Innovation

A Theoretical Review of the Current Challenging Complexities. A Call for Innovation.

Uncertainty. The Economic Perspective

The result of increased “complexity” arising from:    globalization, accelerating technology shifts, faster pace of innovation, increased information and knowledge, further differentiation of fields of knowledge, deregulation plus global and local practices, convergence and dependence of industry sectors, scarcity of  natural resources, closer linkage with the environment, mounting expectations of different stakeholders such as consumers, changing capital markets, etc.

Uncertainty. A Broader Perspective

The result of increased complexity in law, economy, politics, science, ethics. (Luhmann, Teubner, Beck, Baumann)

From the legal perspective, overlapping of various legal instruments, practices, standards; from local, regional and global sources. i.e. Trade remedies, WTO, FTAs or national laws; 

Global law is always facing local practices, local enforcement; as well as influences from other systems such as political or economic systems. This is specially the case in China.

Uncertainty. Challenges to the Observer

  • Paradoxes. Almost every trend seems to have a counter trend.
    Niels Bohr “The opposite of a correct statement is a false statement. The opposite of profound truth may well be another profound truth”
  • Management of the unknown. Information is ubiquitous. Future competitive advantages will depend on the mastery of the unknown (Eamonn)

Uncertainty. The Traditional Responses

  • Increasing control, bureaucracy (or intervention), or centralization.
  • Rely on limited observation instruments –metrics- (Einstein “not everything that can be counted counts, and not everything that counts can be counted”)
  • Busyness / scapegoats (i.e. CEOs)

A Different Approach. Observation, Learning, Innovation, Adaptation.

  • Traditional responses prevent observation, learning, and therefore innovation and adaptation.
  • New approaches create structural and organizational mechanisms, to facilitate observation, learning innovation and adaptation.
  • Donald Sull states that three concurrent abilities must be present: 1. Strategic anticipation; 2. Organizational agility; 3. Resilience –uncertainty absorption.

Innovation. Towards Asia. China

  • Innovation involves prior observation and learning.
  • It has been said “Global success depends on local knowledge”; now increasingly we must say “Local success depends on global knowledge”.
  • There are many questions when considering to approach the Asian markets and the Chinese markets.
  • However, statements such as “not all industries will find a source of competitive advantage in China” will normally deter you from developing serious observation and learning strategies.
  • There is sufficient evidence to think that the Chinese market deserves exploration and observation, because it is most likely that all markets will be influenced by it directly or indirectly.

Innovation

China. Trends and Paradigms 2008-2009
  • Migration of traditional industries –machinery, tools, consumer products, pharmaceuticals, food, retail industry- into strategic zones of the China market
  • Contract manufacturing -processing- migration into “processing zones”
  • IT, High Tech R&D centers migration into “high-tech zones”. Patent filings skyrocketing
  • Supply chain transfer –design and innovation-. Before, company by company, and now entire supply chains invest together (auto, IT, telecom). Also co-production assembly for export worldwide.
  • Logistics transfer –third party logistics- . Management of stocks at FOB price and other factors.
  • Domestic service industry increasing capacity and quality –value chain-. This includes investment banking- mutual funds- finance – media – consultancy –technology and systems – human resources
  • Large growth. Small companies with exponential growth (Wen Wen cookies)
  • Two-tier JVs –business in and out of China- production and distribution
  • Reverse JVs –investment out-flow- (Yanjing/Taisun, etc)
  • Regional competitors become global cooperators (Haier/Sampo)
  • Private equity and funds clubs create financial pipelines from or through  Greater China to the World.
  • State Owned Enterprises changing approach towards private investment patterns. Global approach for China focused growth.
  • Increased human capital management –managerial and technical support entering the center of the projects-
  • Chinese companies becoming more competitive locally. Massive domestic consumption –industrial and household-
  • Chinese companies becoming more competitive globally. However, more and more being Global requires being Local. Relevance of the Chinese local market.
  • Chinese companies are forming strategic alliances that are and will change the balance in many industries, and these alliances will take place across industries and markets.
  • Regional integration (ASEAN) –value chain integration-. Export and manufacturing prowess will take larger market share from neighbors in their home and export markets.
  • China is integrating with the World, in a broad and large scale, across industries and markets.

Beyond Manufacturing

  • R&D expenditure has an average growth rate of 20%, R&D-to-GDP ratio grew from 0.8% to 1.23% (From 1998 to 2004).
  • The 11th 5-Year Program aims at raising R&D-to-GDP ratio to 2% by 2010 (Japan 3.1%, USA 2.7%, South Korea 3.0%, OECD average 2.2%).
  • Average 30% annual increase of domestic invention patent application (i.e. grew from 13,726 to 65,786, an AGR of 29.8% (1998-2004)