July 23, 2014
by Nikolais
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Contrasting Cultures – Asia Module 14

It was a masterstroke of genius to visit with China and Japan in a two week period. Of course you couldn’t hope to cover either of these amazing countries in that time but it was a superb ‘impression’ and cultural study showing both very similar attitudes, and very different one. Both countries being at very different stages of growth and maturity in terms of how they relate to the rest of the world.

Both culture’s have an inclusive or group mentality and to not be a part of those groups is to be an outcast. This is ingrained into 1000’s of years of culture and leads to a very different way of thinking than countries such as UK, Europe and Australia. In China this group mentality makes them stronger and faster and more efficient. I equate it to the idea of a swarm of bees moving together away from the nest. And they are learning very fast as they become more connected with the world and have clearly moved through the industrial espionage or copying stage and into one where they are starting to build brands which are much needed. Many of the more connected Chinese people are moving abroad or pushing to the more Chinese cities as there is a hunger for individualism in the form of brands. This is China’s current challenge to change and adapt to this before they suffer from young professional’s leaving their shores.

Japan in contrast has already build many great and innovative brands and in terms of lifecycle would equate them as being the older kid or grandad on the block. The Challenge for Japan is not to understand how to build and create luxury goods but more around how they as a culture can stay young and agile. The danger if they do not learn how to see and expand outside of their culture that they will outsmart themselves our of existence.

Neither of these extremes: Brain Drain, Extinction do I think will happen but it will be all around what percentage of change each of these culture’s can achieve. If I was a betting man I would be back China on this road 100% which distresses me as I love Japan and the Japanese people and really wish to see them succeed and to fix their population, National debt and resistance to change issues.

July 22, 2014
by Nikolais
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Japan Close Summary – Asia Module 14

I loved our time in Japan and really would have a loved to have spent more time there! The food was great and the people friendly and caring. Japan is surprising, slapstick, beautiful, serious and quirky all at once and the various sub-culture in different parts of the city are fascinating and each has a very different community feel. However it is very challenged with the future in relearning and integrating Western and Eastern cultures outside of Japan. Why is this important? Because it needs to generate much more income in order to survive and to build in other less populated areas of the country.

The best way to describe Japan is that it has a dichotomy of cultural traits which is at odds which each other. On one side a very traditional society and very worried about how they are perceived by their piers. This contributes to their cultural traits of sweating the details in terms of quality, craftsmanship and hospitality. It has lead to creation of some of the most innovative products the world has seen. However the society can be so inward focussed that they fail to realise or try to understand people outside of their culture. And I believe find it hard understand that other people in the world could actually be different than the Japanese people.

This has lead over the past 30 years or so to creation of products that while viable inside of Japan are not even close to viable outside in the rest of the world. This has lead to a larger downturn in the economy which is dangerously close to moving the culture towards extinction. The other side or aspect of this dichotomy is a level of individualism extreme quirkiness and in tuen the rise of very unusual series of super localised subcultures. However while extreme in outlook when viewed in context with the description above it makes perfect sense. Not only due to the obsessive detail but also in away that each of these sub culture give the youth a sense of belonging and inclusion. So while individual on the surface I suspect are less so in reality.

Yes this is all a little dramatic but the point being that cultural change or evolution is not built into the Japanese peoples DNA which is problematic in terms of innovation outside of Japan. This has been seen of late over the last couple of years with the ‘close to’ fall of Sony and rise of Korean and Chinese electronics giants. Also a good representation of this is the Japanese train system is so over engineered that no one outside of Japan is willing to pay for it as the increase in cost vs value of having a train system that ensure it is late by no more than 0.5 of a second is simply not of value in other countries.

Japan very much feels old and young all at the same time however the old is in danger of overriding the young. China interestingly feels similar however almost the opposite. The Young voracious part of China is moving forward and at speed and they only care about what people need.

July 21, 2014
by Nikolais
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Shifts towards a Service Economy

Most of the worlds leading economies are 60-70% services based: Germany/US/Japan/UK/Russia an so on. This is a natural evolution as countries become more refined (1st World) and better connected globally.

As the Service Industries go up the Agriculture becomes much less. Also Manufacturing is less than half on Average. This also becomes key as a culture becomes more technologically advanced as many manufactured product become commoditised. Service management is a way to de-commoditise and differentiate these products from other brands.

In terms of percentage of labour force Japan has one of the biggest service industries in the world however they remain challenged on how to globalise these service sectors.

There are a few very innovative service based sectors from Japan but I wil list a few below:

ANA (ALL NIPPON AIRLINES) – Have introduced a new services replacing first class called First Square – facilities include a private suite with full flat bed, 23 inch Touchscreen and private coat closet. The service extends into the ANA lounge preflight giving customers their own private pod to work in before they jet off. And finally when you arrive back in Japan they offer customers a ‘Welcome Home’ package giving them a free helicopter ride or limousine ride into Tokyo. Even Economy class passengers benefit from 34” pitch seating USB and power ports and Sleep support and relax and refresh kits to get you on your way upon arrival.

Komatsu Komtrax – Make very expensive mining and large track vehicles. Komtrax Tracking system tracks all of its products via GPS in real time including what they are doing and where the vehicle is at any one moment? This is all managed via a central management console at Komtrax. As a service this is in it’s infancy but as they have this technology in all of their vehicles they could easily start up a number of Service based functions on top of their actual products…

• Remote anti-Theft – They can watch the equipment leave the site then even switch the engine off.
• Broken down offsite assessment,
• Service channels
• Efficiency profiles to save money,
• Productivity of equipment i.e. possibly what money it earns, If its being used as it needs to be and also the time it is used.

The first area Anti-Theft is already in use and has resulted in insurance brokers now offering cost savings for owning Komatsu Komtrax products as they are more secure.

So why is it that Japan have all these great and innovative services but almost nothing apart from the products and services above in the Global Marketplace. I think a part of it is for the reasons already mentioned in my previous article*. Building on the cultural differences the Japanese service industry falls inline with Japan’s innovation profile and their reach for perfection on processes to the point that the disconnect seems to lie in commercially executable service propositions for a global market. The point being that the level of service is often in excess of what a normal global player requires and in turn this means that a financially unviable proposition. This is a big challenge for the Japanese culture as it in part is what makes Japanese innovations so great!

But again by more connected cooperative business ventures between foreign interests and Japanese service business’s a commercially executable proposition could be achieved.

July 18, 2014
by Nikolais
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Lawson – The rise of Hyper convenience

To say out approach to the Lawson Challenge was unusual would be like calling the Robot Restaurant a standard dining experience. Knowing that the Japanese culture can be a little conservative we want to knock them on their arses and get them to come out fighting. What better way to represent this that kick of with just that a Mike Tyson analogy!

Our approach to Lawson was to evolve their culture of convenience towards a level of innovation not previously seen in any sector thus far. But this was not just about technology this was about obsessing the consumer journey and what their needs are. Something it was obvious wasn’t happening right now.

Building on top of the services models coming out in Japan to try to diferentiate product creation we wanted to deliver convenience at every level of the Lawson chain. Not only in store but before you even think about going there at a local level. The idea involved

Convenience at every level of the value chain; Dry Cleaning pick up and delivery tied in with deliveries of healthy meals.
Integrated local services that align with Consumer needs via an interactive feedback model
Convenience Academy – RnD, Store manager updates, pilot projects and models for localisation.
Evolve their loyalty card into and app/service model creating a multifacited transaction system and easier use of connected services

The unique idea that Lawson did bring was that they liked to change and adapt each store to suit the local community constomers. Building on this idea we started to look and emerging markets and set up local purchase of produce and labour to create each store. In particular China, Malaysia and South Korea. The time was perfect to provide these huge markets with level of convenience yet unexpected and leverage first mover advantage. South Korea having a very fast internet penetration rate indicated that it was on the cusp of starting up online shopping and commerce services that could allow you to order and pickup/deliver items from your local Lawson store.

Also even moving into USA could be viable. And by utilising the Daiso model Japanese high quality style of convenience particularly when targeting the high concentrations of Japanese on the West Coast could well be an easy in for Lawson. And provide them with an alternative and differentiated convenience proposition giving a foothold against the large player such as 7/11. Fresh, great quality and Hyper-convenient.

Premium convenience, Japanese-style”. Hard-to-find Japanese products, value-conscious premium price
LA area first, Bay area second. Highest population of Japanese in mainland US is Gardena, CA which is in LA area.

July 15, 2014
by Nikolais
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Japan at the Crossroads

Japan has been well known for innovation over the last century however since their heydays of the 70s and 80s. Since that time the economy has been steadily declining to the point where Japan now has a large deficit than Greece. The population is ageing and childbirth is well below sustainable levels to maintain the existing 120million population. There are very few natural resources and for the last 20 years most people in Japan have seen their wages and bonuses disappear to the point that young people are not seeing any future in working hard as there are few incentives to do so and no promises of improved conditions in site. Essentially the cultural expectation is of continual decline. On top of this Japan

Ingrained into the psyche of the Japanese people is SAFETY and this is leading to people becoming less involved in the world around them and wanting to escape into their own fantasy worlds – Otaku Culture – as it has more promise and reminds them of times where they had less to worry about and more freedom.

If you compare this to other Asian countries such as China or Korea the young people can see things are getting better and better so they get on their bike and go to nightclubs and want to be with someone to build or make a future together but Japanese on the other hand can not see this happening.

The other endemic problem is that Japan has a huge ageing population. In the 80’s there were many young people supporting a handful of older people however the pyramid is now inverted. There are fewer young people and a very large and growing aged population who need support in terms of pension, healthcare and living etc. To the point the government is currently spending almost 2.5 times the size of the current Japanese economy every year. This is already at an unsustainable level and this is likely to increase.

Is Abenomics the savior of Japan?
President ShinzōAbe is looking at ways to counteract these two key problem areas by jumpstarting the economy but is it enough? One of the main components of the Abenomics plan has been to print almost 10.3 trillion JPY in the hope of encouraging spending and also introduction of NISA’s a governmental Tax free bond program but is this radical economic plan enough? It does not deal with the more intrinsic cultural and social issues previously talked about and it also fails to encourage change in attitudes to foreign entrepreneurs which for me is an obvious move if the economy is to grow.

Japan is loved by many cultures for it’s fantastic technology, unique cultural traits and it’s top quality products and services. From my own personal experience and interaction with the young Japanese people they are ready for change and welcome foreigners with open arms. Why does the Government not incentivise the leading industry castes to act in kind and start working on change in professional attitudes to non-Japanese skilled workers. Currently it is quite difficult to even enter Japan for many countries let alone try to obtain a visa to work there. Further interest from foreign investors and entrepreneurs could be setup in the form of Tax benefits and incentives. These types of changes and intercultural interactions alone can be exactly what Japan needs to bridge the gap between themselves and other cultures and turn on the flow of innovative ideas in and out of Japan.

The other question for me is how can Japan better utilise the younger culture in the workforce. For example at the moment the young women who do have children have a 70% dropout rate from the workforce! This is a huge number. From my own observations I also notice that many of the younger female population appears to be more interested in arts and creative areas of culture such as dance and self improvement. And why not there is little point working in a culture that has little promise of an improving wage and an intrinsic disdain of professional women. Both of these issues are connected and dissolution of some of the old world cultural traits regarding attitudes to gender and culture in the workplace. Apart from this being a huge challenge, is also a balancing act. As the danger is if you succeed you may lose what make Japan unique. But challenging or not they need to be addressed if Japan is to survive in the modern world at all.

So is Japan still innovative?
The reach for perfection and iteration of the culture is perfect for innovation. As it is a continually improve and evolve and trying to reach perfection. Even focusing on the process, then improve this process so it too is perfected.

Japanese companies have always focused on the Japanese consumers. Japanese consumers are very demanding encourage incremental and radical innovation. However sometimes it can be too far ahead or innovated in a way not consumable from a globalisation perspective.

Without these cultural bridges they will continue to innovate internally based on needs and requirements of the Japanese people and lack the skill on how it could be adapted to other cultures. For example Eco-cycle is an automated Robotic Bike parking station that can house up to 1000 bikes in a 100m radius. This is a radically innovative idea and years ahead of other cities who are just now introducing government biking schemes.

In Summary
Japan is a highly innovative and remarkable country which in some ways is years ahead of other cultures however in others has failed to adapt to new world attitudes. In order to become less insulated and better connected they need to focus on changes to cultural stagnation and introduce educational initiatives and create incentives to change form the inside out if they are to grow. By making these changes and having an effect on endemic cultural attitudes this aligned with the economic incentives already being executed should be what Japan needs to turn things around.

References:

No Sex please We are Japanese:
https://www.youtube.com/watch?v=c5UBigXfiIc

Abenomics is Japan starting to come apart at the seams:
http://www.forexlive.com/blog/2014/07/12/is-abenomics-starting-to-come-apart-at-the-seams-12-july-2014/

Eco-Cycle – Underground parking systems in Japan
https://www.youtube.com/watch?v=X9hLDekpPS8

Waterfront Cities of the world
https://www.youtube.com/watch?v=NzRL-2Y43Tw

July 14, 2014
by Nikolais
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Understanding Consumer Behaviour in Japan – Erica Okada

Erica’s subject matter was quite topical. It started to breakdown some of the aspects of the two week module we had been discussing. In particular around cultural difference between China and Japan and the overlay of this on cultural approaches of the Western world. It highlighted the depth of thought you need to apply to this area and that a one size fits all mentality will now work. I’m not talking just about Japan here but to the whole of the creative industries and marketing and how we become more successful in engaging with people.

Some key aspects of Japanese culture:
• Japanese has a civilised attitude to people – By saying Hello you turn from a strangers into an acquaintance. This is because once you say hello they feel or want to extend the conversation. i.e you don’t just say Hello. This leads to people acting quite differently within their community boundary and vs strangers in the street.

• Japanese society is a collectivist society. Not unlike China but for different reasons. They want to be know for being a good member and helper in the community or the most proud or patriotic or includer.

• Japanese people have a strong sense of uncertainty avoidance. They won’t be late to meetings. They like to know when lunch will be and where and they like to know what the meeting is about before they attend. To the extent that often they have a pre-meeting meeting to discuss to all are aligned. to the point that by the time they actually have the meeting people already know the outcome.

Erica also talked about the maximum amount of acquaintances Human beings can handle and still remember each one. This magic number no not ‘Dunbars number’ but similar in thinking is around 1000.

Temporal Distance vs Construel level thinking
Distant Future you can think ‘hey man that sounds like fun’ however as it comes to the immediate future then you start to think of all of the things you need to do which makes it more difficult to commit to it. Closer others (Socially speaking) do not always have a greater impact than distant others. Instead, recommendations from close others are more influential in shifting near-future preferences than those from distant others, whereas recommendations from distant others are more influential than those from close others in shifting distant-future preferences.

More Abstract Choices mean they think higher level/Group/Stick
More Concrete Choices meant they think lower/individual/Carrot
Its less important to do good in Japan and much more important to do good in Japan! If you are however doing good things what do you want to do? i.e. it may be that a good thing from a Japanese POV is quite different form USA. For example helping an individual is probably of less interest than helping say an area of society..maybe..

July 13, 2014
by Nikolais
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CBi China Bridge international – field visit

While in China we did a series of field visits. One that stood our for me was China Bridge international. An interesting agency based in Shanghai’s city centre created to bridge the divide between Western and Eastern cultures. Run by expat’s and local’s alike the agency draws from Western Agency influences and methodologies. The agency culture was made up of young enthusiastic staff the were keen to apply themselves to anything creative that came their way. In terms of projects they did take on a varied portfolio and worked a lot in the branding area – however there was that ‘hungry’ feel that indicated they would probably take on any work that come’s their way. This of course is perfect for the Chinese market as many of the brands in China are in need of a huge overhaul or actually implementation of an overarching brand strategy. CBi are perfectly placed to do this as they draw on their Western influence and knowledge.

Positioning themselves also as an innovation specialist was a step too far, however within the field and culture that lives in Shanghai it could easily be perceived as being quite innovative in approach. My point here being that from an agency perspective many of the concepts I came across that are well established in the Western agency world were in their infancy in Shanghai. Shanghai being one of the more Westernised cites of China give’s you some insight into the status Quo in China overall. This is not in any way to demean or say that the Western products and brands are more advanced but more likely that from a consumer’s perspective and sense of who they are as individual brands is much more advanced. It stands to reason from what we know of the Chinese culture and also the fact that communism is drummed in from a very young age.

If I was to move this is the type of agency I would look to get involved in! Nice.

July 13, 2014
by Nikolais
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China Overview

My first thoughts and I’m sure I am not alone as a ‘Westerner’ in this thinking, was that China is not such an innovator but extremely good at duplicating good products through their very cheap and vast labor force. It was an awakening to me to begin to understand that things are changing in theZhōngguó (中國)⁰¹and very quickly! Not only has China pinpointed a number of areas that need targeting but it is also acted swiftly on them. Area’s of particular interest are that the Chinese market is becoming more sophisticated and young consumers who are one of the biggest markets are moving away from quick fast and cheap products to more high quality luxury goods. This is due to higher wages in city centres and more young skilled and educated consumers. To support this more demanding Chinese consumer there is massive investment into creative and innovative business fields to provide luxury goods and services creating a brave new China and all the rewards that come with it. However it is not without some major and seemingly insurmountable challenges.

Xi Jinping (President of China) coined a phrase “The Chinese Dream” This phrase acknowledges and is intended to appeal to upwardly mobile urban residents now striving for the comforts of their rich world counterparts. The statement recognizes a number of things. Firstly that China is well over 50% Urbanisation and by 2030 will have close to 1 billion people living in Cities. Secondly that there are a number of challenges ahead that China need to solve rapidly in order to pave the way for this growth including worsening pollution, urban sprawl, increased congestion and perhaps most importantly, while the urbanization growth is well in excess of other countries at similar levels of development China’s urbanization plans and policies lag well behind these countries.

Getting their cities and policies right is vital if China is to continue to grow rapidly in the years to come. Getting this wrong will be disastrous leading to inequality, spread of slums, acceleration of global climate change and increased social and cultural unrest and/or loss of talent to other countries.

Chinese residents having dinner outside their home in a slum or shanty town area by the second ring road of Beijing. Photo by EPA

In particular large numbers of Chinese middle class are looking for boltholes abroad for themselves and their families and their assets. To alleviate these problems Mr Xi and China realize that they need to initiate huge cultural change and cut deep into traditional areas normally taboo. Breaking through these barriers to reform including tackling corruption, ingrained cultural racism against rural license holders (farmers) allowing them to sell their rural properties so they can leave to the cities with cash in hand and deal with a fast growing urban migrant population (Almost 1/3 of the urban population) and supporting a fast growing middle class population (again around 1/3 of the urban population)

Louis Vuitton Shanghai Credit: Reuters/ Carlos Barria

Is this even possible? From what I have seen over the past few weeks is anything to go by I would say most definitely for a number of reasons. The Chinese culture have a unrelenting pragmatism about them which enables them to have a good hard look at themselves and meet these problems head on. They also have a huge engine enabling rapid response to problems due to their group mentality mindset and large population.

July 13, 2014
by Nikolais
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Internal Migration and the Hukou System

One significant factor driving China’s urbanization is the large influx of migrant workers that come from the countryside with a Rural hukou. Hukou’s act as an internal passport and was initially implemented by Mao Zudong in 1954 to stop and influx of rural workers into the cities. The Hukou rather than the place of residence determines the level of welfare benefits someone is entitled to. It also has lead to a form of internal class racism from urban hukou holders and the Chinese State Govt leaving Rural Hukou residents as second class citizens with little or not rights and modes of support. The city-born children of migrants suffer the same discrimination, often being denied access to urban state-run schools and having to clear higher hurdles to get into university.

However times have changed asince Zedong implemented this law in 1954 and internal migration is one of the most important drivers in China’s fast paced urbanisation plans today seeing almost one third of the city dwelling population holding Rural Hukou’s. Figures from the 2010 census put temporary migrants – that is, those living more than one municipality away from their registered home for a period of more than six weeks – at almost 250 million, or nearly 19% of the overall population. This is expected to rise to approximately 30% (400 million) by 2025* . These figures may be lower than the actual total as many migrants are thought to have avoided inclusion in the census. Most migrants moved to the city either because of surplus labour problems in their hometowns, or in the hope of earning higher levels of income to support their families. This temporary urbanization has not exacerbated China’s urban unemployment as China’s economy has grown rapidly over the last several decades, and as migrant workers tend to take those jobs that urban residents are either unable or unwilling to do. Male migrants, for instance, dominate employment in sectors such as construction, while females work in cheap labour textile and other factories, where work is strenuous and often dull. Migrant employees are thought to send home an average of 50% of their income. More recently there have been reports of shortages of labour in some of the bigger cities, such as Shanghai, as opportunities open up closer to home for many migrants; the municipality of Chongqing recorded a higher number of returnees than those leaving in 2011 for the first time since the reform period began. Additionally, second generation migrant workers have begun to demand higher wages and better working conditions, reducing the benefit of employing them. Nevertheless, migrant workers remain a crucial aspect of China’s continued rapid development.

The overwhelming majority of migrant workers come from the poorer, western or interior provinces. 82% of these migrants head to just seven municipalities and provinces – Beijing, Tianjin, Shanghai, Zhejiang, Jiangsu, Guangdong and Fujian. Approximately 64% of all migrants are males, aged between 16 and 30. Only 10% have been educated beyond middle school.

While tolerated by Beijing as a means of reducing rural unemployment, and as a way of providing cheap labour for urban factories and construction, migrants have not been given explicit permission by the government to be in the cities in which they work. There are many reports of discrimination against migrant workers both by their employers, who may seek to exploit the vulnerability of these workers through non- or late payment of wages, and by the state, which denies welfare benefits to those not resident in their registered municipalities. Without official residence papers, migrants have poor access to housing, health facilities, and education for their children. It is not uncommon for migrants to work long hours in poor safety conditions for little pay. It is estimated that the majority of the 700,000 annual, serious, work-related injuries, claiming 130,000 lives, are incurred by migrant workers.

As migrant workers become a more permanent fixture of urban landscapes, there has been an effort to relax the hukou system in order to provide this population with greater rights. In 1997, for example, the State Council created a pilot scheme to allow certain migrant workers to transfer their registration to 450 selected towns and cities. To qualify, migrants needed to demonstrate a stable source of income, residence of over two years in the chosen city, employment in either secondary or tertiary industries, and that they own their own apartment. These requirements have made it close to impossible for the vast majority of migrants to qualify. In 2001, the State Council expanded the program to include all small towns and cities. Yet, as the value of the property was not specified, many city governments restricted large inflows of unskilled workers into their cities by requiring apartments to be of a value that often exceeded the means of the average migrant worker. This meant that, in effect, the government pilot scheme acted more as a means to attract talent and investment rather than a policy to promote the rights of those involved in internal migration throughout the country.

More recently there has been increasing pressure to reform the hukou system, with 12 newspapers publishing a joint editorial calling for it to be modified in March 2012. The Government does appear to be waking up to the disruptive potential of an urban underclass. Early in 2013 Li Keqiang, the prime minister, began calling for a “human-centred new style of urbanisation”. In November last year (2014) the party decided to speed up the pace of hukou reform. Officials have been calling for “equal rights” for all urban residents. A new word has entered the party lexicon: shiminhua, which means turning a migrant into an urbanite with all the perks of a city hukou-holder. The declared aim of urbanisation now is not just to move people into cities, but more importantly to make urbanites of them.

These reforms are a vital aspect to China’s continual growth however there are major challenges alongside these reform’s including massive resistance from the local government who do not wish to foot the bill and also the urban hukou holders due to concerns that their privileges and access to education and welfare will be stripped away to balance the large investment needed to balance the scales.

On top of this the rural hukou holders even through highly discriminated against are also resistant to relinquishing their rural hukou in exchange for an Urban one as the local governments simply reclaim this land and sell to developers and refuse to allow them to sell their land to make money and build a better life, properly severing ties with their Rural background.

To say there are some challenges ahead is an understatement.

*Economist special report on China April 2014

July 13, 2014
by Nikolais
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The Challenge of Innovation in China

One of the more interesting case studies we covered in Bruce McKern’s Strategy and Innovation lecture was a case study regarding a little known Security company in China called FourD or (FDIC). What was of particular interest for me was the method that a Dr Yan Wang CEO took to create innovation in the CIT sector of the Chinese market. While his methods were not ground breaking it says a lot about the Chinese culture and their approach to innovation.

Dr Yan Wang’s partnered with a more technologically advanced innovative company called Johnson’s security outside of China enabling FDIC to differentiate their product offering in a competitive market segment. He leveraged Johnson’s design excellence and quality production techniques and targeted the luxury niche area of this market. This enabled him to create more innovative products in China and overlay FDIC expertise in manufacturing to eventually create a scalable cost effective solution for the wider market sector. Of course this was not without it’s challenges along the way but hopefully you get the idea.Innovation in China is alive and well however it’s just a little different and commercial from what the Western world view as innovation.

This is not to say that China can not be original and inventive it’s just that it seems to have been a while! In 1089 A.D. Su Song invented to the first clock known as the Cosmic Engine or Astronomical Clock!

It’s just that there is a certain thoroughness and pragmatism to how China creates innovation. Seeking new Knowledge is a great start and China does this extremely well as shown in the 4D case study and also some of their purchases in the past few years including Lenovo, Volvo and now Motorola.

Building upon my previous statement ( As my friend Christian Behrendt is fond of saying ) the Chinese people have no qualms at all about having a good hard look at themselves and this same pragmatic approach is seen in the investment currently being put into the creative and R&D industries. Well in excess of 20% increase in R&D spending each year and is well on the way to surpassing even the US R&D spend per capita (424bn).

But does throwing a bunch of money at R&D and creative fields create innovation? No you need direction, intelligent allocation of this money into the right area’s and clear understanding of what type of infrastructure you need to create and maintain innovation. In short China needs to understand what type of innovation it is already good at and evolve into this area.

However they really need to innovate and invest money into their biggest problems such as Clean energy, housing and education. Solve these issues and already you are paving the way for a truly innovation and culturally aligned society (a by product of solving these endemic issues*). For example China is graduating around 900,000 engineering graduates every year while the US is only graduating 80,000 however the quality of these graduates at this stage is questionable. If China turns it’s all seeing eye on this area and innovates in their education sector then they will be producing 900,000 engineering graduates of equal quality or better that the USA! As a country China must transition from an economy heavily reliant on manufacturing and government investment to one fuelled by innovation and high-tech industry.

*See previous article on the Hukou System

China’s path to innovation

China has been following a specific path in terms of it’s innovation strategy which is now maturing into Stage 3 and 4 areas. By focusing on their specific strengths they will have a lot of advantages to their approach over more Western companies. Many of China’s strengths lie around incremental innovation and great listening skills and adoption of consumer benefit models, i.e products are made and adapted as people ask for them and quickly. Also they have been very good at innovating in the area of business models specifically for the Chinese market and in particular in creating efficiencies along the value chain and are now working out how to apply this to other international markets and acquisitions.

Advantages of China’s innovators

Fast
Fearless
Willing to experiment, fail fast, learn, adapt
Forgiving customers – Chinese people accept failure as long as you are moving forwards.
Cost advantages in engineers, scientists
Very good understanding of customer micro-segments
Fierce pressure to survive, which forces innovation
Smaller companies are highly entrepreneurial
Experience in incremental innovation provides base for breakthrough

innovation

STAGE 1: FIT FOR PURPOSE

Became part of a global supply chain – learned – State of the art practices for China.

Initial Competitive advantage – low cost.

Deep understanding of customers – incremental innovation (TaoBao, Baidu, Tencent)

Some innovative processes:

Xiaomi – They have a great customer responsiveness to feedback via Active customer ecosystem which suggest improvements

Haier – Washing machine which also now washes potatoes due to customer feedback…they listen and adapt!.

STAGE 2: FROM FOLLOWERS TO WORLD CLASS

Rising labour costs & increased competition has lead to needing to create new strategies – Push customer focused competition.

Mindray – (US approved for kudos)

Goodbaby – (Sells as an Original Design Manufacturer – Has localized design studios in various markets and then feedback on this info and respond quickly by return),

Neusoft – Innovation in Software platforms and learning systems. (Business process)

Technology based startups

Suzhou Nano-Micro – Leader in manufactur of NanoTech particles (Microspheres). Nano – particles for bio-pharmaceutical purification. LED emission and diffusion

SVG Optronics – (Nano Scale printed films) High Resolution mask less lithography. Have now created touchscreens with Nanotech metal mesh allowing them the screens to be flexible.

Haier – Developed CASARTE 8 Brand Design centres, developed 3 draw freezer which has different levels of freezing. You can put your icecream on the middle draw and it comes out soft.

28 Cooperative R&D institutes. 300 International designers worldwide.

YuWell – Medical devices for Home use.

STAGE 3: FROM RESOURCES TO MARKETS

• “Go global” push for Outward Foreign Direct Investment (OFDI), initially in resources

• Slow shift to finance, real estate, transport from tech.

• Search for markets and brands in EU, US

STAGE 4: SEEKING NEW KNOWLEDGE

China is 20 years behind Korea which is 20 years behind Japan! However this is changing and fast!

Global companies are being acquired for market share, brand and organizational knowledge.

• LENOVO

• VOLVO

• MOTOROLA

• Creation of Foreign RnD centres – Haier, Goodbaby

Looking closely at the EU for technology & manufacturing skills – Mittelstand model. Highly focused, achieving unprecedented efficiencies by designing a business model with a razor-thin focus and learning to do the one thing really well” then to “compensate for their razor-thin focus… they diversify internationally and enjoy great economies of scale”.
US for basic science & technology which can be incrementally innovated.

However the marketplace is much more crowded than ever before.

In Summary
As already stated in previous posts China’s path to innovation is not without it’s challenges however there are a number of differences that Chinese companies have that already set them apart many of which surround some key cultural characteristics including a group mentality and circular active communication within the wider Chinese communities.

1.Greater focus on local needs and customers

2.Acceptance of good enough standards

3.Push for incremental not radical innovations

4.Learning from global supply chains

5.Willingness to supply special needs

6.Use large numbers of staff to solve the problem

7.Work their staff harder

8.Fast trial and error – fail fast

9.Less formal, faster processes

10.More intervention by the leader

11.No need to refer back to distant HQ

12.Closer to government

13.Closer to community/ecosystem

Epicurial

a love or knowledge around the celebration of life

Contrasting Cultures – Asia Module 14

Japan Close Summary – Asia Module 14

Shifts towards a Service Economy

Lawson – The rise of Hyper convenience

Japan at the Crossroads

References:

Understanding Consumer Behaviour in Japan – Erica Okada

CBi China Bridge international – field visit

China Overview

Internal Migration and the Hukou System

The Challenge of Innovation in China