China product innovation

David Barboza, the New York Times’ Shanghai business correspondent, recently did a story on his interview with Dan Breznitz and Michael Murphree, authors of the book, Run of the Red Queen: Government, Innovation, Globalization, and Economic Growth in China. Per Barboza, the book is about “China’s innovation drive” and it posits that “China should worry less about coming up with breakthrough technologies and focus more on what it already does best: making incremental innovations in everything from manufacturing to logistics.”

I agree.

According to Breznitz/Murphree, China should continue focusing on incremental process and manufacturing innovation, and hold off on trying to compete with the United States and Europe (what about Japan?) on “novel ideas and breakthrough products”:

[]China has shown strength in process innovation and creating new manufacturing systems. Rather than trapping China in low-end manufacturing, they say, these capabilities will power the Chinese economy for years to come and eventually allow China to move up the value chain.

Indeed, they argue that the Chinese government’s push to compete with the United States and Europe on novel ideas and breakthrough products may be wasteful and inefficient, partly because of government interference but also and because China has not yet reached an advanced stage of development.
Breznitz/Murphee talk of how places today “specialize not in specific industries but specific stages or activities within those industries”:

In different places — Taiwan, the U.S., South Korea — there are different stages of production in each industry. The next logical step in thinking about innovation, since industries are fragmented, is that different places need different systems and different kinds of innovation. China excels in different kinds of process or manufacturing innovation. This includes design for manufacturing, organization of production, sourcing and logistics.

They go on to say that China is doing a bang-up job at innovating within its manufacturing specialities:

China’s companies are extremely efficient at creating new versions, often simpler, cheaper and more efficient, of technologies and products shortly after they are invented and marketed elsewhere in the world. For instance, I can’t think of any company in the world that can have over 200,000 people in one location producing a wide array of electronic gadgets for multiple companies other than Foxconn in China.

The American military, the best fighting machine in the world, can hardly move 200,000 people into the exact locations it wants them in months, but this company moves engineers and production workers from line to line and product to product with amazing efficiency. This is production innovation. China does innovate.

But when it comes to “novel-product innovation, China is very weak” and this, according to Breznitz/Murphee is due to China’s governmental system:

There’s no way around it. The central government is the main antagonist in the process. The political economic institutions and system in China make it so entrepreneurs can’t make profit by developing novel innovation. But this same system makes process and second-generation innovation very profitable and successful.

They then talk of how there is a tendency to “equate innovation with invention” and to believe that without invention, you will “fade.” This belief, in turn, “leads to a tired dichotomy: either China is already innovating, or it’s on borrowed time and will stagnate like other middle income countries.”

Per the authors, innovation is more than just invention: It also includes “the whole array of moving and improving inventions so consumers get better, newer, and cheaper products and services.” Much of “what we think of as innovation is what we notice in the final gizmo, but the innovation is actually in the guts that make the device work.”

Breznitz then cites to the Apple power cord as a great example of China process innovation:

Do you own an Apple computer? There’s a white power supply box on the power cord. That box has been improved with continuous R.&D. so it doesn’t go up in smoke and so it will do what it does ever more efficiently. This is entirely done in China. The company that makes the power supplies is constantly doing research to make them smaller, more efficient, cooler, cheaper, and less energy intensive. This can only be done in China because firms can find high-quality engineers and tell them, ‘You will make power supplies better’ and the engineers will oblige. What are the chances you can hire someone from an elite U.S. university such as Carnegie Mellon to do that? This gives China power in the global production networks.

The authors see China’s model as “not just sustainable,” but as a driver for China increasing its power over the next fifteen years.

It is an excellent article on innovation and since I have discussed just a fraction of it, I urge you to read the whole thing here.

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Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. 

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by AVVO.com (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.