A window into China's innovation engine

A new era is under way for global high-tech innovation and entrepreneurship, marked by the rise of China, declares Yinglan Tan in Chinnovation: How Chinese innovators are changing the world (www.wiley.com). “During the past several decades, Beijing, Shanghai, Shenzhen, and other cities have developed as centres in key information communication technology industries. More recently, from Beijing to Pearl River Delta, markets for new products are expanding, competencies in new technologies are growing, and a new generation of high-technology regions is emerging,” he notes.

Zingy buzzwords

Ruing that innovation in China is a topic understood by very few, the author cites a typical quote, of ‘a well-known Silicon Valley venture capitalist' – that Chinese people aren't entrepreneurial, they don't create things, and they're just good at ripping them off. However, after interviewing a variety of entrepreneurs, the author reports that the reverse is true. “These start-up founders are as scrappy and willing to take risks as their peers anywhere, at times even surpassing the people who flocked to Silicon Valley in the late 1990s.”

Yinglan frets that research on innovation tends to over-emphasise patents, inventions, and scientific publications in research labs and large multinational firms. In his view, the study of high-growth Chinese businesses provides a window into the middle level of the innovative game in terms of product, processes, and know-how.

Among the ‘zingy buzzwords' that encapsulate the various facets of innovation in China are ‘recombinative innovation' (as explained by Haier's CEO, Zhang Ruimin, to mean ‘the combination of ideas and technologies in novel ways rather than developing products from scratch'), and ‘the principle of pressure point' (which according to Huawei is ‘the tactic of expanding strategically via cost-innovation into the area where the global players are weaker and chipping away at adjacent sectors').

The matrix

With ‘technology' on the x-axis and ‘business model and process' on the y-axis, the author draws a two-by-two matrix to classify firms into one of four groups, viz. scope innovators, cross-discipline innovators, industrial evolutionists, or non-innovators. The last group has the risk-averse sitting at the wedge of the two axes looking at ‘who else is doing it,' while in the diagonally-opposite quadrant are the industrial evolutionists who break assumptions, make paradigm shifts, look for frontiers and often shift ‘the tectonic plates of an entire industry.'

The scope innovators make a better, cheaper, faster product, using cost innovation; and the cross-disciplinary innovators draw from different disciplines and routinely plug in business models from other fields and enhance the whole process, usually in the form of service innovation or business model innovation, the author explains.

The eight Rs

The book's title may just seem to be two words – China and innovation – jammed into one, but the author begins by defining ‘Chinnovation' as applying changes in technology and business strategy to have new and better ways to create value for both the customer and the corporation. The ‘Eight Rs of Chinnovation' that he lays down are revenue, rapidity, requirements, reproduction, rivals, restrictions, remixing, and raw materials.

On the first R, Yinglan informs that Chinese innovators are laser-focused on revenues, unlike their Western counterparts. The example he gives is of Facebook as against QQ, China's largest social networking service. “Facebook has 300 million active users compared to QQ's 450 million users. Facebook was only recently profitable while QQ has $2 billion revenue and $1 billion profit.”

The book mentions an apt quote of Eric Tao, vice-president of Keytone Ventures, thus: “The investment strategy for China is very different. Companies like Google with 100X returns don't come to China. VCs tend to do later-stage deals and invest in the later rounds.” He gives the example of the US Kleiner Perkins offices which invest in over 30 pre-revenue companies, while the KP office in China is completely the opposite, never investing in companies without revenue, unless the company has an extremely convincing model and revenue and clear customer absorption rate.

Remixing

Talking about the penultimate R, says Yinglan that breakthrough ideas are often less about the purposeful act of inventing new things than about the combination of the best ideas across sectors and geographies. “Theme parks and shopping may seem to have little in common, but a supermarket in China uses roller coaster-style cars to take shoppers through the aisles… QQ's ostensibly simple user interface combines Cyworld-like avatars, ICQ messaging, and Hangame-like casual games and virtual goods.”

One other ‘remixing' example is Dianping, a review Web site where consumers share their experiences of city life, about restaurants, nightclubs, golf courses, and so on. Dianping's original inspiration came from Zagat, but Dianping crowdsources user-generated content in an online format, using proprietary technology to aggregate a variety of anonymous points of view, the author narrates. “A remix of Zagat, Amazon, and Wikipedia, Dianping's model has proven to work effectively in local markets where people have similar educational and cultural backgrounds.”

Female-centric SNS

Do you know that iPartment is part of the lives of millions of women and girls? And that it is a household name for social networking service (SNS) in Taiwan and beyond, with more than 10 million people registered on the site, and that women comprise around 70 per cent of its users? The role of iPartment, as the author describes, stems from the increasing social need to make good use of the time females have to spend online, most of them being working professionals and students whose lives are full of stress.

Tracing back its origin, the author recounts that when Zhang Chaming, founder and CEO of iPartment, looked into the operations of rival SNS sites owned by Yahoo, PCHOME, and Yam, he found that well over 70 per cent of the users were male. Zhang wondered where the females were, and why they did not come to interact with the males. And the answer he got was that these sites lacked the elements which appealed to females.

Therefore, what appeals to the Zhang's target group of female working professionals is that iPartment ‘reproduces the concept of a home, in a virtual environment where users can find virtual roommates and engage in activities in their virtual apartments such as home decoration, gardening, and keeping pets.'

Fabless, chipless

Innovation begins with an eye towards the future, instructs a section in the book about Verisilicon, a fabless, chipless design foundry headquartered in Zhangjiang Science Park, Shanghai. When the idea of a chipless, fabless ASIC design firm was first espoused, many in the industry felt that it would also be cashless (unprofitable), chronicles Yinglan.

How did Verisilicon defy common wisdom and yet establish a foothold in the industry? It focused on its strength in designing and layout of chips, and left the actual fabrication to others. “It set itself up as a sort of architect of chips, a firm that would be hired for its ability to produce world-class designs the way a great architect is hired to produce world-class buildings. Other hands do the construction, but the buildings – or the chips – are still regarded as the product of their designer.”

The author also highlights a few important service innovations of Verisilicon, such as its open-book approach, flexible engagement model, and the ASIC Turnkey Services which provide customers with insight, control, and ownership over the whole development process.

Compelling read.

> dmurali@thehindu.co.in

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