China as the World’s Innovation Leader

China is becoming the world’s innovation leader. In a few years, China’s major firms have been leaving behind their imitation-based approach to embark on a wave of innovation. Foreign companies are flocking to China seeking to learn from its innovative developments in engineering, science, commercialization, and management models.

During the past three decades, China’s economic growth was staggering, rising about 9.4 percent a year on average. This unparalleled rate of growth was largely based on the production of cheap goods for export. However, a radical shift is currently taking place: China is transforming itself into a consumption-driven economy. Rising costs and a declining labour force are helping bring about this challenging conversion.

If China is to succeed the transition from a production-based to a more balanced and competitive economy, it needs to enhance its innovation capabilities. This is actually happening in many sectors. Chinese companies are finding new ways to innovate, improve processes across the board, and commercialize products. Overall, lead times are being reduced by innovative ways of reengineering products. Examples of this innovative approach to processes and production can be found in firms in various sectors: Haier (electro-domestics), Lenovo (computers), Huawei (mobile phones), and Baidu (search engine), to name but a few.

China’s innovation wave is fueled by its large manufacturing ecosystem and its still untapped army of consumers. As a result of this unique combination, commercialization times are faster and cheaper. The concept of "accelerated innovation" (AI) explains well what is going on in many leading Chinese companies. Products resulting from R&D and innovation practices are launched and tested in the market more rapidly and at a lower cost (Williamson and Yin, "Accelerated Innovation: The New Challenge from China", MIT Management Review, summer 2014).

To become a truly global leader in innovation, however, China will still have to overcome some hurdles; among which, long authorization processes, unenforced intellectual property legislation, strict rules for FDI in sectors such as banking and finances. Having said that, foreign companies need to be part of the innovation page that China is writing. Its effects on production, commercialization and management practices will be felt globally. Having activities in China is crucial for companies with aspirations to become global leaders. Not only because of the opportunities of a vast consumer-driven economy, but also because of the implications the innovation transformation taking place there will have for production and business practices the world over.