George S. Yip: "China's Next Strategic Advantage: From Imitation to Innovation" | Talks at Google
Okay. 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. So. Just. - and, the subtitle. Is really the theme of my, talk from. Imitation, to innovation, you won't used to hear about how China's. About imitation, now it's about innovation. In, the early days of course China was just copying when it first, you know from 1978, onwards. Like. The copying products were illegal. Sometimes are called Shan Zhai which means mountain. Bandits, you, see here a product called the block berry endorsed. By President Obama probably, without his knowledge on. The, right, something, inspires you this is not a cigarette packet pretending. To be a mobile, 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 cellphone, was a cigarette packet. So. Then China, starts moving from copying. To, fit, for purpose so you know in the earlier days 1980s. 1970s. China, was poorer lower, per capita income, so, sort, of practical. Innovations. Such as mu, Guangdong. Crane moving from double. Welded to single weld it's a lot of process innovations, China. Of course makes more solar, panels. Than, anybody else and the critical innovation they're 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 seeing I'll talk a bit more later on about Alibaba, Taobao these online. Systems. Where, we start seeing innovation, in online hire. One. Of their biggest. And probably the most international, company 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, us because the farmers were using them to wash potatoes rather than just clothes, now, Western response might have been to put a label saying do not wash crops, instead. Their innovation, was they changed the filter system and add, 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 was small so, they added a folding, table top to, double up as a desk or 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 ice box it's, too hard and, Americans. Don't like to wait so. It took a Chinese, company to have this insight, and then, typical Chinese innovation, to invest the R&D money and drill, to manufacture.
It In an. Economical. Way so this is a typical innovation. But they've now moving beyond this they're, moving toward waterless, washing. Machines for example so no genuine, technological. Innovations, Chinese. Are very customer, focused, as, well. I'll. Just talk about the bottom ones we visited, a number. Of startups, so a suture nano micro. World-class. Nano, products, SVG. Optronics they make security, films, / ID cards, and so on they're 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 good. Baby makes 80 percent 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, menu, ringg capability. Now. They start to make. Things that a bit more technically. Advanced. A ten-cent, social networking, instant messaging service. Online. Gaming and so on. Medical. Devices are very big in China aging. Population. And. Then. In, the, intersection, of online, and medical devices are going to be a very big sector in China as, well tell. Me the mobile phone company sends. Out software, upgrades, every week based on input, from its millions, of. Customers. And. Then a bot new softer an example, of. Integrating. Medical. Devices and information, technology. So. Just. And, these are organized. To. Relate to each other so of course with the solar panels, we. Have the, wind. Energy the. Third one, there. 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, over. Putting in a system, like that on the top right Wow. Way for 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 chain company was, sued by Siemens. And Hitachi but has breezed through that China, of course has, more high speed rail tracks and anywhere else in the, world I don't think the US has a single mile of high-speed rail, the United Kingdom and of course this means they also build more trains that they're now innovating.
With And. Sending. All out 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 you, know to add more rotors, to change the carrying capacity maybe. Bigger maybe smaller there's now a, Chinese. One that can carry a person. Good, luck traveling, in that yourself, one, day. And. This. As 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 is 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. Advanced orders, before it is proven and of course most of those advanced 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. Wars 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. Wow. That is less the case with internet-based companies, where, an ease my interpretation. And you. Know a lot more medicine, 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. Eko, systems I won't go through them all as I said you can just look. At the PDF 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 with three phases and yellows that all 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. Executives. And we, include on the 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. To. Other uses of the cash is, 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 move 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, you. Know 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. Buying IBM's, personal, computer business, then. Another example. Volvo. Bought, by a, mid-level. Chinese, company most, you've never heard of called, Jie Li one, of the reasons they were able to buy Volvo is, 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 GE said it's like a Chinese peasant, marrying, a Hollywood movie star and. Of course they're starting to learn. Technology. From, Volvo puts. Meister, a leading. Construction, equipment, company in Germany bought by now. The world's largest construction, equipment company China's. Sunny, they've. Even bought Club, Med which, i think is for the, large. Evolving. Leisure market, in China most. Controversial in the middle cuca in, 2016. A Chinese, medical device company idea 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 under, bidding 20%. And it went to China only, on the right finally, last year, was. One. German acquisition, blocked Extron, under US pressure because. It makes semiconductors. For, some. Which goes into defense so the u.s. got germany to block that acquisition. But. There'll 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 as 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 deterring them back we visited one company that, makes flexible. Display. Screens, replacing. The something, that you know 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 right so everything 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. Nanoscience. Space science exploration, ubiquitous. Sensing based, information, eyes, 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 are 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 first. One is a greater focus on local, needs and customers now all companies, do this but Chinese are really, focused on local. Customers, so on the Left Chinese. Light soy products, so joy yung makes. A soymilk, cooker, on the, right that's myself with my co-author we're, 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, fear 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 products designed to reduce the divorce rate in China apologies. To the Chinese in this audience oh and. Again a typical Chinese innovation. That is expensive to design and, is 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 chat, car in China Chery, QQ, under. Five thousand US dollars 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 you, know 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 there is so fierce they're, like Alice in Wonderland with, a Red Queen they've, learned to run very fast to 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 hire they showed me their new range Cassata. Pretending. Not even to be Chinese called Cassata the main innovation is that they've embedded Swarovski. Crystals, on the Front's of the cabinet's so the, Chinese are not embarrassed, to do anything that will sell a product. Another. Example of this of incremental. Abroad. Which started out making gas. Five air conditioners, has. Now gone into prefabricated. Buildings, so I was in one of the buildings as was being built notice they sell it like. It's actually all about Lego you know getting by 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 of 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 is a big share of the TV market in Africa because. In Africa many villages 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, so a typical. Chinese. Innovation, using. Large numbers of stuff one of our students, at C IBS. Started. A security. Vehicle company. Now at first security. Vehicles seem to be the opposite, of what's, suitable for the Chinese because, the Chinese approach is to find a global product, that same all over the world manufactured. In large quantities. Standardized. At home and ship it around well. The problem 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, they're only about three or four variations so. What he does now he, manufactures, the three or four variations of each component essentially. 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 staff much harder they, there's no work/life balance in, China I love, some of these comments from the CEO of Huawei. Why. Way people are destined, to work hard for a lifetime and to suffer more than others how's. That for a recruiting, slogan. And. You. Know boot. Camp not, much googliness in Chinese companies, and. The. Sleeping and, you know what's underneath the desk the sleeping role so. Seventh. Oh by, the way I. Know about. I'm. Working hard well I'll give you an example I have a fast trial-and-error, a. Very. Pragmatic so, dung sale ping the leader talked about crossing the river by, feeding 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 their pollution problem. They. Need a lot of vehicles. And they're gonna solve the chicken and egg problem of, the charging stations, because with the top-down government they, are installing, charging, stations all over, the. Country and they'll you, know have force incentives. To make people buy, electric, vehicles rather. Than gasoline. Based, ones. Less. Formal, faster, processes, we found that everything. In China is faster, 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 10. Cents WeChat, the gray release 1, million user experiments. That they're able to do again the large numbers in China. More. Intervention by the bosses you know China's, very boss oriented, in the West it's 90 percent process, and 10 percent boss in China. It's 30 percent process, and 70. Percent, 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 1, if it's true and 2 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. Interesting. Lee 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 where you know in a family is always a relationship of superiority you know your your parents etc, so. When. They're not supervised the Chinese are very disobedient. Hence the saying Shang. Cow Wong do UN the mountain is high in the Emperor's far away now you think about other cultures there's some car 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 class. Exams we Japan, and Germany and there, are other cultures 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 this 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're watching, them too much and I. Found that to be true of the Netherlands, and other Scandinavian, cultures, which, 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 is the second one scientific, and technical capacity. China, is 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 had these advantages. First. Of all it was the British Empire, not Britain on its own but the entire Empire give is the market and then of course the.
United States after the Second, World War, now it is China's. Turn to have the three. Advantages. If. We now look at it from the viewpoint of Western, companies we, talked 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 that Chinese learned to drink wine initially. The Chinese mixed wine with, coca-cola to, get, used to it and. Tikki. And food we, see all kinds of innovations, like that but they're now increasingly, sophisticated or. Even, leading, to man's there are now a lot of very wealthy. Young. Chinese, and that you will see them around the streets of Boston. As well the fluid I the, second generation rich they're, probably not working at Google but, they. Are the ones now who are, you know buying, the most expensive fashions. China. Is pressing needs for solutions such as in pollutions, trying to lead the world now in. Environmental. Solutions. And 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 won't necessarily don't, have to buy what their parents, bought, and if you get something wrong they'll. Move on and, forget. The. Market reasons, among, the world's biggest in most categories biggest, for cars biggest. For, trains. Biggest, for airplanes, and so on and high. Diversity and differences even more so than, in the United States because of the temperature differences, climatic. Differences a specific, example sanyi, the construction, company said you. Know Western, construction, company might, have two, or three models, per. Products. Such as crawler. Loaders, but, because of the diversity of soil conditions, in China and because. Of the, 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 Anish and 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 it's General Electric's. Ultra. Sound. Equipment. Initially. A 150,000, dollar machine there was too expensive and complicated for, Chinese hospitals, so, GE, put together a team to create a handheld, device that was about twenty thousand dollars so, succeeded, in China but, it's been reversed, back to the US not, to displace one hundred and fifty thousand dollar machine but. For new uses such as in doctors offices and in. Ambulances, thirdly. Competitors. Very. Intense. Competitors. Breeding. Winners and they're. Saying to go global as well so. Competition. And China's fiercely, 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. Particular to 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 were quite surprised by is that. While, say Japan. Wasn't. Much use for developing foreign. Managers, because it is so, ethnocentric. China, is very open, to foreign managers so if you send someone there they get the chance to manage you, know Chinese. People. People, from other countries so we never 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 eerie. Tale than. Anybody. Else in the world and by. 2020. Is 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've, bought something in the past 12 months China, 68%, way. Ahead I. Mean. You know some of these statistics cause it's your business but so. I won't so search 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. As. Comparison, here between Ali pay and WeChat. WeChat. Is starting, to catch up with Ali pay the Green Line below others, a comparison, that you can look at, and. The. Last three sides three, emerging. Disruptions, this was created by one of my colleagues at CIPS, 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, insights. 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 can study this at. You let at your leisure as. You know most of you know uber, lost out in China right, defeated, in China by. The. Incumbent. Company. And they ended up selling their, stake to the Chinese company in exchange for his share in the, combined. Business. One. Of the interesting mistakes, that uber, made was. That it was possible, for the drivers, to cheat, uber, and, because. If they got a friend to book a ride and then, the friend cancelled, 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 you know the famous be 80 you, may have heard that phrase Baidu, Alibaba. $0.10 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. So. You were just talking about data mining I had a question about that, how did the privacy, policies, of the Chinese, compared, to Western. Countries what's. Privacy. 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 was English learn this when after, getting married we went to Hong Kong and so. Much. Less of a concept of privacy and of course the government. Is. Entitled. In China's government entitled, to look, at any of your data, all, right it's. Yeah. 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 doesn't the exact phrase but, based on your behavior and. After. That you. Will be blocked from. Buying. Airline tickets renting, cars jobs. Etc because, you have a bad, citizen. Behavior.
Rating So no. Privacy I think. I read somewhere that, part. Of the reason for China's. Jinan like mobile payments is because they don't have the existing. Infrastructure, of credit cards are, there any other examples, we're, trying to kind of skipped past something, into. Innovation, yeah. I mean that that that's that that's the best example. Not. Injury not of the credit card infrastructure, they don't is the banking infrastructure, so many, Chinese very high percentage don't have bank accounts so they jumped they, jumped straight to mobile so. That's a big advantage for. Them. Yeah. I mean a, related, example of this is you, know bike rentals. In. I, tuned it how much there are in the US but you know 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 the bike anywhere now there have been huge problems because they then get these mountains, of discarded, bikes but, at least again that's a different Chinese solution no infrastructure, so, they come up with a new solution where you can take the bike. Anywhere. But so this is some of the examples. Of the. Leapfrogging. Because they don't have the previous. Infrastructure. So. Your, slide, 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 and 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 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, you, know doesn't, like that that that's the best the main thing now yes. Not. Your exact question but, it is a problem for, Chinese, researchers. Because. Of, the flops 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. Um I just blanked out you know there's a technology where you can get, past this now, China's. What. Does it call the, yeah. VPN but now China's blocking that again and it's illegal, to, have VPN. So I, mean. The astonished thing when the internet started was that people said there's no way China can control. This, but. You know I think there's up to a million people, working. On controlling the internet so again this is use of the large. Use. Of the large numbers, so, you mentioned, that oftentimes. Chinese. Students, will come to the u.s. you get educated and, then there's incentives, for them to go back to China and I've. Heard, you know. Some. People have the perspective like, why should we, educate. If, they're, just gonna take, education and, go back to. Their country and not stay here, and and you, know contribute. What. How, would you respond to that and what are your what are your what's your stance and thoughts on that I, mean, that that's a complicated. Policy. Issue and I'm luckily, I'm not a politician so I don't I don't have to make these decisions I mean, what. We found through, history is that you. Usually improve, relations, with a country if you educate, their people they go back with very, positive 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 the USA, they. Wanted them to live in the poorest places in the US and not become. Too fond of the US I mean. The Chinese students are now richer, you know more the ones who come out often, have. Wealthy. Parents so we're now having sort of view you. Often see these policy arguments all the way around why are countries like the UK and the u.s. throwing, out these students, after, we've invested, in them and and we. Want to keep them so you, know it. It's. A it's a difficult solution I'd Donald, Trump hasn't gone after that yet. I think, of blocking Chinese students, but who, knows 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. You know 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 I could, you comment on China's, the. Future. Of China is innovation. And then also how you see. The. Growing. Percent. A growing. Divide. In, the. Rich in China in the pond run the. In the income inequality is, triggered. By what's. Called the hukou system the. Residency, system, where you're. Not allowed to live you. Know in a city without. Getting. A special permit and in. General the cities block fad because once you're allowed then, you can access all the services medical. Services education. Etc so a lot, of the, lower-level, jobs in China are done by people who, are non, residents, were there semi illegally, and sadly.
Their Children cannot go to school so have to leave the children back, in the countryside be brought up by, their grandparents, so this is this is actually a massive problem, that they literally. Don't know how to solve right now affecting, maybe a hundred, million people. But. I don't think that some, necessarily. Going to block. Innovation. To say because the innovation, is happening at an upper level you, know the scientists, and the engineers. Secondly. You. Know the nature of China is that it is state, driven innovation but there are lots of private companies as well so many of them as innovative companies, like, Alibaba. Royal, which I mentioned the flexible displays mean 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, you know if. China's, 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'm if you look at the history of the US, many. Industries, have you know 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 courses about, swarm, innovation, we have an article, coming out soon about, that there are swarms, of Chinese competitors so if there aren't too few Chinese competitors there, actually too many of. Them, what. Do you think are some of the challenges, that are facing China and the space and. What are their leaders worrying, about the most. Well. If I just walk 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, etc, 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. You know the, education system it's hard for other people to learn it takes up so much time, and brain space of children I've 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 well. One area where the u.s., lags. Pretty. Severely. Behind. The. Rest of the developed world is the healthcare system, and you've mentioned kind, of in passing, some, of the innovations. In medical technology in healthcare in, China, and I'm wondering what. Can the what. Can the US learn what and look in the u.s. take from that.
Well. China doesn't have a great health care system. Either is surprisingly. Private. People. Have to pay a lot so the whole you, know. State. Health care system, has kind of withered away post. Close. To communist. Economic. System so. You. Know 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. And the doctors, make money by selling medicines. So, they over, prescribe, their medicines but again they may go. Back to the technology, part they may start to leapfrog this, by you. Know digital. Etc. 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 the 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-ray second, room blood test third, room eye tests, was like. Production. Line and the whole thing cost one hundred US dollars who, have cost you a thousand, dollars in, the u.s.. We. All know China is. Had. The largest market, in the world and, for. Many things so. Many Western company, have. Tried to into, the market without. Much. Success, what's. Your view on the, top. Reasons. Why. Western, company, often failed in the market. Good. Question but to be fair many companies, have also succeeded. Okay, so. Reason. For failure if. You go up in US if you go into a sector, where the Chinese are where China's trying to develop its own competitors. They'll make life very difficult for you right because they, can put 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 thirty years they're, happy, to, welcome. You I mean it's 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. Not. Make life too difficult, then, you know partners. For. A long time you needed a Chinese partner some were good partners. Some. Were bad, there's, a Chinese, thing, tomtron. Chemung, same, bed different, dreams so. You know so. Sometimes the partner was a nightmare, so to speak following that analogy so. That's a reason why I could go wrong but really you know 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. You. Know other. Companies, like eBay, not. A privacy issue they. Wanted to protect their emerging, their. Emerging. Companies. That's. Why so there. Are still opportunities but, not. In areas like that so. One, thing I've noticed. About, competition. In China it's. A it's a very freewheeling. From, form, of competition already if you have an idea there will be a, million. Competitors. Doing the same thing maybe better maybe not yeah right, that's. A very hard situation. For external. Companies, right because you know here in the US for example there is a strong, law. You, know few. Of you, know patents, and and an IP, protection. Right. So, how, can anyone think of you. Know getting into marketing in China in such a situation where, there is a feeling that everybody will everything will be stolen right yes. Actually what Western.
Companies Are doing more and more is, that instead of selling products they are now selling. Business. Models. So. If you can embed the product in, a business system that is much harder to. Imitate. Against. So. You. Know selling the service based on the product rather than the product itself or. Rapidly. Innovating, to keep ahead of the imitators. Or having superior, tech. Having. Superior technology, there are ways to protect your intellectual property so that it can't be. They said 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, that 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 you, know they've, had this since childhood. These automotive, engineers in China, the automotive engineers, are first generations, they don't have this deep, background. And cars. Of this very complex, combination. Of being a consumer, product and, being. A highly, engineered, technical. Product so actually they're gonna have more difficulty, in cars than, they have say in, commercial. Jet, aircraft. And. In fact engineering cars you know they don't. Particularly want the, ultimate driving machine and like a BMW they want the ultimate mobile living, room because that that's a different. Kind. Of experience that they that. They want in China um I'll, give you 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 was asked, by a young man he. Said you, know I I'm not very rich so would you go on a date with me just on. A bicycle and, her. Reply she rejected him and said I'd, rather cry. On the back of a BMW, than smile on top of a bicycle, so, that's Chinese culture, thank you very much. You. You.