Can China become a leading global innovator? – Bill Fischer

After becoming the shop floor of the world, China is now focusing on its position as global innovator. IMD-professor Bill Fischer examines in Forbes whether those ambitions can become true. Counting patents is certainly not the way.

There is a big difference between creating new ideas [creating value] and capturing the value associated with these new ideas.FT.com/alphaville reports that many of the Chinese patents counted are utility patents, and do not represent significant new contributions to knowledge [in other words, not value creation]. Furthermore, at least one observer on the scene has reported that Chinese government authorities are encouraging the disaggregation of patent applications in order to boost the numbers of patents being produced. This month, INSEAD’s Global Innovation Index for 2011 ranked China just 29th overall in innovation [Switzerland #1, U.S.A. # 7]. According to this analysis, although China’s innovation benefits from growing market and business sophistication (for a middle-income economy) and a lively financial sector, there are disadvantages associated with social infrastructure deficiencies relating to innovation-related institutions and human-capital development. It would appear that while China might be becoming more productive in generating patents, these may not necessarily translate into economic impact. On the other hand, China ranks #1 as the world’s top “importer of R&D,” which would be appropriate for innovation strategies based on value-capture…

Increasing the “rate” of inventive activity will only get you so far. In order to make it big on the global stage, a nation’s firms need to be able to capture the economic value associated with that activity. This means investment into organizational design on a global scale, establishing brand visibility, building worldwide supply chains and channels of distribution, and all of the rest of the complex set of activities that go into making a successful multinational corporation. Two years ago, Rebecca Chung and I reported that experienced Chinese managers participating in CEIBS’s [the China Europe International Business School] EMBA program appeared considerably less optimistic about China’s prospects as a global innovative leader than did a similar set of their peers in IMD’s EMBA program [66% of the 53 CEIBS’ EMBAs saw China’s near-term future as “staus-quo”, while only 18% of their IMD peers agreed with this assessment]. Perhaps what the Chinese managers saw, that outsiders in their enthusiasm missed, was that increasing inventive activity might well be the easiest part of successful innovation, and that it is indeed a less glamorous and more managerial long march to becoming able to realize the value associated with that increased inventive activity.