business-driven protection afforded by operational practice.

In a previous IEDP article the economist Kjell Nordstrom suggested that China will find it very difficult to foster a culture of innovation while the existing controlling, autocratic, power politics exists - changing culture in a company is extremely difficult  across an entire country and its institutions it maybe insurmountable. Written for managers planning R&D and innovation activity in China, this useful book counters his argument by offering concrete advice, rich in examples and checklists, on how Western firms can benefit from innovation in China and not get caught out by pirates.

Further Information

St Gallen University, Executive School of Management, Technology and Law

Professor Gassmann's profile

St Gallen -  Executive MBA



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