Innovation in China in the Digital Age

Innovation in China - Apple Store in Shanghai

Innovation has become an important concept in modern China. Beijing has reached a point in which it wants to stop being the manufacturer hub of the world and become a powerful innovator, creator and designer of new products and services. In the twelfth five year plan, China has emphasized the need to convert its economy from a manufacturing based economy to a more consumer based one, and innovation is key to achieve success.

Innovation is a general concept that relates mostly to the creation and design of ideas that will lead to new technological discoveries and advancements; those, hopefully, will be used globally. Laowaiblog decided to explore whether digital innovation in China exists and, if so, to what extent. We met with Philip Beck, a China internet, media and monitoring guru, who is the Chairman of three Beijing start-ups: SmartTots, DianYue, and Dubeta Pty Ltd. We caught up with Mr. Beck to find out his feelings about China’s (or more specifically Beijing’s) bustling entrepreneurial scene, and how it effects China’s desire to leverage innovation as its growth base for the twelfth five year plan.

Watch: Philip Beck -- Innovation in China



The entrepreneurial scene in Beijing is truly becoming the melting pot of the start up industry and helps with innovation in China. In your opinion, Is this statement true?

“Yes, absolutely. I think that when you’ve got a market that’s already 10 times the size of all the other markets around the world put together and within five years time will be thirty times the size, there’s a lot of eyes here in Beijing looking at what is happening overseas, how can they copy that here, how can they evolve what’s done overseas here. So there’s a real hot bed of entrepreneurialism in Beijing, I think much more than Silicon Valley.”

Do you see many foreigners coming to Beijing to start start-ups ?

“Not so many foreginers coming to Beijing to start start-ups, but a lot of foreign investors are coming to Beijing to look at young Chinese entrepreneurs who want to start their own business and help develop innovation in China, particularly when most foreigners, like me, accept the fact that the success rate of foreign led internet businesses in China is close to zero. Some might point out that Qunar (a successful travel website in China) has been successful, but Fritz Demopoulos (Qunar founder) also had two Chinese co-founders, and Cici zhang has just recently stepped in as the CEO of Qunar. So most foreigners recognize that the success rate of internationally led internet websites in China is zero, and thus they are looking for strong, local talent who they believe can implement their ideas effectively.”

And how does one find that talent? If I were a foreign investor, how would I find the right talent in China?

“The best hot bed is at Wudaokou, around Zhongguancun, Haidian area in Beijing. There are lots of universities there that are full of young people who have ideas and want to make a lot of money. I think the Chinese government has been very successful in promoting some local heroes such as Jack Ma from Alibaba and Robin Li from Baidu, and many young people want to be like them. This phenomenon helps contribute to local innovation in the Chinese market.”

Jack Ma and Robin Li have both gone through foreign education systems. Do you see a correlation between the level or type of education they received to their success in innovation in China?

“I would say that at the moment probably 90% of the successful companies in China has been created by local Chinese who have gone abroad to study. These are returning Chinese -- they grew up here, did their university education in the U.S or elsewhere and then came back to China. The other thing which is interesting for me is that a lot of the successful guys come from Stanford University. It is an incredibly strong group of entrepreneurialism, banking and finance. So there’s this tight network of people from Stanford who support one another, though this network is slowly breaking down, and more universities are added in the mix.”

What rule do local or central governments play in entrepreneurialism and innovation in China?

“The government very clearly wants to promote local Chinese and ensure local Chinese are successful. It wants strong, local companies that can then start broadening their business offshore. So many people are talking about the great firewall of China. My opinion is that the government is keeping the wall up until it feels that local Chinese companies are strong enough to take on global competitors and start exporting their local products offshore. When it feels the timing is right, I believe the government will start to bring down some of the restrictions in the great firewall. Secondly, the foreigners who are successful here are those who have spent some time learning the language and getting to know the market. They build up credibility to find local people they can trust -- that is the key issue.”

Digital media is very restricted in China. How do these restrictions affect you as an app developer and as an innovator?

“I actually feel I have a lot more freedom operating in China. Comparing to Asia, China has its rules, but the freedom that I feel is probably five times more than the freedom I would feel in Hong Kong, Australia or New Zealand, in which there is so much regulation. Such regulation makes it difficult for small businesses to develop and inhibits innovation.”

How so? How does this freedom express itself and helps alleviate innovation in China?

“First of all, most businesses I am involved with rely on people, and the hiring and firing of people in China is easier than in any other market. Finding people is also easier here -- there’s the same challenge of finding good people as there is anywhere, but there are many more people to choose from. In one of my businesses, we don’t just focus on Beijing but look for talent from other areas. For example, we have one business where we developed a whole operation system in Chongqing, a second tier city, that is much cheaper, and its people have better attitude. A lot of ideas happen in Beijing, but there are a lot of places where one can establish operations.”

“In terms of censorship, yes there are restrictions, but for me there is a very simple framework within which the government asks you to work, and if you step outside of that then you make your life difficult. Some of my Australian friends might accuse me of being a communist, but if one wants to succeed in China, then one should not say anything that upsets the government, that disturbs family values or that questions the authority of “Mom and Dad”. There are some principals which I really like and which help make for a better society. Yes, there is the downside of not being able to comment on political issues, but when I look at other markets, I can’t say that the American, U.K or any other market is a model of success. There are pros and cons for each. So, while there are some downsides to innovation here, there are also massive upsides.”

“Overall, I feel much more freedom here, and I am much more comfortable doing business here. Plus I can get a lot more value for the dollar here -- in terms of development or labor costs. That is why if one has an idea, it is much easier to develop it and get it off the ground in China than it is in many other markets.”

What kind of people would you say bring the majority of ideas? Is it the Chinese crowd or the foreign crowd who delivers the ideas?

“At the moment most of the ideas are coming from returning Chinese. They learned, while being overseas, how to be much more creative and innovative in their thinking and problem solving processes. Many local Chinese, because of the education system, are still very linear in their thinking, so if something blocks them from getting from A to B they stop. Western (foreign) thinking encourages people to ask questions and to actively look at how can I solve this problem. If a road block arises then people question how to get around/over it. The great thing about the foreign education system is that it teaches Chinese people how to get over such obstacles and thus enhances the growth of innovation in China.”

“Even though the innovation gap between Chinese people and foreigners remains, the Chinese are progressing very quickly. In the twelfth five year plan, the government in Beijing recognized that innovation in China is a problem and that China needs to change its learning education system. If China wants its economy to become more innovative, it knows it has to develop creative thinking. At the moment, therefore, most of the ideas are coming from returning Chinese or local Chinese looking at what’s happening overseas and trying to make it here.”

“Some people say copyright doesn’t exist in China, I call it “Copy it Right”. This part is slowly changing -- copying a product in order to make it more innovative. Just by looking at companies such as Baidu V.S Google or QQ V.S MSN, one can see that the amount of innovation that Baidu brings to the market each year, compared with the amount of innovation that Google brings each year, is at least ten times more. Therefore, having copied a concept, the Chinese are much more innovative in bringing new ideas to the market.”

“Lastly, I also keep in the back of my mind that there are 1.3 billion eyes looking at something in China V.S 300 million eyes in the U.S or elsewhere. These eyes all want to make money and to be successful.”

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