Jumping Over the Innovation Barrier
Gong Li, chairman of Accenture in Greater China, calls the effort that China has to put in going up the value chain as “Jumping Over The Dragon Gate”. In an old Chinese legend, carps had to swim against the current and jump over a tall gate to transform themselves into dragons. This reflects the transition that efficiency driven economies like China will make towards becoming an innovation driven economy (à la Porter 2002). Last year, Accenture China itself had launched an R&D Lab and an Innovation Centre in Financial Services. Anil Gupta & Haiyan Wang, authors of the book “Getting China and India Right” also consider these countries to become platforms that will significantly boost global technology and innovation base and serve as springboards for emergence of new global competitors. I am of the opinion that China has already jumped the dragon’s gate. What is most important here is the political will and capacity, and China has both of these in abundance.
Returning back to Asia after 13 years, it is hard not to be struck by how everyday business conversations has changed. Previously, concepts like “growth”, “cost”, “compliance”, “productivity” and the like dominated the conversation. Whilst these being equally important, “innovation” has been thrown into the mix. The word is being bandied around at every opportunity, and has already become a cliché. This follows the ubiquitous rhetoric in developed nations such as in the US, where a 2012 survey (WSJ 23 May 2012) shows over 250 books on innovation published over a 3 month period, nearly half of the companies surveyed had a Chief Innovation Officer or equivalent, nearly a third of business schools use the word ‘innovation’ as part of their mission statement, and the word was mentioned 33,528 times in annual reports published in 2011. Whether this shift in rhetoric in the developing countries is bankrupt or not, it is indeed a sign of the new direction.
China is ranked 27 on the innovation index, while regional neighbors are at the top end of the scale: Singapore is usually ranked in the top three, Hong Kong in the top ten, (even ahead of the United States). It definitely won’t stay that way for China – China is already the world’s most prolific filer of international patents. Journalist Ted Fishman in his book “China Inc.” says, “China has yet to introduce the kind of world-changing technology or consumer products that are the hallmark of advanced economies”. However this image of the world’s factory is distracting from its higher order achievements. It’s notable that in 1995 there were just 3 Chinese companies on the Fortune 500 list. By 2000 it was 10; by 2005 it became 18; and in 2008 – a mere three years later – it had leapt to 35; in 2011 – another three years later – it became 61; and last year, 2012, it grew to 73!
Chinese companies are increasingly becoming critical global players. Huawei is giving market leaders such as Cisco and Ericsson in the networking business a run for their money. In 2007 Huawei reported annual revenues of $16 billion; today it’s over $35 billion – and 66 percent of those revenues are generated outside China. Haier Group, is already the number one major appliance manufacturer in the world, with global revenues in 2011 of over $23 billion, with a significant share of the U.S. market, already surpassed rival Whirlpool as the world’s top refrigerator producer in terms of sales, by focusing on neglected product niches like compact refrigerators and electric wine cellars.
The big question is whether Indonesia and its companies are able to jump its own innovation barrier. Current indicators are crippling and shows the long way Indonesian has to go before it can join the innovation league:
· OECD’s Global Innovation Index 2012 shows Indonesia on rank 100 out of 141 nations. This orientation is consistent with INSEAD-WIPO’s Global Innovation Index 2012 and the BCG-NAM Global Innovation Index 2011, which ranks Indonesia at 100 out of 130 and 71 out of 110 respectively.
- World Economic Forum’s Global Competitiveness Index 2012-2013 ranks Indonesia 50th among 144 economies losing ground since 2010-2011 ranking at 44th. This is consistent with IMD World Competitiveness Scoreboard 2012, which ranks Indonesia at 42 among 52 economies.
- Transparency International in 2011 showed Indonesia ranks 100 out of 183 in terms of perceived levels of corruption,
- World Bank’s ‘Ease of Doing Business’ list in 2012 sees Indonesia on place 128 out of 183 countries,
- World Bank’s Knowledge Economy Index expressing countries’ ability to produce and diffuse knowledge ranks Indonesia only 108th out of 146 countries.
There is rising political will in Indonesia for innovation, as seen in Masterplan for Acceleration and Expansion of Indonesia Economic Development 2011 – 2025 ( MP3EI). It calls for “strengthening of the national innovation system in the areas of production, process, and marketing with a focus on the overall strengthening of sustainable global competitiveness towards an innovation-driven economy.” Given optimistic and upward trending conditions in Indonesia (cf. McKinsey Sept 2012 The Archipelago Economy), it is an opportune time engage and participate in unraveling the innovation story here.
Gajendran Kandasamy, gkandasamy@binus.edu