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October 20, 2019

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Heeding the innovation imperative vital to enhance Shanghai’s competitiveness

We are living in a transformative age. Rapidly advancing technology, globalization, the rise of the emerging markets and shifting demographics are changing business and society faster than ever. Traditional business models are being upended, sectors are converging, workforces are transitioning and the global economy is becoming ever more complex. Disruption is the new normal, and organizations are either disrupters or they are being disrupted. In this environment, innovation has become the new imperative — for companies and for cities. Those that heed the imperative will thrive, while those that don’t will struggle to keep pace.

Cities are of course becoming ever more important economic centers as the world continues to rapidly urbanize. Over the next 40 years, one million people will move from the countryside to the city every week. In today’s economy, the world’s most talented people and leading-edge businesses are increasingly mobile, and competition among cities to attract them is fierce and growing. Tokyo, Seoul, Singapore, London, Los Angeles, New York, Beijing and Shenzhen are all global cities that are working on repositioning themselves as centers for innovation.

Global cities emerge as innovation hubs because of their connections to global companies, linkages to global supply chains and their ability to reach billions of customers. A successful innovation economy rests on the unique strengths of each city and catalyzes the areas necessary to enable creative enterprise to flourish.

Making a coordinated effort

Innovation sometimes can appear spontaneous but in reality, it is a systematic, holistic approach that best fosters an environment conducive to innovation. Many people believe it is a lack of ideas that holds back innovation. But ideas are plentiful; not having a system in place that takes an idea from concept to reality is what holds back innovation. In other words, it is implementation that causes the problems rather than creation.

It takes many elements to succeed, which work best when brought together as an entire ecosystem. Creating this ecosystem and the right environment for innovation depends on combining a broad set of interlocking factors, including talent, funding, entrepreneurship and policy. At EY we think of it in terms of something we call the coordinated effort framework.

The coordinated effort framework stresses execution speed and agility as competitive features — and identifies four essential components to a thriving innovation ecosystem.

The first of these components is talent, both in terms of educating and managing a workforce, but also in terms of attracting the right people to a location. People should be given the freedom and funding to explore new frontiers of their respective fields. This might include greater participation in international exchange forums. Nevertheless, although freedom to explore a breadth of activities is important, so are quantifiable targets for achieving specific objectives such as useful patents produced and internationally recognized awards received.

The second component is funding, in terms of providing the right financing options and the right financial incentives for success. The appropriate amount needs to be fine-tuned periodically across prioritized sectors. For smaller countries, insufficient funding is a common hurdle, whereas in China the opposite tends to hold true. For example, previous policies in areas such as LEDs and solar energy created a highly competitive environment, triggering rapid inflation for raw materials, components, and talent.

The third component is entrepreneurship, specifically in terms of fostering an entrepreneurial and innovative culture. In Shanghai, for example, the development of the free trade zone in 2013 was an important step forward — and looking ahead there is scope for further liberalization policies aimed at expanding the zone’s current focus and geographic footprint.

The fourth and final component is policy, especially in terms of regulation and tax. When they are poorly designed, policies can cause unnecessary friction and impede the normal flow of business, let alone an environment in which innovation can thrive. While cities may not be able to have complete control over policy frameworks, Shanghai, a city similar in size to many mid-size countries, must view bureaucracy as a key threat to local companies’ ability to effectively compete with global peers in smaller, more nimble countries such as Singapore, Israel and Denmark.

Easier said than done

It seems like a simple prescription, but it’s hard to get all four elements right. While every city wants to be the next Silicon Valley, few have been able to follow suit. Shanghai has many of the right elements in place, and the desire to take the next steps.

As a member of the International Business Leaders’ Advisory Council to attend the group’s 31st anniversary meeting, I’m looking forward to taking part in a robust discussion about how Shanghai can enhance its capacity and core competitiveness, and how heeding the innovation imperative will be vital to doing so.


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