Business

China's challenge: Moving from copier to innovator

  • 27 January 2015
  • From the section Business
Media captionLeadership expert Steve Tappin says it can be difficult for successful Chinese firms to dominate overseas

When Brent Hoberman, the founder of online interior design and furniture store Mydeco.com, visited China one man in particular was keen to meet him, offering to meet any time of day or night.

When they got together, the man explained that in 2007 he too had wanted to launch some kind of web business but had had no idea how to go about it.

Then he'd found Mydeco.com and simply copied it, very successfully, and he wanted to express his gratitude personally to Mr Hoberman, perhaps best known as co-founder of online travel firm Lastminute.com.

"From his perspective it was flattery. And from the cultural perspective I understand that imitation is the sincerest form of flattery," says Mr Hoberman.

But to a Westerner this kind of imitation seems pretty outrageous.

Image caption Staff at one fake Apple store in Kunming were dressed to resemble staffers at the genuine stores

In China, though, it is hardly unusual. In 2011, a US blogger discovered a fake Apple store, prompting an official investigation that uncovered a further 21 such stores in the south west of the country.

The set-up was so convincing that even some of the staff believed they worked for the US tech giant.

There are also Chinese hotels with similar or identical names to well-known Western brands such as Marriott Hotels or Hyatt, and the US embassy estimates that 20% of all consumer products in the Chinese market are counterfeit. "If a product sells, it is likely to be illegally duplicated," it warns.

The practice of copying and producing fakes is so entrenched in Chinese culture there's even a word for it - Shanzhai.

Image caption Last year, China's economy expanded at its slowest pace since 1990

So far this hasn't been a problem. The world's second largest economy has expanded at a blistering double-digit pace for almost three decades, making it the envy of its Western rivals.

But with growth slowing - last year China's economy expanded at its weakest pace for 24 years - Chinese businesses will need to innovate if they want to succeed not only at home but even more importantly abroad.

Joe Baolin Zhou, chief executive of private education firm Bond Education, believes firms are already beginning to make the shift. He says the copying trend partly stemmed from a sort of gold rush when the Chinese government first began to open up its economy in the 1980s, allowing the creation of private firms.

Spending time and money on research and development simply wasn't an option for these pioneers, who had limited resources and inexperienced staff.

"For business owners who seek instant success, they usually copy. At that time it was rigid or mechanical copy, they just copied everything," he says.

Image caption Alibaba, founded by the eccentric Jack Ma in 1999, has adapted its service for the Chinese market

In contrast, Mr Zhou says the second generation of start-ups have already started to innovate, pointing to firms such as e-commerce giant Alibaba and Tencent's messaging service WeChat as having learnt from their Western rivals but then developed and improved their services for the Chinese market.

But ensuring innovation becomes more widespread will require a radical shake-up of the way firms are managed. In China, typically, the word of the boss is absolute and for an employee lower down the ranks to suggest another way of doing things can be seen as disrespectful.

Deng Feng, chair of Chinese venture capital firm Northern Light Venture Capital, describes the current style of leadership as "managing" rather than leading.

"Managing in China means how to control people. We have to change the mindset, myself and all these Chinese entrepreneurs, to encourage and lead people rather than just manage or tell them what to do," he says.

Image caption Youku Tudou boss Victor Koo says the firm built its own proprietary technology from the start

One way that firms can help shift these cultural norms is to recruit from a variety of backgrounds and cultures.

Chinese computer giant Lenovo, the world's largest PC firm, has offices in more than 60 countries and 40% of its board members are non-Chinese. Many of its overseas businesses, including those in Europe, the US and Japan, are also led by local staff.

"For Lenovo, it's crucial that in the future it will blend the cultures of both the West and the East, because for the markets they have entered they are facing very strong rivals and fierce competition. So they will have to combine Western innovative power with Eastern culture," says founder Liu Chuanzhi.

The early signs from the second wave of start-ups founded since China opened up its economy, frequently led by people educated in the West, are encouraging.

Viktor Koo, chief executive of video-sharing giant Youku Tudou, often dubbed China's YouTube, studied in the US and subsequently worked in Silicon Valley before returning to China.

Right from the beginning, when he founded the merged entity's predecessor Youku, Mr Koo said the firm built its own proprietary technology, and also did original programming, well before its international counterparts.

"We innovated to really adapt to what is happening in our local market. Well you have to adapt. Or else you won't win. That's really, the essence of it."

This feature is based on interviews by leadership expert Steve Tappin for the BBC's CEO Guru series, produced by Neil Koenig.