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  • GEORGE S. YIP: OK.

  • Thanks for coming along to this.

  • So it's based on this book.

  • There are still some free copies left up front if you want them.

  • So I was doing the research on this book when

  • I was based in China at the top business school there, China

  • Europe International Business School, from 2011 to 2016.

  • And the subtitle is really the theme of my talk,

  • "From Imitation to Innovation."

  • You used to hear about how China is about imitation, now

  • it's about innovation.

  • In the early days, of course, China was just copying.

  • From 1978 onwards, they were copying products were illegal,

  • sometimes were called shanzhai which mean mountain bandit.

  • You see here a product called the Blockberry endorsed

  • by President Obama, probably without his knowledge.

  • On the right, something that surprise you,

  • this is not a cigarette packet pretending to be a cell phone;

  • it's a cell phone pretending to be a cigarette packet.

  • Just to show you how different the Chinese can be,

  • they actually love smoking so much some of them

  • wanted to pretend their cell phone was a cigarette packet.

  • So then China starts moving from copying to fit for purpose.

  • So in the earlier days--

  • 1980s, 1970s-- China was poorer, lower per capita income.

  • So for practical innovations, such as Guangdong crane

  • moving from double welded to single welded,

  • so a lot of process innovations.

  • China, of course, makes more solar panels than anybody else.

  • And the critical innovation there, self-cleaning.

  • Because if you have a dusty solar panel,

  • then that's a massive problem.

  • So in the beginning, these are not

  • rocket science innovations but typical Chinese innovations.

  • They are pragmatic and profitable.

  • Then you start to see-- and I'll talk a bit more later on about

  • Alibaba, Taobao--

  • these online systems where we start seeing innovation online.

  • Haier, one of their biggest and probably

  • the most international company in major appliances, now

  • the world's biggest major appliance companies.

  • Lots of initially small innovations, like early on they

  • found that their washing machines were getting

  • clogged up in rural areas.

  • They discovered it was because the farmers were

  • using them to wash potatoes, rather than just clothes.

  • Now, a Western response might have

  • been put a label saying, do not wash crops.

  • Instead, their innovation was they changed the filter system

  • and added a label saying, suitable for both clothes

  • and crops.

  • Refrigerators, when they first moved to the US market,

  • they went at the lower end, such as college dorm rooms.

  • And they realized that college dorms were small,

  • so they added a folding tabletop to double up

  • as a desk, a trivial innovation.

  • Today they have a more significant innovation,

  • technical.

  • They have innovated the world's first three temperature

  • compartments refrigerator.

  • The third compartment is designed

  • to store the food that is the most important to Americans.

  • What food is that?

  • No, not pizza.

  • Anything else?

  • Ice cream.

  • What's wrong when you take the ice cream out of the icebox?

  • It's too hard.

  • And Americans don't like to wait.

  • So it took a Chinese company to have

  • this insight and then typical of Chinese innovation

  • to invest the R&D money and to be able to manufacture it

  • in an economical way.

  • So this is a typical innovation.

  • But they are now moving beyond this.

  • They're moving toward waterless washing machines, for example.

  • So genuine technological innovations.

  • Chinese are very customer-focused, as well.

  • I'll just talk about the bottom ones.

  • We visited a number of start-ups.

  • So Suzhou Nano-Micro, world class nanoproducts; SVG

  • Optronics, they make security films over ID cards

  • and so on that are higher than the quality you find in the USA

  • or in the European Union.

  • I'll talk about some of these other companies in a moment

  • as well.

  • The entire ecosystem for Alibaba I'll talk more about.

  • GoodBaby makes 80% of the world's baby carriages.

  • A typical innovation now, you hold the baby

  • in one arm and one button that you press folds

  • up the baby carriage.

  • Again, a typical Chinese innovation.

  • You have to invest in it, requires

  • significant manufacturing capability.

  • Now they start to make things that are a bit more technically

  • advanced, so Tencent, social networking, instant messaging

  • service, online gaming, and so on.

  • Medical devices are very big in China, aging population.

  • And then the intersection of online and medical devices

  • are going to be a very big sector in China as well.

  • Xiaomi, the mobile phone company,

  • sends out software upgrades every week

  • based on input from its millions of customers.

  • And then the bottom, Newsoft, an example

  • of integrating medical devices and information technology.

  • And these are organized to relate to each other.

  • So of course, with the solar panels,

  • we have the wind energy.

  • The third one, they're now experimenting

  • with roads using solar power to recharge

  • the bus as it drives along.

  • That also is a typical Chinese innovation

  • in that it requires a top-down government

  • to put in that kind of innovation.

  • Can you imagine trying to do that

  • in the streets of Cambridge, Massachusetts,

  • putting in a system like that?

  • On the top right, Huawei, the telecoms company,

  • now the largest telecoms equipment company in the world,

  • genuine innovation, creating a product

  • that ran 2G, 3G and 4G in one product.

  • Again, typical Chinese orientation to the customer

  • because this was more practical for the customer

  • to have only one machine.

  • And now investing more and more in R&D.

  • It has R&D centers around the world.

  • For example, outside Milan, Italy,

  • it has a microwave research technology center

  • hiring Italian scientists, keeping them

  • in the local ecosystem.

  • The middle row, high-speed trains, of course

  • initially copied.

  • The Chinese train company was sued by Siemens and Hitachi

  • but has breezed through that.

  • China, of course, has more high-speed rail tracks

  • than anywhere else in the world.

  • I don't think the US has a single mile of high-speed rail,

  • nor does the United Kingdom.

  • And of course, this means they also

  • build more trains that they're now innovating with and selling

  • all over the world.

  • In the middle, aerial drones.

  • China did not invent the aerial drones,

  • but most aerial drones are now manufactured in China.

  • And this is a product that's classically

  • suited for Chinese innovation in that innovation

  • for this product happens better next door to the factory.

  • Why?

  • Because innovations are to add more rotors,

  • to change the carrying capacity, make it bigger,

  • make it smaller.

  • There's now a Chinese one that can carry a person.

  • Good luck traveling in that yourself one day.

  • And this is opposed to say something like a mobile, a cell

  • phone, where you do the innovation in California

  • and you have it manufactured in China.

  • So also, this is a product that is based on metal, plastics,

  • and some electronic combination, again

  • ideal for the lower cost Chinese engineers and scientists.

  • And on the right, this is the mid-sized jet

  • that China has just test flown.

  • It's going to go up against Boeing and Airbus.

  • Why is it able to do that?

  • Because China buys more new jet aircraft

  • than any other country in the world.

  • It already has 500 advance orders before it is proven.

  • And of course, most of those advance orders

  • are coming from Chinese airlines who

  • have to buy from this state-owned manufacturer.

  • Initially copying, but with innovations

  • that they're going to add and with enforced technology

  • transfer from the West, which is why

  • we have this tariff war that's just started in the last week

  • or so.

  • Now, the internet-based innovations are different.

  • The traditional innovations in China

  • are based on low cost engineers for both R&D

  • and for manufacturing.

  • While that is less the case with internet-based companies,

  • or at least my interpretation, and you know more about it

  • than I do, is that internet-based innovation

  • comes from experimentation with large numbers of customers.

  • So China has more internet users than any other country

  • in the world, so this is now a great advantage for them.

  • And toward the end, I'll show you some visuals

  • about the internet ecosystems.

  • I won't go through them all, as I said.

  • You can just look at the PDFs yourself.

  • So our sort of model, our theory of how this happened,

  • is that we have four drivers, the ones in red and pink,

  • and we have three phases in yellow that I'll go through.

  • The first driver, customers.

  • Initially, the customers were poorer

  • so Chinese companies and Western companies

  • had to innovate in China in order to develop products

  • that were cheap enough.

  • The other thing we find is that Chinese customers

  • are quite different in many of their tastes from the West.

  • So again, different types of products needed.

  • Culture.

  • We have the entrepreneurial culture of Chinese executive,

  • and we include under culture the drive of the government.

  • The Chinese government really wants innovation now,

  • and the word innovation has reached the top line

  • of the latest five-year plan.

  • And the Made in China 2025 initiative

  • is all about innovating in China,

  • rather than just manufacturing.

  • On the right, over time, firms enhance their capabilities

  • to innovate, learning from Western partners

  • and also as they became more profitable,

  • investing the cash that they generated in R&D.

  • And two other uses of the cash are setting up foreign R&D

  • centers and thirdly, buying foreign companies

  • for their technology.

  • And I'll show you some examples of that.

  • So with this, they moved from the phase one,

  • copying to fit for purpose, to moving from being followers

  • to world standard products.

  • And in the third phase, global expansion,

  • including acquisitions.

  • Early acquisitions were resources

  • like oil fields, property.

  • But more and more, they're making

  • acquisitions for knowledge.

  • So here are some famous Chinese acquisitions.

  • Of course, the first one was by IBM's personal computer

  • business.

  • Then another example, Volvo, bought

  • by a mid-level Chinese company most of you

  • have never heard of called Geely.

  • One of the reasons they were able to buy Volvo

  • is that the Chinese government designated them

  • as the only Chinese car company allowed to bid for Volvo.

  • They beat off the non-Chinese competitors.

  • When they won, the CEO of Geely said,

  • it's like a Chinese peasant marrying a Hollywood movie

  • star.

  • And of course, they're starting to learn technology from Volvo.

  • Putzmeister, a leading construction equipment company

  • in Germany, bought by now the world's largest construction

  • equipment company, China's Sany.

  • They've even bought Club Med, which

  • I think is for the large, evolving leisure

  • market in China.

  • Most controversial, in the middle, Kuka.

  • In 2016, a Chinese medical device company, Midea,

  • bought one of Germany's leading robotics companies.

  • For the first time, the German government

  • said, really, perhaps we shouldn't let this go.

  • And the German prime minister asked a German consortium

  • to outbid them, but they were underbidding 20%

  • and it went to China.

  • Only on the right, finally, last year

  • was one German acquisition blocked, Aixtron,

  • under US pressure because it makes semiconductors, some

  • of which goes into defense.

  • So the US got Germany to block that acquisition.

  • But there will be many more such acquisitions

  • because the Chinese have a lot of money.

  • Google is probably safe for now.

  • So the entire Chinese innovation ecosystem is growing.

  • In fact, the Chinese now have more scientific publications

  • than the USA.

  • Of course, so far it's quantity rather than quality,

  • but the quality will follow.

  • And of course, it is the US and the West

  • that is training ethnic Chinese scientists.

  • So if you go into STEM program-- science, technology,

  • engineering, mathematics--

  • huge numbers of ethnic Chinese.

  • And China now has special government programs

  • to lure them back.

  • Also, the market is luring them back.

  • We visited one company that makes flexible display screens,

  • replacing something a millimeter thick,

  • replacing the entire dashboard of a car,

  • started by a Chinese PhD in electrical engineering

  • from Stanford.

  • But he goes back to China to start the company because cars

  • are being manufactured in China and it's the biggest car

  • market in the world.

  • So everything in the ecosystem is on the up.

  • And here is the scariest sight I've ever come across.

  • It was presented at Oxford about a year

  • and a half ago by someone representing

  • the Chinese Academy of Science.

  • 22 strategic science and technology initiatives

  • that China is pursuing.

  • I'll just read out some of them.

  • Dark matter and dark energy; controlling the structure

  • of matter; artificial life and synthetic biology;

  • nano science; space science exploration;

  • ubiquitous sensing based informationized manufacturing

  • systems.

  • So they're actually going for everything, pretty much.

  • China certainly has the world's largest supercomputers,

  • for example.

  • All right.

  • So summarizing our research, we found

  • that there were 10 major ways in which Chinese company

  • innovation is different from Western innovation.

  • And you might think about how this is the same or different

  • at Google, as well.

  • I've got a slide or two on each one of these.

  • The first one is a greater focus on local needs and customers.

  • Now, all companies do that, but the Chinese are really

  • focused on local customers.

  • So on the left, Chinese like soy products, so

  • Joyung makes a soy milk cooker.

  • On the right, that's myself with my co-author.

  • We're at TCL, the world's largest consumer electronics

  • company.

  • They created a dual TV that two people can sit side

  • by side watching two completely separate TV

  • programs full screen.

  • You just have to wear these dark glasses with the earpieces.

  • And my theory is that they designed

  • this for a special Chinese need, which is the single child

  • policy.

  • The single child has grown up selfish

  • and doesn't know how to share.

  • So when they get married, they don't want

  • to share TV programs either.

  • So this product is designed to reduce the divorce

  • rate in China.

  • Apologies to the Chinese in this audience.

  • Oh, and again, a typical Chinese innovation

  • is that it's expensive to design and it's

  • expensive to manufacture but Chinese companies

  • can afford to do that.

  • Initially, number two, acceptance

  • of good enough standards.

  • This was the first mass market car in China, Cherry QQ,

  • under $5,000 US.

  • It was famous for its thousands of defects,

  • but the Chinese accepted it.

  • And if this had happened in the West, the brand would be dead.

  • Cherry is still a respected brand in China.

  • So the Chinese are more forgiving,

  • at least initially, because they're still

  • moving up the ladder.

  • But they didn't stop there.

  • So by participating in global supply chains,

  • they learned, and furthermore, because

  • the competitive situation is so fierce,

  • they're like Alice in Wonderland with the Red Queen.

  • They've learned to run very fast and stay in the same place.

  • So we now this concept of Red Queen competition, and this

  • is what happens in China as a way of enhancing

  • their capabilities.

  • Third one, incremental, not radical, innovations.

  • When I visited the head office of Haier,

  • they showed me their new range, Casarte, pretending not even

  • to be Chinese called Casarte.

  • The main innovation is that they've

  • embedded Swarovsi crystals on the fronts of the cabinets.

  • So the Chinese are not embarrassed to do anything

  • that will sell a product.

  • Another example of this, of incremental, Braun,

  • which starts out making gas-fired air conditioners,

  • has now gone into pre-fabricated buildings.

  • So I was in one of the buildings that was being built.

  • Notice they sell it like they actually talk about LEGO--

  • you can buy this shape, that shape, fully sealed,

  • air conditioning systems.

  • When I stayed at their on campus hotel,

  • you couldn't open the windows and there were no controls

  • for the air conditioning.

  • So super energy efficient, very fast to put up,

  • and much cheaper.

  • So that's, again, typical Chinese innovation.

  • Willingness to supply special needs.

  • A TV company called Hisense has a big share of the TV market

  • in Africa because in Africa, many villagers are too poor

  • and can afford only one TV set, which sometimes

  • has to be shown outdoors for bigger audiences,

  • such as for a football match.

  • This means that you need to make the screen brighter.

  • So Hisense was willing to invest in a switch and a capability

  • to make the screen brighter for outdoor use

  • and again to manufacture it.

  • So a typical Chinese innovation.

  • Using large numbers of staff.

  • One of our students at CIBS started a security vehicle

  • company.

  • Now, first, security vehicles seemed

  • to be the opposite of what's suitable for the Chinese

  • because the Chinese approach is to find a global product that's

  • the same all over the world, manufacturing it

  • in large quantities, standardized at home,

  • and ship it around.

  • Well, the problem with security vehicles, highly regulated

  • market so they're very different in different countries

  • and small numbers batch production.

  • So what the CEO did, he assigned 100 engineers

  • to spend a year studying needs all over the world.

  • At the end of the year, they came back and said,

  • you know what, for each component-- the doors,

  • the windows, the engines--

  • there are only about three or four variations.

  • So what he does now, he manufactures the three or four

  • variations of each component centrally

  • and then ships them around the world for final assembly.

  • So he has used large numbers of engineers

  • to turn a multi-local industry into a global industry.

  • Six, they work their stuff much harder.

  • There is no work-life balance in China.

  • I love some of these comments from the CEO of Huawei.

  • "Huawei people are destined to work hard for a lifetime

  • and to suffer more than others."

  • How's that for a recruiting slogan?

  • And boot camp, not much Google-iness

  • in Chinese companies.

  • And you know what's underneath the?

  • Desk the sleeping roll.

  • 7th-- oh, by the way, I know about them working hard.

  • Well, I'll give you an example of that.

  • Fast trial and error, very pragmatic.

  • So Dung Xiaoping, the leader, talked about crossing the river

  • by feeling the stones.

  • The CEO of GM China talks about failing

  • in a government-sponsored direction, electric vehicle.

  • By the way, I predict that China, of course,

  • will be the first country in the world

  • to be serious about electric vehicles.

  • They have the need because of their pollution problem,

  • they need a lot of vehicles, and they're

  • going to solve the chicken and egg problem of the charging

  • stations because with a top-down government

  • they are installing charging stations are over the country

  • and they'll have forced incentives

  • to make people buy electric vehicles, rather

  • than gasoline-based ones.

  • Less formal, faster processes.

  • We found that everything in China was faster.

  • A specific example, we're working

  • with a major European multinational who

  • bought a Chinese company in one of its sectors,

  • and we helped them compare the length of the innovation

  • process.

  • The European process was 24 months,

  • the Chinese process was 12 months.

  • So we then helped them converge on an 18-month process

  • to convince headquarters to allow them to go from 24 months

  • to 18 months.

  • They couldn't go to 12 months because the Chinese

  • took too many shortcuts.

  • Or Tencent's WeChat the gray release

  • one million user experiment so that they're able to do again,

  • large numbers in China.

  • More intervention by the boss.

  • As you know, China's very boss-oriented.

  • In the West, it's 90% process and 10% boss;

  • in China, it's 30% process and 70% boss.

  • On the right the CEO of BROAD.

  • He actually said to me, "I'm responsible for 95%

  • of the innovations at BROAD."

  • That was an astonishing statement.

  • One, if it's true; and two, that he should say it.

  • Even Steve Jobs wouldn't have said that.

  • And I know Chinese bosses.

  • My father was a Chinese boss.

  • He once said to me, "Son, you should never contradict me,

  • especially when I'm wrong."

  • But interestingly, for those of you who are not Chinese--

  • even for myself, I'm from Hong Kong originally--

  • you may think of the Chinese as being very obedient.

  • Well, Chinese are obedient only under some circumstances.

  • Chinese are very obedient when they

  • are observed by a superior, whether in a company

  • or in a family setting.

  • In a family, there's always a relationship of superiority,

  • your parents, et cetera.

  • So when they're not supervised, the Chinese

  • are very disobedient, hence the saying, [SPEAKING MANDARIN],,

  • "the mountain is high and the emperor is far away."

  • And if you think about other cultures,

  • there are some cultures where people

  • are very obedient whether or not they're observed.

  • These are the cultures, for example,

  • where people stand at a red light

  • when there are no cars around, classic examples being

  • Japan and Germany.

  • And there are other national cultures

  • where people are very disobedient whether or not

  • they're observed, and these are economic basket cases.

  • I don't even need to name the countries,

  • you can figure them out for yourselves.

  • But China is on one diagonal.

  • And indeed, there are some other cultures

  • that I've experienced where people are obedient if you

  • don't observe them too much and they become disobedient

  • if they feel you are watching them too much.

  • And I found that to be true of the Netherlands

  • and other Scandinavian cultures.

  • Which is Google?

  • Is it more like the Scandinavian culture where

  • you like to be left alone?

  • Right.

  • So the Chinese are the exact opposite.

  • Closer to government, of course.

  • So Chinese companies benefit from having

  • a lot of government support.

  • So if we summarize this, China has a triple threat winning

  • trifecta.

  • They have the manufacturing capability,

  • which India doesn't have, even though India has the second one

  • scientific and technical capacity.

  • China has more of that, as well.

  • So China now, on the second point,

  • can pretty much absorb most new technological and scientific

  • developments.

  • Yes, they're still behind the US,

  • but there is a rapid catch-up, particularly in digital,

  • for example.

  • And a huge domestic market, as a result

  • of which they can start and improve

  • at home before going global without necessarily bringing

  • out world class products to start with.

  • And they can challenge any global incumbents,

  • as I've shown in the case, say, of the commercial aircraft.

  • Even Japan could not go up against Boeing and Airbus,

  • but the Chinese state-owned company is doing that.

  • This has happened only twice before in history.

  • Which countries have these advantages?

  • First of all, it was the British empire--

  • not Britain on its own, but the entire empire--

  • [INAUDIBLE] the market.

  • And then, of course, the United States

  • after the Second World War.

  • Now it is China's turn to have these three advantages.

  • If we now look at it from the viewpoint of Western companies,

  • we talk about why learn from China?

  • Because China is an emerging lead market; China's customers

  • are young and extreme, you know the concept

  • of learning from extreme users.

  • In China, they'll try anything.

  • So for example, the way the Chinese

  • learned to drink wine, initially the Chinese mixed wine

  • with Coca-Cola to get used to it.

  • And particularly in food, we see all kinds

  • of innovations like that.

  • But they're now increasingly sophisticated or even leading

  • demand.

  • There are now a lot of very wealthy young Chinese,

  • and you will see them around the streets of Boston,

  • as well, the fuerdai, the second generation rich.

  • They're probably not working at Google,

  • but they are the ones who are buying

  • the most expensive fashions.

  • China's pressing need for solutions,

  • such as in pollution, starting to lead the world now

  • in environmental solutions.

  • As I said before, they're more forgiving

  • because most people there are first generation

  • or second generation consumers, so they'll try things,

  • they don't have to buy what their parents bought,

  • and if you get something wrong they'll move on and forget.

  • Market reasons.

  • Among the world's biggest and most categories,

  • biggest for cars, biggest for trains, biggest for airplanes,

  • and so on.

  • And high diversity in differences,

  • even more so than in the United States

  • because of the temperature differences,

  • climactic differences.

  • A specific example, Sany, the construction company said,

  • a Western construction company might

  • have two or three models per product,

  • such as crawler-loaders.

  • But because of the diversity of soil conditions in China

  • and because of so many different building projects,

  • we'll have seven or eight different products instead,

  • so more innovation.

  • Because of the size of the Chinese market,

  • the niche in China can be a whole market

  • in some Western countries.

  • And then reverse innovation, when

  • you invent something for the Chinese market

  • but it could be sent back to the developed world.

  • So the most famous example of that

  • is General Electric's ultrasound equipment, initially

  • a $150,000 machine that was too expensive and complicated

  • for Chinese hospitals.

  • So GE put together a team to create a handheld device that

  • was about $20,000.

  • So it succeeded in China, but it's

  • been reversed back to the US not to displace

  • the $150,000 machine but for new uses such as in doctor's

  • offices and in ambulances.

  • Thirdly, competitors.

  • Very intense competitors breeding winners

  • and they're starting to go global as well.

  • So competition in China is fiercer even than in the USA.

  • So we summarize this by saying that Western companies must

  • learn some capabilities from China.

  • The first one, bold experimentation

  • and rapid iteration.

  • This is particularly true, say, for Europe,

  • where companies have become too conservative, too

  • much regulation.

  • They need to go to China to relearn bold experimentation.

  • Secondly, innovation through creative adaptation,

  • adapting to create new products, new product categories,

  • lean value.

  • I mean, all companies focus on lean value,

  • but even more so in China, where it's more important.

  • And the fifth one, that we're quite surprised by,

  • is that while, say, Japan wasn't much use for developing

  • foreign managers because it was so ethnocentric,

  • China is very open to foreign managers.

  • So if you send someone there, they

  • get the chance to manage Chinese people, people

  • from other countries.

  • So we now have a saying, to paraphrase Frank Sinatra's

  • song, Shanghai, Shanghai, if you can manage there,

  • you can manage anywhere.

  • So I'll just go through a few brief slides on e-commerce.

  • China now has a bigger share of e-retail

  • than anybody else in the world and by 2020,

  • it's predicted to have 60% of global e-commerce

  • because Chinese live on their mobile phones, cell phones

  • much more than other countries.

  • I mean, I think Koreans are more,

  • but it's a much smaller country.

  • Selected percentage of countries who

  • have bought something in the past 12 months.

  • China 68%, way ahead.

  • I mean, you know some of these statistics

  • because it's your business.

  • So a surge in internet and mobile payments,

  • third party mobile payments, transaction value,

  • incredible speed of growth of this.

  • Some statistics on the types of products that they're buying.

  • And Apple made a late entry into this

  • and is not doing that well, compared with the incumbents.

  • There's a comparison here between Alipay and WeChat.

  • WeChat is starting to catch up with Alipay, the green line

  • below.

  • There's a comparison that you can look at.

  • And the last three sides, three emerging disruptions.

  • This was created by one of my colleagues at CIBS.

  • Rapid rise of connected on-demand mobility

  • and digital mobility.

  • So digital mobility very important in China.

  • Again, something you might expect because

  • of the cities being so crowded.

  • The link between hardware innovation and the economics

  • of the digital ecosystem.

  • China is more ready for this.

  • And then thirdly, data-driven insight.

  • So Chinese service businesses really mine their data.

  • And there are emerging service companies

  • that are disrupting, for example, the automobile

  • services.

  • So won't go through this, but you

  • can see that at least in mobility,

  • a lot of things going on.

  • And you study this at your leisure.

  • As most of you know, Uber lost out

  • in China, defeated in China by the incumbent company,

  • and they ended up selling their stake

  • to the Chinese company in exchange

  • for a share in the combined business.

  • One of the interesting mistakes that Uber made

  • was that it was possible for the drivers to cheat Uber.

  • Because if they got a friend to book a ride and then the friend

  • canceled the ride, the driver still

  • got a percentage of the fee, which was really dumb of Uber.

  • Because if in China there is a way for someone to cheat you,

  • they will.

  • And the last slide, the famous BAT,

  • if you've ever heard that phrase, Baidu, Alibaba,

  • Tencent.

  • This last slide is about the ecosystems

  • that they have built up.

  • So we have 15 to 20 minutes for questions.

  • Thank you for listening to this.

  • [APPLAUSE]

  • AUDIENCE: So you were just talking about data mining.

  • I had a question about that.

  • How do the privacy policies of the Chinese

  • compare to Western countries?

  • GEORGE S. YIP: What's privacy?

  • AUDIENCE: Ability--

  • GEORGE S. YIP: No, no.

  • No, I'm serious.

  • The Chinese word for privacy has negative connotations.

  • It implies something a bit shameful that you want to hide.

  • My wife, who's English, learned this

  • when after we'd been married we went to Hong Kong.

  • So there's much less of the concept of privacy.

  • And of course, the government in China

  • is entitled to look at any of your data.

  • All right.

  • It's just like Facebook.

  • So privacy is much less.

  • Well, I mean, do you guys know about the new development

  • in China of the good citizen index?

  • China is working to create a good citizen index--

  • that's not the exact phrase--

  • but based on your behavior.

  • And after that, you will be blocked

  • from buying airline tickets, renting cars jobs, et cetera

  • because you have a bad citizen behavior rating.

  • So no privacy.

  • AUDIENCE: I think I read somewhere

  • that part of the reason for China's expansion

  • on like mobile payments is because they

  • don't have the existing infrastructure of credit cards.

  • Are there any other examples where China kind of skips

  • past something into innovation?

  • GEORGE S. YIP: Yeah.

  • I mean, that's the best example.

  • Not only do they not have the credit card infrastructure,

  • they don't have the banking infrastructure.

  • So many Chinese, a very high percentage,

  • don't have bank accounts.

  • So they jumped straight to mobile.

  • So that's a big advantage for them.

  • Yeah.

  • I mean, a related example of this is bike rentals.

  • I don't know how much there are in the US,

  • but in London and Paris we have these bike rental services,

  • but they have docking stations.

  • So Chinese companies invented bikes without docking stations.

  • It's done entirely digitally.

  • It locks the bike so you can leave a bike anywhere.

  • Now, there have been huge problems

  • because they then get these mountains of discarded bikes.

  • But again, that's a different Chinese solution.

  • No infrastructure so they come up

  • with a new solution where you can take the bike anywhere.

  • So these are some of the examples

  • of the leapfrogging because they don't have

  • the previous infrastructure.

  • AUDIENCE: So your slides show kind of the ecosystem in China,

  • but there's a lot of technology that is forcibly not in China.

  • For example, lots of restrictions

  • on Google in China and we can't really have a presence due

  • to the government.

  • Have you looked at kind of the global usage

  • by Chinese users of different technology sets?

  • GEORGE S. YIP: Well, I mean, the reason why

  • Google is blocked in China--

  • I mean, there are two reasons why Google is blocked in China.

  • One is that China wanted to protect

  • its incumbent companies.

  • And then secondly, because Google

  • was trying to protect the privacy of its users,

  • and China doesn't like that.

  • That's the main thing.

  • Now, yes.

  • Not your exact question, but it is a problem

  • for Chinese researchers.

  • Because of the blocks on access to the internet,

  • they cannot access everything they need to do.

  • So one of the solutions they have

  • is that Chinese companies will open a research office

  • in Hong Kong, where there are no blocks,

  • and then they do the internet search that way.

  • For a while, researchers, including business school

  • professors, used--

  • I just blanked out--

  • there's a technology where you can get past this.

  • Now, China's what is it called the--

  • AUDIENCE: VPN.

  • GEORGE S. YIP: Yeah, VPN.

  • But now China's blocking that again

  • and it's illegal to have VPN.

  • So I mean, the astonishing thing when the internet started

  • was that people said, there's no way China can control this.

  • But I think there's up to a million people

  • working on controlling the internet.

  • So again, this is use of the large numbers.

  • AUDIENCE: So you mentioned that oftentimes, Chinese students

  • will come to the US to get educated

  • and then there's incentives for them to go back to China.

  • And I've heard some people have the perspective,

  • why should we educate if they're just

  • going to take education and go back to their country

  • and not stay here and contribute?

  • How would you respond to that and what's your stance

  • and thoughts on that?

  • GEORGE S. YIP: I, mean that that's a complicated policy

  • issue.

  • And luckily, I'm not a politician

  • so I don't have to make these decisions.

  • I mean, what we've found through history

  • is that you usually improve relations with a country

  • if you educate people.

  • They go back with very views of the country.

  • Although interestingly, 20 years ago,

  • the Chinese would deliberately give very small living grants

  • to the students.

  • They wanted them to experience the worst of the USA, not

  • the best of USA.

  • Think about it.

  • They wanted them to live in the poorest places in the US

  • and not become too fond of the US.

  • I mean, Chinese students are now richer.

  • More of the ones who come out often have wealthy parents.

  • So we often see these policy items the other way around.

  • Why are countries like the UK and the US throwing out

  • these students after we've invested in them

  • and we want to keep them?

  • So it's a difficult solution.

  • Donald Trump hasn't gone off of that yet, I think,

  • of blocking Chinese students.

  • But who knows.

  • AUDIENCE: I think many people would

  • argue that the long-term viability of China's innovation

  • is threatened by the increasing gap in social inequality

  • and even those three huge companies sucking up

  • all of the ecosystem, whereas perhaps others would

  • argue that Western economies have more room for innovation

  • because of less regulation.

  • So I guess could you comment on the future of China's

  • innovation and then also how you see

  • a growing divide in the rich in China and the poor in China?

  • GEORGE S. YIP: The income inequality

  • is triggered by what's called the Hu code

  • system, the residency system, where you're not

  • allowed to live in a city without getting

  • a special permit.

  • And in general, the cities block that because once you're

  • allowed, then you can access all the services--

  • medical services, education, et cetera.

  • So a lot of the lower level jobs in China

  • are done by people who are nonresidents

  • who are there semi-illegally.

  • And sadly, their children cannot go to school.

  • So they have to leave the children back

  • in the countryside be brought up by their grandparents.

  • So this is actually a massive problem

  • that they literally don't know how

  • to solve right now affecting maybe 100 million people.

  • But I don't think that's necessarily

  • going to block innovation per se because the innovation is

  • happening at an upper level, the scientists and the engineers.

  • Secondly, the nature of China is that it

  • is state-driven innovation, but there are lots

  • of private companies as well.

  • So many of the most innovative companies like Alibaba;

  • Royole, which I mentioned, the flexible displays, these

  • are strictly private companies that

  • are sort of benefiting from the Chinese innovation ecosystem.

  • And the question I haven't heard yet,

  • but people often ask me is, well,

  • if China is like controlling people,

  • doesn't that stop innovation?

  • Well, China doesn't care so long as you do not

  • seek to overthrow the Communist Party.

  • If you're just innovating and making money,

  • they're happy to support you.

  • So I really don't necessarily see that as a problem.

  • Or even by the dominance of a few companies.

  • I mean, if you look at the history

  • of the US, many industries like the automobile industry

  • from the 1930s onwards, have been dominated by two or three

  • major companies.

  • In fact, in China the problem isn't too many monopolies,

  • it's too many competitors.

  • We actually have coined a phrase in our next book

  • with some different co-authors about swarm innovation.

  • We have an article coming out soon about that.

  • There are swarms of Chinese competitors.

  • So there aren't too few Chinese competitors,

  • there are actually too many of them.

  • AUDIENCE: What do you think are some of the challenges that

  • are facing China in this space and what

  • are their leaders worrying about the most?

  • GEORGE S. YIP: Well, if I just talk about innovation,

  • education system is inferior.

  • The education system, top down, traditional.

  • Of course, that doesn't stimulate so much innovation.

  • The PhD student will do the work of the professor, et cetera.

  • So they're aware of this.

  • And guess what, they're paying the USA

  • to help them solve the problem.

  • So Duke University has a program in China

  • to teach Chinese university lecturers

  • how to teach their students to be

  • innovative like the Americans.

  • So once again, America is teaching China

  • how to compete with America.

  • So that is probably the biggest problem.

  • A secondary problem is the Chinese language, which also

  • affects the education system.

  • It's hard for other people to learn,

  • it takes up so much time and brain space of children.

  • I have my own personal prediction

  • that mobile phones are helping to solve this problem

  • because more and more now, people

  • are using the cell phones to spell for them.

  • Actually, older people are complaining about this.

  • I could see this being outsourced to cell phones.

  • AUDIENCE: One area where the US lags pretty severely

  • behind the rest of the developed world

  • is the health care system.

  • And you've mentioned kind of in passing

  • kind of the innovations in medical technology and health

  • in China, and I'm wondering what can the US learn,

  • what can the US take from that?

  • GEORGE S. YIP: Well, China doesn't have a great health

  • care system, either.

  • It's surprisingly private.

  • People have to pay a lot.

  • So the whole state health care system

  • has kind of withered away post-communist economic system.

  • So you can get some services, but for example, people

  • have to pay doctors on the side to get any serious treatment.

  • There's a terrible incentive in that doctors make money

  • by selling medicines, so they over prescribe their medicines.

  • But again, going back to the technology part,

  • they may start to leapfrog this by digital, et cetera,

  • and making it faster.

  • I did have one experience myself.

  • I had to go through a health check.

  • And a typical Chinese approach, it was like a production line.

  • Whereas in the West, I'd have gone

  • you know from floor to floor to the x-ray department,

  • to the blood department, and so on, here it

  • was a small building with a corridor.

  • First room, chest x-rays; second room, blood test;

  • third room, eye test.

  • So it was like production line and the whole thing

  • cost $100 US, which would cost you $1,000 in the US.

  • AUDIENCE: We all know China has the largest market

  • in the world for many things.

  • So many Western companies tried to enter the market

  • without much success.

  • What's your view on the top reasons why Western companies

  • often fail in the market?

  • GEORGE S. YIP: Good question.

  • But to be fair, many companies have also succeeded.

  • So reasons for failure.

  • If you go into a sector where China

  • is trying to develop its own competitors,

  • they will make life very difficult for you.

  • They have hidden regulations they can pull out

  • to make it difficult for you.

  • So long as you are contributing something

  • that China doesn't have, such as the Western auto companies

  • over the last 30 years, they're happy to welcome you.

  • I mean, I teach international business.

  • It's the same principle.

  • You've got to bring something to the country

  • that they don't have.

  • So if you have that, then they will welcome you and not

  • make life too difficult. Then partners--

  • for a long time, you needed a Chinese partner.

  • Some were good partners, some were bad.

  • There's a Chinese saying, [SPEAKING MANDARIN],, same bed,

  • different dreams.

  • So sometimes the partner was a nightmare, so to speak,

  • following that analogy.

  • So that's a reason why it could go wrong.

  • But really, I think Google's case,

  • you actually came right up against a central policy

  • of the government, which is the privacy issue,

  • and that's why you've been banned from China.

  • Plus secondarily, other companies like eBay--

  • the privacy issue-- they wanted to protect their emerging

  • companies.

  • That's why.

  • So there are still opportunities,

  • but not in areas like that.

  • AUDIENCE: So one thing that I've noticed about competition

  • in China is that it's a very free-wheeling

  • from of competition.

  • If you have an idea, there will be a million competitors

  • doing the same thing, maybe better, maybe not.

  • That's a very hard situation for external companies

  • because here in the US, for example, there

  • is a strong law field of patents and IT protection.

  • So how can anyone think of getting to the market in China

  • in such a situation where there is a feeling that everything

  • will be stolen?

  • GEORGE S. YIP: Yes.

  • Actually, what Western companies are doing more and more

  • is that instead of selling products,

  • they're now selling business models.

  • So if you're going to embed the product in a business system,

  • that is much harder to imitate against.

  • So selling the service based on the product, rather than

  • the product itself or rapidly innovating

  • to keep ahead of the imitators or having superior technology.

  • There are ways to protect your intellectual property

  • so that it can't be fully imitated.

  • Interestingly, the auto companies

  • are still ahead in China.

  • This may be a good item to finish with, actually.

  • I was told by one of the German automotive companies,

  • they said, the reason we're still ahead

  • is that in the West, the auto engineers grew up

  • being taken to repair garages by their father

  • or their grandfather.

  • So they've had this since childhood,

  • these automotive engineers.

  • In China, the automotive engineers are first generation.

  • They don't have this deep background.

  • And cars are this very complex combination

  • of being a consumer product and being a highly engineered

  • technical product.

  • So actually, they're going to have more difficulty in cars

  • than they have, say, in commercial jet aircraft.

  • And in fact, interestingly in cars,

  • they don't particularly want the ultimate driving machine,

  • like a BMW; they want the ultimate mobile living room

  • because that's a different kind of experience

  • that they want in China.

  • There's a great story about BMW, which is that in China--

  • this will be my last comment--

  • there was a dating TV program in China,

  • just to show you again Chinese culture.

  • And a young woman on the TV program

  • was asked by a young man, he said,

  • I'm not very rich so would you go on a date with me

  • just on a bicycle?

  • And she rejected him and said, I'd

  • rather cry in the back of a BMW than smile on top of a bicycle.

  • So that's Chinese culture.

  • Thank you very much.

  • [APPLAUSE]

[MUSIC PLAYING]

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