A JD Logistics drone is displayed at the China Beijing International fair for trade in services. Image: Shutterstock
The world’s largest multinational corporations (MNCs) should look to China to expand their capabilities, says UTS Business School Adjunct Professor Bruce McKern.
Speaking at the first UTS EMBA Masterclass of 2018, Professor McKern, co-author of China’s Next Strategic Advantage: From Imitation to Innovation, says China’s best companies are quickly positioning themselves as the toughest competitors in a developing global market.
"The strength of Chinese companies is a looming challenge for foreign companies, whether they operate in China or not," says Professor McKern.
"For many firms, China may seem very far away and not much of a threat, particularly if their businesses are domestically oriented. But any company that sees itself in the technology field – or in the world market as more and more Australian companies need to be – must recognise Chinese innovative capabilities as a threat."
Despite facing significant strategic challenges – such as an ageing population and a shrinking workforce – China has developed one of the world’s most powerful innovation ecosystems “from scratch” in less than 40 years.
Professor McKern attributes this achievement to the farsighted vision of the government, which is determined to regain global leadership in innovation.
He says China's best companies have evolved rapidly through three phases of innovation and in the latest phase they are now at the forefront of global innovation: entering the markets of the developed economies.
"China's private sector companies have moved from copying to 'good enough' products designed to provide exactly what domestic customers need, to reaching world standards in many sectors," says Professor McKern.
"For example, China's DJI is now the largest manufacturer of small drones, and China will be the global innovator in that business, as the innovations will take place close to DJI’s production centres – in China," he says.
Professor McKern highlighted 10 characteristics of Chinese companies’ innovation practices, including 'fast trial and error', a disciplinarian work ethic and deep understanding of customers, that have allowed Chinese companies to move into the third phase of their growth – entering the markets of the developed world.
To counter the coming competition from these firms, MNCs must consider innovating in China in order to tap innovation opportunities in the vast and demanding Chinese market. A presence in China will be key to success globally, says Professor McKern.
He says non-Chinese companies – many of which have slow and cumbersome processes of innovation – would benefit in five ways from learning from Chinese practices: Bold experimentation and rapid iteration, a lean value focus, creative adaptation, new category creation and using China’s environment to develop mixed teams and global leaders.
“I believe we must learn from Chinese companies – and the unique Chinese innovation ecosystem – in order to move ahead,” McKern says.
“Some MNCs have understood that China is a place where they can build a global business. Although China is not an easy place to become embedded in the ecosystem, I believe it will become easier as China responds to the trade pressures is now facing.
"MNCs can couple their own reservoirs of technology with innovations springing from the Chinese market to develop global capabilities. That will be the best way to counter the coming tsunami of Chinese competition.”
The UTS EMBA Masterclass series is an initiative of the UTS Business School Executive MBA program. Professor McKern was co-founder of the Centre on China Innovation at CEIBS in Shanghai, former Director of the Stanford Sloan Master’s Program and President of the Carnegie Bosch Institute at Carnegie Mellon University.