EDITOR'S note:

How innovative is China, and Shanghai in particular? Why are there many Chinese talents but not many Chinese brands in the global arena? IMD business school professor Bill Fischer talked to Shanghai Daily reporter Ni Tao in an exclusive interview in Shanghai on April 26 about his latest observations.

Q: What is China's current ranking in terms of innovative capabilities?

A: All of the rankings are speculative at best. My sense is that, if I was to do the ranking myself, what I would say is that China's ranking in innovation has pretty much remained unchanged over the past few years.

What that means is that China certainly has the inventive capacity to be one of the frontrunners and leaders in innovation. But more inventive capacity isn't really enough. You need not only the ability to create new ideas, but the ability to commercialize those ideas as well.

And the reason I think China remains steady in terms of its innovative performance is that we have yet to see a real breakout in terms of large global organizations which have brands and channels of distribution to be able to really commercialize the inventions that can be made here.



Q: You said in 2009 that Zhongguancun [Ed: One of China's most famous high-tech parks] is only three months behind Silicon Valley. Your assertion turned out to be wrong. Why were you so confident in China's R&D prowess?

A: It's hard to really see what's going on at the front end of the innovation process, because people guard it jealously. But what I see in the more public domain, particularly the arts, is that China has an abundance of individual talent, artists, painters, singers, sculptors, architects.

And if you look at the science and PhD students, a lot of research in the West relies on these Chinese graduate students. They are doing it in the United States and Europe.

So by every indication, we know there's incredibly creative talent in this country. There always has been. China's history as an inventor is legendary. And you just don't lose that. It doesn't go away. That's one thing.

But the reform has been going on for 33 years. When we look at who are the big global players, we see Haier, Huawei, Lenovo, maybe two or three others you could speculate about, depending on what your perspective is.

But I'm frankly surprised at the lack of global players coming out of China at this point. I would've expected more. So I stick by my belief in the potential of China, but I think my prediction is wrong because we don't see the organizations, brands with global presence that I would have expected.

Q: What is the ideal proportion of idea-driven economy in China's economy?

A: China is one of these big economies like the United States where you always have competitors producing low-priced products. And you also have companies producing high value-added items at the same time. The reason for that is the size and complexity of the economy.

I think at this point, in terms of their development, we should see the majority of Chinese firms still doing assembly manufacturing, and still competing on the basis of lower wages.

But more and more we should see a small but growing percentage of people who are adding value through innovation-based, knowledge-based growth. I don't know what the right percentage is, but it's not large, it's probably not 10 percent, but it will get there.

Create and capture

Q: You once observed that Chinese firms are "creating" but not "capturing" values. What do you mean by that?

A: This is what I was referring to earlier. You can create values through new ideas (inventing) by just having smart people. To be able to realize the commercial value of those ideas, you need the ability to transform those ideas into marketable products.

That would require complex organization, channels of distribution, supply chains that are more global, and brands. And I think that these are not in abundance among Chinese companies at the moment.



Q: What's your observation on Haier and Huawei's innovative skills based on your recent fact-finding tour of the business community here? Are the two firms "creating" and "capturing" values?

A: I'm really impressed by both Haier and Huawei, and UnionPay, and a bunch of other organizations.

And the reason I'm impressed by them is that they are ambitious. They are investing in those ambitions and dreams. And they are certainly challenging some of the best companies in the world with their ideas.

Two points of reference. One is that Zhang Ruimin, CEO of Haier, continues to develop new organizational models for his firm. I'm involved in research projects looking at Haier. I can tell you that up until last week, they are continuing to reinvent their organizational culture.

Moreover, I read in today's paper that Huawei was quoted as raising its R&D spending by 20 percent. They are already the leader in R&D spending.



Q: You analyze in your new book "The Idea Hunter" why some people are more adept idea-workers than others. What traits do they have in common?

A: It's about habits, more than about brains. It's not that they are smarter. It's that they go about the search of ideas more effectively.

Most of us are too busy. But these people for whatever reason have taken the time to figure out what they are looking for and then it makes it a lot easier to find the ideas.



Q: China's new economy has its poster children, like Tencent and the Twitter-like Weibo. Tencent's chat program QQ is popular on the Chinese mainland and in Taiwan for it transmits files a lot faster than MSN. However, these products are not wholly original. Should this pattern of imitation be encouraged?

A: There's nothing wrong with taking other people's ideas and making them better. I've never been on QQ, but I do use Weibo occasionally. And Weibo is Twitter but it's gone beyond Twitter in some regards.So I think they've improved the model. That's how a lot of people around the world approach innovation.

There's no reason not to do that; that's a smart way to start.

What's interested me, however, is that while they've captured large volumes of customers in China, neither QQ nor Weibo has been successful in the non-Chinese world.

I think they both may have difficulty in doing that. We'll see. I'm told that Tencent intends to employ local brands for its internationalization. This might be a better strategy for such expansion. They have the largest number of chat users in the world with QQ, for example, but I don't think that you can really call them global players just yet.



Q: What's your impression of Shanghai's idea generation capacity and innovative performance as a city?

A: I love Shanghai because it's an exciting city with a lot of energy and a vision of the future. So my sense is that if I'm going to bet on the ultimate innovator in China, I'd bet on Shanghai.

However, when I look at what's going on in Shanghai I don't see very much, if anything, in the sense of brand leadership. Of the seven Chinese firms to make the Financial Times Global Top 100 Brands in 2010, none were from Shanghai! SAIC (Shanghai Automotive Industry Corp) and Baosteel are arguably the best known brands from the city; but where are the brands of the future?

Haier is not from here, Lenovo is not from here, Tecent is not from here...the list of leading firms that are not from Shanghai is considerably more impressive than the list that is.

So one of the things that puzzle me about Shanghai is that it's the future, it's the most sophisticated city in China, it's ahead of everybody else, but it's not producing the sorts of brands and global organizational players that I would've expected.



Q: Your puzzle also baffles many Shanghai officials, who are asking why Shanghai cannot nurture its own Jack Ma of Taobao, and Robin Li of Baidu. Why hasn't Shanghai lived up to that expectation?

A: I'm speculating, but I do think Shanghai is an old economy city that has a love affair with large state-owned enterprises. They'd never forgotten that legacy.

And for whatever reason, Shanghai's past constrains its ability to move into the future. I think it is trying, the creation of research parks is very positive.

Over time I would bet on Shanghai, because one of the things innovation requires is diversity. And I worry about the amount of diversity in China.

In general, Chinese people tell me the north is different from the south. I don't know how real and effective that diversity is.

When I think of cities in China, it is Shanghai that should have the most real diversity. It's always been a city of diversity. Back in the 19th century, different people created the city.

Tools versus engines

Q: You teach MBA courses at IMD. Will business education make up for the lack of entrepreneurial and innovative spirit in Chinese businesspeople?

A: Remember that I used to be President and Dean of CEIBS (China Europe International Business School), so I'm very interested in this question of what can be taught and what cannot, and if I'm honest I don't think that MBA education is a substitute for entrepreneurial energy.

What MBA education does is to provide tools, framework and insights for making better decisions in terms of better choices, in terms of how you run an organization, small or big.

I think what you also need if you are going to be innovative is ambition and willingness to take risks.

MBA education should provide the tools that allow an entrepreneur to innovate more effectively, but they don't necessarily provide the personal energy engine that drives that entrepreneurial urge. That comes from the individual, and from the society. It involves curiosity, ambition and risk-taking: be an entrepreneur and take some chances!

Not everybody can do this, but for some people it's instinctive; it comes from within. If you can take these people, and give them an MBA educational background, that's great, because then they become more effective in channeling their energies, and probably more successful as entrepreneurs as well.