George S. Yip - China’s Next Strategic Advantage: From Imitation to Innovation

George S. Yip and Bruce McKern

The MIT Press

Cambridge, Massachusetts

London, England

2016 Massachusetts Institute of Technology

All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher.

Sset in Sabon and Helvetica Condensed by Toppan Best-set Premedia Limited. Printed and bound in the United States of America.

Library of Congress Cataloging-in-Publication Data

Names: Yip, George S., author. | McKern, Bruce, author.

Title: Chinas next strategic advantage : from imitation to innovation / George S. Yip and Bruce McKern.

Description: Cambridge, MA : The MIT Press, 2016. | Includes bibliographical references and index.

Identifiers: LCCN 2015039956 | ISBN 9780262034586 (hardcover : alk. paper)

eISBN 9780262333498

Subjects: LCSH: Technological innovations--Economic aspects--China. | International business enterprises--Technological innovations--China. | LeadershipChina.

Classification: LCC HC430.T4 Y57 2016 | DDC 338/.0640951--dc23 LC record available at http://lccn.loc.gov/2015039956

10987654321

for Ng Chun (in memory) and for absent friends

There are many people we need to thank. The first are all those who were involved in setting up the Centre on China Innovation (CCI) at the China Europe International Business School (CEIBS), which has been the basis for all of our research on the topic of this book. Annette Nijs, CEIBS Executive DirectorGlobal Initiative, made the major effort, with the help of CEIBS President Pedro Nueno, to recruit the first four sponsors to fund the start-up of the CCI in 2011: Akzo Nobel, DSM, Philips, and Shell. Each company provided a member of the CCI Advisory Board, which provided invaluable guidance for our research program. Of the board members, the originator of the idea for CCI was Dr. Frans Greidanus, Chief Technical Officer, Philips Asia. Upon his retirement, Frans was replaced by Klaas Vegter, Senior VP, Head of Philips R&D China. Kathy Zhang, Director of Business Development sometimes represented Philips on the Advisory Board. For Akzo Nobel: Chaodong Xiao, Research Development & Innovation Director, Akzo Nobel (China) was their first Advisory Board member, later replaced by Chen Ling, RD&I Director, China & North Asia, Decorative Paints. For DSM, Jaco Fok, Vice President Business Incubator and Director DSM China Innovation Centre, was the first Advisory Board member, later replaced by Jan-Anne Schelling, VP Human Resources. For Shell, X. D. Jing, External Research and Innovation Director, Shell (China) Projects and Technology was the first Advisory Board member, later joined by Jaco Fok, General Manager of Open Innovation (worldwide). The Bosch Group joined as a sponsor in our second year, its Advisory Board member being Martin Brett, VP, Bosch Engineering System, China, helped by Zhang Di, Senior Manager, Innovation Management, Bosch China.

At the global corporate level of the sponsor companies, supporters of CCI included at Akzo Nobel Graeme Armstrong, Executive CommitteeResearch, Development and Innovation, and Marjan Oudeman, former Executive Committee member responsible for China; at DSM, Feike Sijbesma, CEO, Stefan Doboczky, former Member of the Managing Board, Rob van Leen, Chief Innovation Officer, and Marcel Wubbolts, Chief Technology Officer; at Philips, Gottfried Dutinn and Hayko Kroese, former Members of the Group Board of Management; and at Shell, Gerald Schotman, Chief Technology Officer, and Thijs Jurgens, Vice PresidentInnovation. At the China country levels of the sponsor companies, supporters of CCI included at Bosch Peter Loeffler, Executive VP, CFO, Member of the Board, Bosch China, and Henri Catenos, Executive VP, Finance and Administration, Bosch China.

At CEIBS, Dean John Quelch appointed the two of us to co-direct CCI and provided encouragement and support, as did his successors, Dean Hellmut Schtte and Dean Ding Yuan. Co-Dean Zhang Weijiong and his staff provided operational support for CCI. After Bruce McKern retired from CEIBS, Jian Han helped to keep CCI afloat by taking over his role as Co-Director. We have had had great support from the CCI team. Our center managers have been Jess X. Zhang, Ivdis Tao (Tao Xiangyi), and now Wang Wingying, who all also contributed research to this book. A key research assistant was Eleonore Yang (Yang Yi). We have also had research help from two CEIBS MBA students, Gary Liu (L Hui) and Lizzie Zhang (Zhang Wei), as well as from teams of CEIBS MBA students. Kathy Xu has provided administrative help to the center and the book preparation.

We are very grateful to those who joined us in co-authoring some of the chapters: Yi Ta Chng, Dominique Jolly, Maja Schmitt, Lin Xu, and Yongqin Zeng. Others who have contributed to our research and thinking include Weiru Chen and Klaus Meyer of CEIBS, Max von Zedtwitz of GLORAD and Moscow School of Management Skolkovo, Mark Greeven of Zhejiang University, and Wim Vanhaverbake and Nadine Roijakkers of Hasselt University. Our ideas were also shaped by collaborations with the seasoned China experts Steven Veldhoen, Director of Strategy& (formerly Booz and Company), and David Michael, Senior Partner and Managing Director, Greater China, for The Boston Consulting Group. We also thank the hundreds of executives who have given access to their dozens of companies, both Chinese and non-Chinese, and their valuable time for our interviews, or have joined our research forum discussions, as well as academic colleagues who provided comment and criticism of our ideas in their early stages. All of these people helped make this book possible; we alone take responsibility for its shortcomings.

We thank John Covell, Senior Acquisitions Editor for Economics, Finance, and Business at the MIT Press, for signing the book, and for his insights and encouragement. We also thank the anonymous reviewers. We thank the manuscript editor, Paul Bethge, for his meticulous work.

Bruce McKern thanks colleagues at SKEMA, INSEAD, and Oxfords Technology and Management Centre for Development for their hospitality during his stays. He thanks Stanford Universitys Hoover Institution for its generous support over several years and particularly David Brady, Deputy Director, for his wise counsel and unfailing kindness.

Last, but not least, we are very grateful to our wives, Moira and Cathryn, who have tolerated our frequent, long absences in China.

George Yip and Bruce McKern

August 2015

In the eleventh century, the most advanced application of new technology in the world could be found in a Chinese city called Kaifeng, a capital of China during the Northern Song dynasty. It was a clock, standing 13 meters high, that displayed not only the time but also a variety of astronomical measures. Designed by Su Song, a talented scholar, statesman, scientist, and polymath, it was powered by water and employed a chain drive and a sophisticated escapement mechanism well in advance of any instrument then known in Europe.

Su Songs clock is but one example of Chinas early inventiveness: its discoveries of cast iron and steel technology predated the arrival of those technologies in Europe by more than a thousand years. Other Chinese innovations before the fourteenth century included agricultural technologies such as hydraulic engineering, iron ploughs, fertilizers, wheelbarrows, horse collars, and veterinary medicine. The Chinese also introduced paper, explosives, lacquers, pharmaceuticals, moveable type, and maritime innovations such as the compass and ships equipped with buoyancy chambers, rudders, and maneuverable sails.