When people talk about innovative cities, most people think of Silicon Valley near San Francisco, Berlin, London or Singapore.
But hardly anyone usually thinks of anywhere in China.
Most people still think of China as a technology copycat, stealing intellectual property and designs from western companies and producing inferior but cheaper knock-offs.
Yet what most people don’t realise is that in the past few years, some cities in China have been forced to become more innovative in order to survive in the world economy. And nowhere is this more apparent than in Shenzhen.
WIRED recently released a mini-documentary in the video above showing how Shenzhen developed from a little fishing village into the world’s most innovative hub when it comes to technology hardware. It’s a little over an hour, but a must-watch programme for anyone interested in innovation.
Additionally, WIRED also has an excellent article on how other cities in China are going from being fast-followers to innovation leaders in their respective fields.
Here are a few things we can learn from the video and article about innovation:
Socio-economic growth is vital fuel for innovation
In the year 2000, only about 4% of China’s population was middle class (earning between $9,000 – $34,000) annually.
By 2012, this had grown to about 66% of the population.
And with the growing affluence and disposable income of this new generation, there has been the trend of how these people want to spend their money
Chinese consumers, especially the urban middle class, crave service and convenience. Anything that can help make someone’s life cheaper, faster and easier is highly desirable, especially if it can be operated through the huge proportion of people who have smartphones (an estimated 87% of the whole population have mobile phones in 2016, with more than 550 million being smartphones).
An estimated 44% of all money spent by the Chinese middle class in 2013 was on the service economy, which McKinsey estimates will grow to 50% in 2022, and a large proportion of this is done through smartphones. This huge market means there is ample room for large numbers of new entrants every year to offer new services.
Innovation build on the gains produced by the previous generation
Ever since the 1990’s, China has produced its own set of large internet and technology companies, often as a result of two major driving forces:
- The government’s policy of censoring the internet through the “Great Firewall of China” meant that established and upstart Western companies found it difficult to access the Chinese market, leaving it open for local startups
- These startups could essentially “clone” the design, features and business models of successful Western companies, but adjust them to better fit the tastes and demands of Chinese consumers. For example, Alibaba took lessons from eBay and Amazon, Baidu from Google, Tencent was a copy of Yahoo and so on.
- While not investing in the creativity to form new business ideas, China was heavily investing in high-tech manufacturing facilities which the Western companies wanted to exploit, such as giant Foxconn factories employing 30,000 people.
These first generation of companies relied less on creativity and innovation than efficiency and speed, and grew to extremely profitable sizes. They are often referred to as the “Big Dragons”.
But now in the past decade a new set of Web 2.0 startups are able to exploit the knowledge, infrastructure, manufacturing capabilities and market size which the big dragons helped build. These “Little Dragons” can now develop and launch a business overnight and immediately access a huge pool of connected, paying customers. One of the most successful is called Meituan, an e-commerce startup which allows people to access daily deals, pay for movie tickets or many other things.
Not only that, but nowadays the “Big Dragons” are investing more and more into developing their own creative innovations in-house, trying out new business models and trying to stay at the forefront of progress.
The entrepreneurial and creative spirit is not just tolerated, but desirable now
Even at the start of the new millennium, technology observers complained that China didn’t have enough bold innovators. While there were the mega-successful companies mentioned above, they were not the ones taking creative risks.
This stems from a culture which put emphasis on conformity, where schooling was based on rote memorisation and punished mistakes. Graduates may have been technically proficient, but desired stable, safe jobs at the largest companies.
However, the surge in income we’ve talked about has brought with it a new level of confidence in the young urban population, especially if their families are better off than in previous generations. Last year, more than 7 million students are expected to graduate college, and a larger number of them are now willing to take risks and start their own companies.
In addition to the internet startups, the documentary above shows how individuals and small companies are willing to try out new things. Nowhere is this clearer than the sprawling hardware shopping centres in Shenzhen, where people are putting together new designs and features into new mobile phone designs, and seeing what the reaction from customers is. This rapid prototyping mindset, to try out small scale experiments using cutting edge components, means that many experts estimate that Shenzhen is approximately 9 months ahead of anywhere else in the world or any other hardware company in terms of developing innovative new products.
Speed is proportional to innovativeness
There are also similar trends to innovation as are happening in the rest of the world, such as the growth of Accelerator programmes. What makes it different in Shenzhen though is that instead of Accelerators focussing on just new systems and software, they have Accelerators dealing with physical hardware as well. One of the first and most visible is HAX, which helps companies prototype, develop, refine and build businesses around new hardware, requiring companies to move to Shenzhen to become a part of it. But it helps companies grow by learning their craft in the “World Capital for Hardware”.
Not only are these developers around people with the skills required to make hardware (simple things like soldering which are lost in many other “high tech capital cities”), but there is a real ethos of speed in prototyping and getting products onto the market as soon as possible. Some of the companies in HAX note that if they need some hardware parts for a prototype manufactured, it can be done in a couple of days in Shenzhen using the large number of first working with 3D printers and manufacturing capabilities, compared to taking around a month in a country like the UK where you would need an engineering firm to produce the same part.
Shenzhen had to invest in itself and reform
Historically, Shenzhen was a small fishing and farming village. However, China’s Government designated it the status of a “Special Economic Zone” in May 1980, leading to an explosion of investment into infrastructure by the government.
This enabled Shenzhen to be one of the few places in China at the time where you could buy goods and services with money, and set up businesses to try and grow and make a profit. This attracted a lot of entrepreneurial people at the time.
The mission of the city was technology, knowledge and window to the external world. This was meant to bring benefits by taking advantage from overseas ideas, partially explaining the historical lack of creativity and copycat nature of business there.
But as other areas of the world improved their manufacturing capabilities and China became less competitive, the entrepreneurs and companies in Shenzhen realised they could not keep benefitting by just being a manufacturer of other people’s products and being forced further down the value chain. In order to keep growing, they needed to establish their own brands, with their own designs and differentiators, leading to a recent move towards in-house innovation.
Shenzhen, and much of China, view Intellectual property very differently from Western companies
As you will see in the documentary, Intellectual Property and the concept of copying and profiting from someone else’s ideas is a very different concept in China.
One of the trends in Shenzhen is around “open source hardware”. In comparison to the hardware development process in a lot of Western companies, where before any business can be done there are a whole litany of contracts, non-disclosure agreements, IP protection and order discussions which need to be signed off, many individual designers and companies assume that their designs will be open from the start. This significantly speeds up the process of developing and prototyping products.
Not only that, by removing the ego associated with “This is my idea and I want all credit for it”, it also changes the way entrepreneurs here approach innovation. Yes, if they develop a product and it proves to be successful, they may be followed by a raft of immitators. But this just encourages them to stay at the cutting edge of design and features, so that they are constantly producing the product with the highest perceived value.