Tom Doctoroff
Tom Doctoroff

Innovation is high on China´s agenda, but China-veteran Tom Doctoroff wonders loudly if the country can really innovate, looking at the structural inhibitions of its culture.

Tom Doctoroff:

Lei Jun, the quintessentially imperial chief of gadget maker and “China Dream” brand du jour Xiaomi, is also a proponent of  incremental — or micro-targeted — innovation.  In a recent Wall Street Journal interview, he asserts, “In the past you made a phone, hoping to sell it to billions of users in the world.  Now you can’t think in this way. You’ll have to design different phones for different crowds in different scenarios.” In the same article, Lei Jun cites Xiaomi’s newly launched model 4C, which enables better Internet connections on high-speed trains, and newly announced virtual SIM cards that offer cheap roaming rates for international travelers.  He then asks, “Wouldn’t you call this innovation?”

Well, yes and no. It’s innovation alright. But not the type of mould-breaking, value-creating innovation Lei Jun claims to admire in brands such as Muji and Uniqlo, Japanese companies that redefine “everyday style” in home furnishing and fast fashion.

China needs non-incremental innovation to escape a middle-income trap and  living standard stagnation.  The country’s growth model is bogged down by structural tensions — recently manifested as abrupt exchange rate lurches, worrying capital outflows and ham-handed stock market interventions.

“Innovation traditionalism” is no longer enough.

China’s economy, not to mention its burgeoning middle class, demands qualitative, not quantitative, evolution.  This will require a gradual, albeit fundamental, shift corporate mindset that reveres low price as the ultimate competitive advantage.  Industry and government leaders must now focus on margin elevation.

This is not happening, even in new generation sectors.   Scores of “online to offline” apps have lost funding because of price war burn out.  Theoretically, these services put excess human capital to more productive use and could become platforms of mold-breaking innovation. But most still root appeal in satisfying the Middle Kingdom’s most timeless urge: bargain hunting.

I am neither economist or political scientist.   Many are more qualified to limn the structural barriers that preclude liberation of China’s creative spirit.  They are omnipresent, baked into the warp and woof of China’s social, political and industrial fabric.  They include: non-existent intellectual property protection; defanged commercial courts beholden to local party interests; ambiguous eminent domain regulations; a rigid financial system designed to advance state interests; massive state-enforced capital misallocation; and media controls that pre-empt free flow of information, the life blood of creativity ideation.

China’s elemental problem, however, is cultural — a national “trust deficit.” For thousands of years, China has been closed society and, today, so are its corporations. The Middle Kingdom lacks dynamic “networks” that stimulate new ideas and the dynamic collaboration required to harvest them.

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Tom Doctoroff is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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