Saturday, August 9, 2014

Can China Lead in Innovation?

I just finished reading a fascinating book, Can China Lead?: Reaching the Limits of Power and Growth (Harvard Business Review Press, 2014) by three very experienced scholars from Harvard Business School and Wharton. For a book whose central text (excluding appendices, tables and notes) is just 180 pages, this book is majestic in its sweep as it seeks to cover history, politics, economics and business in China.

The book is not heavy on data, and the conclusions reached are somewhat impressionistic, but there are enough anecdotes and examples to support the main arguments of the authors (Regina Abrami, William Kirby and Warren McFarlan). They have been working in and on China for three decades, written several cases on organizations in that country, and seen at first hand the rapid evolution of China into the economic powerhouse that it is today.

The authors’ broad conclusion is, in keeping with the view of many western scholars, that one-party rule and the need to sustain the supremacy of the military and the communist party will prevent or at least attenuate China’s ability to gain global leadership. Intriguingly, they also suggest that China is not seeking global dominance, and many of the actions of the Chinese government that appear to be in that direction are actually just designed to protect the supremacy of the party at the helm of affairs.

One of the features of this book that attracted me to read it is a chapter devoted to innovation in China, provocatively titled “Planning Innovation.” This chapter follows one with the catchy title of “The Engineering State.”

Engineering in China

No one who visits China (especially from India!) can fail to be impressed by the scale and scope of that country’s infrastructure. Multiple concentric circles of multi-lane ring roads, flyovers and bridges, metro trains and more recently high speed rail links are prominent across all of China’s cities.

What I realized after reading this book is that what we are seeing in China today is not the product of a recent vision, but has its origins in a picture of China drawn by Sun Yat-Sen almost a hundred years ago. The realization of this vision is the result of not only determined project management and control from the top, but a strong belief in engineering and technology. The authors provide evidence to show that the top Communist Party and Military leadership in China is dominated by engineers, and this strong belief in engineering is reflected in the complex projects they undertake (including the controversial but massive Three Gorges Dam) and execute successfully.

China’s Evolving Innovation System

China’s innovation system has evolved rapidly in recent years. Here are the some prominent contemporary features I could put together from this book:

  • China has a large array of technology parks, many of which are in the proximity of universities. Many of these parks are specialized in particular domains and attract start-ups and established companies in those particular domains including biotechnology, nanotechnology, gaming and animation, etc.
  • China is able to attract a good number of its citizens who go abroad to study back to the country, and some of these returnees do start innovative enterprises.
  • Established Chinese firms are good at integrating and adapting technology. While initially they may have “borrowed” these technologies from others, today they are well enough endowed to acquire companies anywhere in the world that can provide them the technological capabilities they need.
  • Some firms in advanced technology areas like Huawei have been able to create a global R&D network much like that of established multinational companies. Huawei’s senior management team includes a former US diplomat and senior managers from industry leaders like Nortel and BT. It’s global R&D is headquartered in Silicon Valley.
  • The Chinese government is determined to achieve independence in what it considers strategic technologies. It wants to restrict technology imports to under 30% of its needs. It is willing to use public procurement to support local technology development. (All this is corroborated by China’s current aggressive stance against companies like Microsoft.)
  • China’s emphasis on high technology to meet pressing local needs is resulting in useful spillover effects. One example is the high speed train program which the authors liken to the US space program in terms of impact. Another example is electric battery technologies for transportation – environmental concerns are driving China to look for alternatives to fossil fuel driven transportation systems.

  • China has in place a strong funding system for university R&D, modeled along the lines of the US National Science Foundation. This book (and other writing on R&D in China) clearly indicates that no investment is being spared in building R&D capabilities in Chinese universities.
  • Over the last 15 years, the Chinese higher education system has undergone a huge transformation. While the initial focus was on scale (resulting in a manifold increase in capacity and hence gross enrolment ratio), universities at the top end have embraced quality research, created new programs and built some of the best university infrastructure in the world. The authors note, in particular, the emphasis of China’s top universities like Tsinghua and Peking on liberal arts (particularly the humanities) to bring in fresh thinking.

Will China’s prowess in engineering + policy measures get translated into technology leadership?

In spite of all these positive developments riding on top of China’s demonstrated prowess in traditional engineering areas, the authors come to the surprising conclusion that China is unlikely to become a leader in innovation in the immediate future.

How did they reach this conclusion? The book suggests that in spite of all these impressive achievements there is still a lack of confidence, and an inclination to see the west as more capable. The Chinese education system, despite all its transformation, remains oriented towards rote learning. But more than anything else, they attribute this to the control system that operates in China. For instance, they point out that a University President is lower down in the pecking order than the Party representative at the University, and hence the Party’s view prevails in academic decision-making. The concept of faculty-driven decision-making does not exist, in their view. They provide examples of good business ideas that couldn’t take off because they came into conflict with the government/party’s notion of stability of the State.

My conclusion: China may lead in certain areas

But, it seems to me that in areas where large investments are required like complex systems technologies, and where national security and safety issues don’t come into conflict, China could very well take the lead in the years to come. They seem to have all the policy ingredients in place. Today, R&D is global, and China with its huge financial endowments is in a position to literally “buy” collaboration from a financially-distressed west. Above all, China has a strong determination to win. So, I don’t necessarily agree with the conclusion the authors have reached in their otherwise well-researched and very informative book.

[The views expressed here are the personal views of the author.]

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