Will China 2.0 Out-Innovate Your Company?

by Rowan Gibson

Pick up your iPod and turn it around. Note the cool and somewhat snobby phrase that's printed on the back of the device: "Designed by Apple in California. Assembled in China." These eight words speak volumes about the Middle Kingdom's role to date in the global economic food chain. But it's already a seriously outdated paradigm. After thirty years as a lowly "workshop for the world", China is getting ready to move up the value chain. And this transition - from low-cost manufacturing to world-class innovation, design and marketing - will change the rules of competition everywhere on earth, including inside China. So forget whatever else your organization considers to be a strategic priority and ask yourself: "Are we gearing up for China 2.0?"

On a recent trip to Beijing, I was struck by how radically the focus of everyday business conversations has changed. And this has nothing to do with the global recession, which temporarily took some of the wind out of China's sails. It has much more to do with the realization that China is entering a new and quite different era in its economic development, and that companies (both local and foreign) will have to act quickly and decisively if they are going to carve out a place in it.

Until now, there were certain words that seemed to dominate all business conversations in China. Obviously, one of them was "growth", which is understandable considering that China's economy has doubled in size three times over in just the last thirty years! Another dominant word was "cost", as in low-cost, cheap, cheapest - which is a concept no nation has mastered quite like the Chinese. And still another was "export", since China's white-hot growth has been driven primarily by exploding overseas demand.

But now the game - and the conversation - is changing. There's a new set of words and phrases that I'm hearing more often in business circles in China. Like "world-class", "high performance", "global", "better" and "best". Company leaders - whether they are from local Chinese firms or foreign multinationals - are talking a lot less these days about "manufacturing in China" (been there, done that) and a lot more about "marketing, design and innovation in China" (you ain't seen nothing yet). This shift in rhetoric has incredible implications for the shape of future competition, both globally and in China's own massive home market.

However, you might argue that China still has a long way to go before the rhetoric becomes reality. And you'd be right. Take innovation, for example. In the recent International Innovation Index, produced in part by Boston Consulting Group, China was ranked as the world's 27th most innovative nation, just behind New Zealand. To put this in context, some of China's regional neighbors were at the very top end of the scale: Singapore was ranked first in the world, South Korea took the number two slot, and Japan landed in 9th place (right behind the United States). Newsweek's comment on these rankings was quite typical: "China excels at producing huge volumes of low-cost products, but Japan and South Korea are tops in innovation and high-tech goods."

It definitely won't stay that way. Consider some data that support this conclusion. For a start, the number of patent applications from Chinese companies has increased ten-fold over the last decade, and the annual growth rate is almost twelve per cent. In fact, the world's most prolific filer of international patents last year was Huawei Technologies, China's largest networking and telecoms company, which became the first Chinese enterprise to top the list. Overall, China ranked 6th among countries according to the number of patents filed, after the USA, Japan, Germany, South Korea and France. And if current growth rates continue, China will surpass them all in about a decade.

In his brilliantly researched book China Inc., journalist Ted Fishman says, "China has yet to introduce the kind of world-changing technology or consumer products that are the hallmark of advanced economies. But it will." And he continues, "The genius that has so far poured into creating great factories will soon be evident in great products and great brands that will offer the world unsurpassed quality and refinement."

That process is well underway. It's notable that in 1995 there were just three Chinese companies on the Fortune 500 list. By 2000, it was ten. By 2005, the number had jumped to eighteen, and in 2008 - a mere three years later - it had leapt to 35. Companies all over China are rising to the challenge of becoming high-performance business players, many on a global scale. Huawei, for example, is already giving Cisco a run for its money in the networking business. In 2007 the company reported annual revenues of $16 billion, and in 2008 $23.3 billion. That's a 45 per cent increase year-on- year. And over 60 percent of Huawei's revenue is generated outside China. Another Chinese champion, Haier Group, is currently the fourth-largest appliance manufacturer in the world, with global revenues in 2008 of nearly $18 billion. Sales outside China are rising by about 10% year-on-year, and the company has grabbed a significant share of the U.S. market by focusing on neglected product niches like compact refrigerators and electric wine cellars. Haier has already surpassed rival Whirlpool as the world's top refrigerator producer in terms of sales.

Gong Li, chairman of Accenture in Greater China, has a catchy way of describing the challenge of moving up the value chain. He calls it "Jumping Over The Dragon Gate", which refers to an old Chinese legend in which carps had to swim against the current and jump over a tall gate to transform themselves into dragons. As more and more Chinese companies close the performance gap with their global counterparts, Li believes they will be able to "make the jump". And Anil Gupta, co-author of the excellent new book Getting China and India Right, absolutely agrees. He warns that China will produce "fearsome global competitors at a speed that the world has not seen
before". So what exactly is your own organization doing about the rise of China 2.0? And, for that matter, what are you doing about it in your personal career? Isn't it time you started learning Mandarin?

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Can Innovation Create Competitive Advantage?

by Jeffrey Phillips

Over the last six or seven years, definitely since about 2003 or 2004, there has been an increased focus on innovation in many businesses. I think much of this was driven by several factors, including an increased rate of change in competition, especially the growing capabilities of India and China. I also think that information costs have fallen as the web has become more fully adopted, and consumers are demanding more. Finally, I think the focus on cost-cutting and outsourcing is reaching it's logical conclusion. Most of the things that could be cut, trimmed or outsourced have been. Many businesses in the US are relatively lean, and need to return to growth and differentiation.

All of these factors contribute to the need for innovation. However, there are a lot of trends that suggest innovation is important in the near future as well. The focus on global warming means new technologies are required to reduce emissions. In the US, health care reform will mean new demands on an antiquated health care system. The US Government is straining to provide services that the population expects and demands. The banking sector is ripe for change and disruption. All of these factors suggest a significant amount of change is in store for our government and for major businesses.

None of this is going unnoticed in the hallowed halls of major corporations. Booz and Company has just released its yearly Innovation survey, and more than ever, innovation is moving from an interesting sideshow in most organizations. Now, innovation is being recognized as offering a competitive advantage, perhaps one of the few sustainable advantages, and CEOs and executives are taking note. The survey points out that over 90% of the executives surveyed said innovation was critical to the success of their firms as they prepared for the market and economy to improve. One executive went so far as to say "the recession was a catalyst for increased innovation".

Booz and Company listed three reasons why they felt companies have continued to invest in innovation during the economic downturn:

1. Innovation is becoming a core component of overall corporate strategy


2. Recognition that product development cycles are longer than recessionary periods


3. Many see the recession as an opportunity to build advantages over their
   competitors

One of the biggest impediments to innovation continues to be the "constraints of the product development lifecycle". The product development life cycle in many industries is simply too long and too cumbersome, and any opportunity to shorten the development life cycle could mean real rewards. Conversely, any slacking off could mean falling behind the competition.

My take: Innovation is gradually moving from an occasionally interesting sideshow that is not focused and not strategic, to becoming a key focus of senior executives as they realize that only innovation can help the firm continually grow and differentiate. Innovation is rapidly becoming a capability or enabler that strengthens and focuses the corporate strategies, and should over time become a key enabler to many corporate goals and strategies. Once more firms create a continuous capability for innovation and modify their cultures to embrace innovation, then we'll see the real transition occur. It is heartening to see that more and more firms are placing more emphasis on innovation at a strategic level.

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Jeffrey Phillips is a senior leader at OVO Innovation. OVO works with large distributed organizations to build innovation teams, processes and capabilities. Jeffrey is the author of "Make us more Innovative", and innovateonpurpose.blogspot.com.

Mumbai's Innovation Hub

by Vyoma Kapur

Innovation in the developing world, as many people may tend to think, comes from either large conglomerates or small entrepreneurial communities which have had the good fortune of venture backing. Especially in a free market economy, such as India's, innovation is often thought of as the mandate of thriving businesses equipped with the know-how.

In Mumbai, India's economic powerhouse, the real social innovation is coming from the grassroots. These are people, who despite having little, are the answer to Mumbai's mounting waste management problem.

The dwellers of the Dharavi slum, the largest in Asia, have created a massive recycling industry. Invaluable for the social impact it has created, the slum's existence is supported by high-strung officials and ordinary civilians alike. Using simple machines in their home factories, these dwellers are recycling anything from plastic bottles and metal cans to paper and cotton, saving the city from the wrath of its own garbage. Over 80% of the plastic waste of Mumbai is recycled in the Dharavi slum.

As the consumerism of Mumbai's upper and middle classes disposes of thousands of tons of waste material everyday, energetic young men of Dharavi sift through piles of trash to gather anything with the potential of being recycled. Different types of junk is given a new life and then sold for a bargain. With support from non-profit organizations such as ACORN International, rag-pickers are taught how to manage solid dry waste.

With an increasing number of micro-entrepreneurs entering the recycling business, this industry has seen an astonishing level of organic growth. The slum produces a jaw-dropping $1.3 billion worth of recycled output every year. There are approximately 400 recycling units, and the number is increasing every month.

Spreading across approximately 174 hectares, this slum is like any other. It lacks food and proper sanitation and is rife with squalor. For a few hours everyday, some areas of the slum are supplied water and electricity. Despite making only a fraction of the salaries earned by their counterparts in more developed areas of Mumbai, many of these dwellers are finally finding their way out of poverty through the huge demand for their services. Needless to say, environmentalists are in full praise of this green industry, a rarity in the hustling cites of India.

Having spent a few years in India, I find this commendable. I have not seen the Dharavi slum, however; I've seen many other slums, just like those depicted in Slumdog Millionaire. That slum dwellers could become social entrepreneurs within their own capacity to fight for survival never crossed my mind.

The Dharavi example made me wonder; do we always need a team of experts and comprehensive research data to innovate? Is it not about solving the problems in front of us and seeking ways to improve what is defined and traditional? To the Dharavi dwellers, the waste piled up around their homes was not a problem, it was an opportunity. They became rag-pickers and set up mini factories with whatever little they had. In time, they turned Dharavi from being Mumbai's biggest headache to one of its greatest assets, setting an example for similar communities around the world.

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A marketing professional turned entrepreneur, Vyoma avidly supports and practices open innovation. Earlier this year, she founded Colspark LLC (www.colspark.com), a crowdsourcing platform to help companies tap into student talent for ideas and solutions.

Problems - An Opportunity for Radical Innovation

by Rowan Gibson

Take a break from all the negative news about the economy. On my speaking trip to India, I was struck by the unbounded optimism in business circles. Sure, growth might be temporarily slowing, which may put the damper on investments for a short while. But, Indians have learned to take the long view. Whether the value of the Dollar, or the price of oil, or even the whole US economy goes up or down, they know the future is still gravitating irreversibly toward Asia.

India is one of the only countries I know where you come down to the hotel restaurant in the morning and most of the people in the room seem to be having laptops and PDAs for breakfast. I mean, there's literally no room on the table for the food! It's like "Breakfast is for bevakoofs!" (Hindi for "idiots"). The talk at these tables is all about growth percentages and expansion plans. And don't expect much of a change at lunch or even dinner. This is a nation that has come to live and breathe business.

Mira Kamdar, in her book "Planet India", points to a simple premise that appears to be at the heart of India's remarkable success: "Treat every problem as an opportunity." It was this attitude, after all, that led India in the late 1990s to step up and offer to help the U.S. with its looming Y2K computer crisis. Where else were American companies going to find enough low-cost, English-speaking software engineers to do all the drudge work of Y2K readjustment? And when the year 2000 came and went, without airplanes dropping out of the sky and nuclear power stations turning into mushroom clouds, those same American companies started wondering what else they could outsource to India on the cheap: e-commerce, IT support operations, call centers, services, even mission critical applications. Thus the Indian IT industry - and as a consequence the whole Indian economy - went into overdrive. No wonder Thomas Friedman, author of "The World is Flat", argues that "Y2K should be a national holiday in India, a second Indian Independence Day".

I see this same 'problem as opportunity' attitude when I talk to Indian companies of every stripe. When I asked one CEO recently about the impact of the weak Dollar on his business, his reply was stunningly upbeat. "Oh," he said with a grin, "that really works in our favor. It's going to make it much easier for us to expand in the U.S. market. Now we can buy up American companies at bargain basement prices".

Of course, India doesn't have to go out looking for problems to solve. It has enough of those on its own doorstep. With 40% of the world's poor, one-third of the world's malnourished children, 800 million people in need of education and proper employment, the world's single largest population of people infected with HIV/AIDS (not to mention other widespread diseases), 17% of the world's population but only 4% of the world's freshwater, a looming energy crisis, relentless terrorism, and a dreadfully damaged environment, India faces some of the most daunting challenges on the planet today.


"Treat every problem - including a deep social need - as an opportunity for radical innovation."


That's where there's a need for innovation at an unprecedented scale. Not just innovation in the traditional business sense, but 'social innovation' that addresses the needs of India's society, schools, healthcare systems, cities, and environment. Thirty years ago, the late great Peter Drucker pointed out that this, too, is an important definition of innovation. In his seminal book "Management" he writes that modern social needs "are not too different in kind from those which the nineteenth-century entrepreneur converted into growth industries - the urban newspaper and the streetcar; the steel-frame skyscraper and the school textbook; the telephone and pharmaceuticals". India, perhaps more than any other country on earth, has recognized the need to turn its social problems into opportunities for innovation, and is rising to the challenge in a grand way.

Look anywhere in India today and we see exciting examples of social innovation combined with profitable business innovation. And behind each of these examples we usually find some wonderfully heroic entrepreneur who has battled with heart and soul to give ordinary people a better life. I think of Dr. Reddy, founder of Apollo Hospitals Group, who is using state-of-the-art technologies, breakthrough business models, and revenues from medical outsourcing and medical tourism, to put world-class healthcare within almost everyone's reach. I think of economist Muhammad Yunus, founder of Grameen Bank, who pioneered the concept of micro-credit, and in the process became the world's first "banker to the poor". I think of Ratan Tata, India's answer to Henry Ford, whose tiny $2,500 Nano automobile (the same price as a Louis Vuitton handbag!) is set to do for mass mobility in this century what Ford's Model-T did in the last. I think of amazingly unpretentious Narayana Murthy, now retired cofounder of Infosys, who has repeatedly demonstrated his belief in 'compassionate capitalism' - an altogether different paradigm that focuses not just on wealth creation but on making a significant contribution to society.

Three cheers for India's irrepressible optimism and can-do spirit in the face of almost impossible odds. What many in the country have clearly figured out is that every great challenge presents enormous opportunities, and that success at innovation is about much more than revenues and profits; it's about doing well by doing good. There's a lesson in this for all of us.

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Social Innovation as Smart Business Strategy

Businesses Can Be Good Stewards Of Our Societies

by Idris Mootee

Innovation takes many forms, but social innovation is the least understood form, and today there are pressing needs and urge for the creation, adoption and diffusion of innovations. Innovation's several forms include: technological, organizational, product, service, business model, etc. The term 'social innovation' has come into common parlance in recent years. Some may consider social innovation no more than a passing fad, but many entrepreneurs and social scientists see significant value in the concept of social innovation because it identifies a critical type of innovation.



Social innovations will probably be the most significant innovation type in the next decades. Some distinguish social innovation from business innovation, and identify a subset of social innovations that requires government support, which I totally disagree with. Business innovation should have a socal innovation component when we think about sustainability.

A good business strategy needs to be more than about just maximizing value creation. It is important to make lots of money, but more important to ensure the business is sustainable. Our future is in the hands of a couple thousand top Fortune 500 executives who are already very occupied with the daily crisis, and whom make decisions that impact our future. They need to understand the long-range implications and impacts of their immediate, everyday, urgent actions and decisions in relation to the far-reaching social innovations now taking place (which are management's new and most significant dimension). This is a critical junction of modern management.



Last month, my friend Mehmood Khan (photo above), London based ex-Unilever's global leader of innovation process development, took a public oath in his home village of Nai Nangla in India that he would dedicate the rest of his life to making the world a better place. He is starting from his home village in India. I wish more executives whould do that. Imagine the possibilities if all the smart minds in large corporations started taking a little time off to do this?

He left his job at Unilever to return India to focus on innovation of a different kind. Khan's job is to forge connections between the village of Mewat and big corporations to create employment. A year ago, Aviva, the UK's biggest insurer, was looking to build its rural presence in India. Khan's trust connected the company with 60 local young people and 12 were ultimately recruited. "It's a cycle that generates money... Aviva hired some people whose income went up... This creates a market economy," Khan told Forbes magazine. He has set up a computer center in Nai Nangla. He has also facilitated ICICI Bank to recruit 16 of the 30 villagers trained in the first intake. Khan also engaged charities and NGOs to administer literacy programs. He is full of creative ideas on how corporations can participate in helping.



The question is should companies' role in meeting basic needs be kept distinct from their desire to create more profits? For Khan, the two can work together. I totally believe that is possible and even necessary. The lines between business strategy and social innovation have blurred and converged as the business world attempts to respond to the modern culture's demand that businesses be good stewards of our societies. Hats off to Mehmood and Aviva.

Aviva is a bold and innovative player in the insurance industry (full disclosure: they are a client of ours and this is one of our innovation projects). Most people feel that insurance is just a black box and,you'll never interact with them. For many it becomes very difficult to see the value in insurance. As an expansion to their successful "Change Insurance" communications platform, Aviva has launched "In Your Shoes" which is a site dedicated to viewing the opinions and thoughts of customers about insurance. We started playing with the idea a few months back based on the notion of using storytelling to create customer engagement.

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Idris Mootee is the CEO of idea couture, a strategic innovation and experience design firm. He is the author of four books, tens of published articles, and a frequent speaker at business conferences and executive retreats.

Wipro Makes a Necessary Move

Wipro is coming to America, and Romania, and Egypt.

It used to be that Wipro was an Indian company employing mostly Indians in India and that when they did an outsourcing deal with you, they would offshore the work to India.

Times are changing though. An increasing number of potential outsourcing clients are becoming disillusioned with offshoring (especially for software development work). The reasons can vary, but include:

• Development overhead that wipes out most of the financial gains


• Finding that senior development staff is better suited to coding than directing Indian subcontractors


• Time zone hassles


• Language barriers


• Employee retention issues

I can't say that I think this is a bold or innovative move. This is something that Wipro has to do or they will not be able to compete with IBM, CSC, Accenture, HP/EDS, etc.

While doing a process analysis for a large UK-based financial and healthcare software company I personally witnessed some of the drawbacks and the company's reactions to them.

The fact is that as more commercial and internal software development moves to using agile methodologies, companies will require any external partners to be in the same country or even the same time zone or possibly even the same building.

This is one more proof point that the world is not as flat as people once thought. In this undulating world, success will come in part from differentiating between times when the world is flat and when it is round.

What do you think?

Decreasing Standard of Living, Increasing Profits

We are at an inflection point in the developed world, and the fate of your standard of living rests either in the your own hands (if you are an entrepreneur) or in the wisdom (or lack thereof) of a few key politicians.

The question is will the direction be up or down?

Economic factors in our newly globalized world dictate that individuals in lesser developed countries like China and India will experience rising wages and an increasing standard of living while individuals in the developed world experience flat or declining wages and standard of living in a race to the middle.

This began happening some time ago, but has been buried under a pile of easy credit.

Housing costs have increased, food and fuel prices are surging upwards along with commodity prices as demand grows faster than supply. Meanwhile, real wages are declining. Sounds like a depressing situation, right?

Well, all is not lost. If we can't avoid the inevitable decline in the developed world, then as individuals--and even as states and nation--we can seek to slow its decline or reverse the trend completely.

How do we do this?

As states and nations, we must invest in improving our ability to efficiently provide the basics, while at the same time reducing our demand for scarce commodities.

Our businesses must move from being product-led or even customer-led organizations to maintain their lead by transforming into innovation-led organizations that can move faster than competing organizations overseas with lower costs that seek to copy their innovations.

As individuals we can either go along for the ride as employees and hope that our government and business leaders make these adjustments faster than foreign competition, or help to lead the charge as entrepreneurs.

The entrepreneurs among us must recognize this new reality in the world and identify ways to profit from it. We must uncover the new or amplified business and consumer pains and the solutions to them. These truths will exist across the developed world and thus will scale for entrepreneurs or businesses bold enough to pursue them internationally.

What does this look like you might ask?

Well, one example would be satisfying the need for consumers to increasingly downgrade from restaurants to other types of less-expensive prepared foods when time is scarce. UK supermarkets like Tesco and their ready meals offer a great example that could be replicated in fast-paced American cities like New York, Seattle, and San Francisco.

Another would be exporting used American SUVs to take advantage of their rapid repreciation in the era of $4 gasoline to places that benefit from the weak dollar and/or lower fuel prices.

There are a million more ideas and innovations out there for people to find and put to work even as developed economies crest.

So are you going to let this new wave pummel you or are you going to find a way to ride it?

That answer is up to you...