Archive for September 21st, 2010

AS INNOVATION MOVES EAST: The Emergence of China and India as the New Innovation Hubs

September 21, 2020

A report by Anil Gupta and Haiyan Wang.

Anil K Gupta, INSEAD Chaired Professor of Strategy will speak at SuperReturn Asia 27-30 Sept 2020

With its recent acquisition of 128 machines from California’s Illumina, Shenzhen-based BGI has assembled almost as much as gene sequencing capacity as the entire United States.  Having already sequenced the genes of several species including a panda, BGI appears determined to become one of the world’s leaders in genomics research.

Haiyan Wang, Managing Partner, China India Institute

It is still one to two decades before China and India achieve broad-scope parity with the US and Europe in science, technology, and innovation. But the overall direction is clear. The center of gravity of the world’s innovation landscape is moving east.

According to data from the US government, the number of patents granted by the US Patent & Trademark Office to inventions originating from China and India is growing at a 15-30 percent annual rate, a radically faster pace than for inventions originating from any other country. Further, as a recent survey by the R&D Magazine reported, over two-thirds of the executives in western MNCs believe that, during the next five years, both China and India will become significantly stronger in R&D than they are today, a level of confidence greater than for any other country in the world.

What are the forces propelling the rise of China and India as the new innovation hubs? First, private and public sector organizations in both countries are increasing their investments in R&D at a faster rate than in any other large economy. This is a direct outcome of the fact that, as the world’s two fastest growing economies, both countries can afford to spend larger sums on R&D each year. Importantly, since 2005, both countries have also stepped up the ratio of R&D investment to GDP - from 1.2 percent to 1.5 percent in the case of China, and from 0.6 percent to 0.9 percent in the case of India. Second, as the world’s two most populous countries, both China and India graduate a larger pool of scientists and engineers than any other country in the world. Thus, they offer greater R&D scalability at a lower cost than any other country. Third, as a direct result of the fact that they are still among the world’s poorest countries in terms of per capita income, their large middle income markets offer compelling incentives for frugal innovation. It is not coincidental that a product like Tata Nano came out of India.

These developments have three major strategic implications for multinational corporations. First, they need to look at China and India not just as competitive threats but also as opportunities. Given the current economic reality in the developed economies, it is nearly impossible for western MNCs to increase their R&D budgets. What they can do, however, is to get a lot more bang for the buck - i.e. boost R&D productivity - by leveraging China and India as increasingly important innovation hubs. Second, MNCs need to become smarter at protecting their intellectual property. This is more than a matter of seeking good legal counsel. It also requires other de-risking mechanisms such as distributing key modules of a major R&D project across labs in different locations and even different countries, so that IP leakage from any one location would cause limited loss. Third, MNCs need to cultivate the art and science of frugal innovation. This means treating the middle income market in China and India as core to the company’s strategy and designing products, services, and business models that are aligned with the economic, cognitive, and behavioral reality of these middle-income customers. Frugal innovation goes well beyond merely de-featuring. It requires becoming extremely customer-centric and reinventing the business model from the ground up.

Given the magnitude and pace of structural change in the global economy, it is a certainty that the set of top ten companies that dominate any industry in 2020 will be quite different from the set that dominates today. In this ongoing battle for global dominance, the odds lie squarely in favor of those companies which commit to leveraging China and India not just as markets or as cost efficiency platforms but also as innovation hubs.


About the authors

Anil K. Gupta ([email protected] ) is the INSEAD Chaired Professor of Strategy at INSEAD.  Haiyan Wang ([email protected]) is managing partner of the China India Institute and an Adjunct Professor of Strategy at INSEAD.  They are the coauthors of Getting China and India Right (Wiley, 2009) and The Quest for Global Dominance (Wiley, 2008).

Dr Gupta will share new research on this topic at the SuperReturn Asia event on Wednesday 29th September at 11.25am.

Post Under: Asia

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