Nicholas Vaccari
3/30/17
BADM 7170 – China
Preparing for the Trip
China’s Next Strategic Advantage
By: George S. Yip
Chapter 1- China’s Drive for Innovation
The first chapter starts off with some history of China’s influence on innovation in the
world. Some of these innovations included: hydraulic engineering ploughs, fertilizer,
wheelbarrows, horse collars, veterinary medicine, paper, explosives, lacquers, pharmaceuticals,
moveable type, the compass, rudders, and maneuverable sails for boats. These all took place
before the fourteenth century in which China’s innovations slowly tapered off and became
almost nonexistent. During this time, China was creating more radical innovations since it was
on the forefront of this push. China now has a current drive to again be on the forefront of
innovation because its sudden rapid economic growth has created a large amount of problems
within the country, and because China wants to position itself in prosperous international
markets where it can be competitive.
Today there are four main components to innovation in China and they are known as the
four C’s. These factors include: culture, customers, capabilities, and cash. China is a very
different place from the western world due to the vast number of people and the very culturally
rich environment. If a business can tap into the large customer base alone, it could generate
millions, but the customers also come along with the culture. China has three phases to their
innovation process and of these three, the copying to fit for purpose phase is interesting in that
the innovation lies in the simplification of the product or process to create more value at a
cheaper price. An example of this could be found in the automobile industry. The elimination of
expensive and unwanted features can swing a customer from an expensive option to a cheaper
option that better suits their needs or a better “fit for purpose”. This is where China’s advantage
also lies. China local businesses understands its consumers the long history of doing business
with the China people. China consumers differ from Western consumers in that the quality can
suffer at times but speed and price can be more important factors in manufacturing. The second
innovation phase involves innovating the market rather than within the market. This builds with
the previous phase because, in China, speed to the market is everything. They have developed
the phrase, “fail fast and learn” because of this. The thought process is instead of getting
everything perfect, a company needs to get the product to the market, let the consumers provide
feedback, and make alterations as needed. As stated in the book, “Because the market is so large,
a market launch in one location may not affect a company’s overall reputation. The third and
final phase of innovation is from seeking new resources to seeking knowledge. When a company
is seeking new resources, it is looking for new ways to invest which can mostly pertain to
physical things such as a workforce, land, warehouses, etc. Now, China firms are more interested
in acquiring knowledge to enter new markets instead of physical aspects. This is occurring more
and more today through acquisitions and mergers. The most recent case of magnitude that we
have seen is the Time Warner and AT&T merger. By combining both companies Time Warner
will have a faster distributing due to AT&T’s network making them a much more agile force in
the market. China also has many supply and demand enablers of innovation that make doing
business there such a large priority for Multinational Corporations. For both supply and demand
enablers, the most interesting aspect is the size of the china market and how large of a role it
plays. This market diversity along with its culture and customer base creates a field for
competition that will ultimately lead for more innovation from multiple nations in China.
Chapter 2- How Chinese Companies Innovate
In chapter two, the author uses the four Chinese innovation leader companies as examples
to show how Chinese firms utilize the customer, culture, cash, and capabilities. The first
company we dive into is the Haier Group. The author started describing this company with a
story of their CEO that stuck with me. At the headquarters in Qingdao, there is a display case
containing a sledge hammer that commemorates the day when the CEO of Haier, Zhang Ruimin,
pulled 76 refrigerators off the production line. The refrigerators were in complete working order
besides some minor scratches, which to Zhang Ruimin were still defects. So, one by one the
destroyed the defected refrigerators. Zhang’s message was that at Haier Group was only going to
produce quality products, and this story still resonates throughout the business world of China.
This story resonated with me because when I buy products, quality is one of my main priorities.
A CEO that is willing to go to the lengths of making an example of faulty goods is a good leader.
As stated in chapter 1, there are three phases to innovation, but there are many modes to
innovation as well. Cost innovation is China’s biggest advantage. China thrives on using low–
cost labor to create a cheaper overall product. This can also be done by automating certain
processes that can be repetitive and monotonous. Some forms have also saved by employing
experienced engineers. By doing this, processes can become more streamline to lean out
processes and reduce waste. Our next mode for innovation is process innovation. This can be
done by adding or changing processes to produce or deliver a product faster. The Broad Group is
a manufacturer of non-electric air conditioning systems and by utilizing process innovations,
they reduced their installation time from 100 days to just two weeks. This reduction is absolutely
