How global companies should view China’s tech innovations

DJI Sky City, DJI's global headquarters, Shenzhen, China, August 29, 2022. /CFP

DJI Sky City, DJI’s global headquarters, Shenzhen, China, August 29, 2022. /CFP

DJI Sky City, DJI’s global headquarters, Shenzhen, China, August 29, 2022. /CFP

Editor’s note: Edward Tse is the founder and CEO of Gao Feng Advisory, a strategy and management consulting firm. The article reflects the author’s opinion and does not necessarily reflect the views of CGTN.

In the early 2000s, Chinese entrepreneurs began experimenting with new business ideas such as e-commerce. This coincided with the time when the internet became popular in China and Chinese consumers began to take notice of this new phenomenon.

Fast forward to the end of the decade. Wireless Internet was widespread and entrepreneurs began experimenting with new business models to address the “pain points” of Chinese society. In the following ten years, both innovation and the number of Chinese entrepreneurs grew exponentially. Internet companies like Alibaba, Tencent, JD.com, Baidu, Meituan and ByteDance became household names. Beyond the internet, other Chinese tech companies such as Huawei, Xiaomi and DJI have also gained notoriety.

Entrepreneurs in the internet industry typically built fast, fast, and agile companies that fearlessly experimented with new business models and then improved and refined their models based on market feedback. To this end, sectors such as e-commerce, social commerce, fintech, O2O (online-to-offline) retail and mobility grew rapidly.

The rapid growth of innovation in China during this period was fueled by changes in politics, technology and demand patterns.

The Chinese government developed a vision for the nation and refined it over time to synchronize with the evolving context. Innovation and entrepreneurship have been key issues in Chinese politics for over a decade. Today, technological innovation remains a priority area of ​​Chinese politics.

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There is no doubt that technology plays an important role in innovation. After the wireless internet faded as a platform for innovation, other disruptive technologies such as artificial intelligence (AI), cloud computing, big data analysis, and blockchain technology emerged, ushering China into a new era of technological innovation.

Consumer and business demand patterns are also changing as digital technology has penetrated all aspects of Chinese life. The pandemic has also caused shifts in consumer and organizational demand patterns.

The three innovation drivers interact with each other and create waves of more innovation. Innovations based on “hard tech” are the new games embodied by deep technological know-how and breakthroughs, precision and accuracy, and patience. Capital and entrepreneurship are now being channeled into areas such as new energy, semiconductors, robotics and automation, biomedicine and life sciences, and security. A new generation of entrepreneurs has emerged, such as CATL’s Robin Zeng, Xpeng’s He Xiaopeng and SenseTime’s Tang Xiao’ou.

SenseTime Company, Shanghai, China, February 26, 2022. /CFP

SenseTime Company, Shanghai, China, February 26, 2022. /CFP

SenseTime Company, Shanghai, China, February 26, 2022. /CFP

The common denominator of all this is the “China model”. The central government formulates the overall plan for the national economy, and corporations pursue goals that often coincide with government policies and plans. Local governments act as a bridge between central government and individual businesses, providing financial support, subsidies and start-up support. Together, this three-tier system and the state-owned enterprises that provide public goods that people and businesses need create a positive momentum for the progress of innovation in China.

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Other underlying drivers such as the growing number of students studying STEM – a combination of science, technology, engineering and mathematics, the rising number of patents pending and the number of scientific papers published – all evidence that China is on the right track.

The Western view of China’s technological development has shifted from “don’t know” to “don’t believe”. The West is finally realizing China’s potential in this technological area. This process has taken well over a few decades. Today, Western views range from acknowledging China’s ability to innovate, labeling it as “fragile” and “pinnacle,” to acknowledging that “China has already overtaken or overtaken the US in terms of technology.”

However, geopolitics continue to create uncertainties. The risk of so-called “decoupling” is an overarching concern for many Chinese entrepreneurs. Some in the West see China as a “competitor” or “enemy,” meaning “China must be defeated.”

Despite this, the Chinese system and entrepreneurial zeal continue to fuel the nation’s spirit of innovation. From China’s perspective, growth over the past four decades could not have happened without being part of the global system. However, innovation could not have been skipped without strong internal self-initiative at both corporate and government levels. The West provided initial inspiration, but later the Chinese also found ways to drive innovation, in sync with the context in which they operate. Sanctions on a number of Chinese tech companies have also forced those companies to make technological breakthroughs on their own.

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In the semiconductor sector, for example, China has historically focused on using imported chips in the manufacture of end products, rather than designing and manufacturing in-house. This was the assumption behind the globalization that prevailed at the time, in which the natural division of labor between countries around the world was the dominant assumption. Although there are still gaps compared to the world’s leading semiconductor suppliers, Chinese companies are now beginning to make measurable advances in computer software for chip design, lithographic machinery and manufacturing capabilities, in addition to their already fairly strong position in testing and packaging.

Recognizing political rhetoric and understanding China’s innovations is crucial for global companies to formulate their own strategies, especially in cases where China is, by definition, the core of their businesses. For many, China is not only an important market, but also an important source of knowledge and inspiration. This is becoming increasingly common as Chinese innovators have started setting new standards in technology and business practices.

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