[MUSIC PLAYING]
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]
