Page 3 of
3 Innovation the name of the
game By Dan Steinbock
for major increases in spending to
nurture innovation. In 2005, China's R&D was
1.5%; in 2020, the target is 2.5%, or $115 billion
per year.
China is targeting a broad range
of sectors, from areas long dominated by the US
(semiconductors, software, space exploration) to
other areas that may provide disruptive potential
(stem cells, gene therapy, genetically modified
crops). Indeed, China aims to become a leader in
emerging technologies such as
renewable energy. By 2050,
the Middle Kingdom intends to surpass the US and
lead the world of science.
In the 2005
World Investment Report, India was ranked third
after the US and China as an R&D hot spot -
defined as a place where companies can tap into
existing networks of scientific and technical
expertise, with good links to academic research
facilities and a commercial, pro-innovation
environment.
"We take satisfaction from
the fact that over 100 global companies have come
to India to set up R&D centers, affirming the
intellectual capital of our scientific and
engineering community," Indian Prime Minister
Manmohan Singh said in November. "Science must
grapple with the key challenges facing the country
today." Manmohan is increasingly emphasizing the
need for Indian science and technology to "shift
from mimicry to innovation".
Shaping
the rules of competition Since both these
nations are latecomers in competition and
innovation, the two must cope with far more
intense rivalries and will probably favor
disruptive innovation. By shaping the rules of
competition, they can move faster to the higher
value-added. In the United States, these policies
will be met with lamentation over "government
intervention". If, however, the challengers would
accept the incumbents' status quo, the two nations
would be left with crumbs.
Take, for
instance, mobile communications. China is the
world's largest mobile-telecom market. As telecoms
and broadcasters around the globe rush to offer
television services over mobile phones, China is
taking steps to ensure that its domestic players
will not miss out on the potentially massive
market by launching its own technology standard
for mobile TV.
Or take nanotechnology. In
early 2005, China released a national plan for
scientific development that calls for raising
R&D spending to equal 2% of economic output by
2010, from just above 1% in recent years.
Nanotechnology was named as a major priority, and
IT may enable China to "leapfrog" wealthier
nations.
In China, the government has
orchestrated rapid development in several
industries and technologies. In India government
plays a supporting role, and private companies
drive cutting-edge industries. In the US, private
industries largely determine the direction of
research; in the leading European nations,
public-sector agencies tend to play a substantial
supporting role.
But these framework
conditions evolve dynamically. In China and India,
public-sector organizations continue to play a
critical supporting role, typical of
industrialization's early stages. Ultimately, the
quest for innovation is predicated on effective
interplay among ambitious technology development,
bold entrepreneurship and aggressive early-seed
venture capital. In fact, the increasing number of
China-focused venture capital funds suggests a
robust population of venture-backed Chinese
companies in the IPO (initial public offering)
pipeline. [4]
The quest for the higher
value-added is not easy to achieve; nor can IT be
based on a short-term outlook. Sustained
productivity advances require innovation-driven
strategies and policies. Such steady and
sustainable growth of China and India is in
America's interest. In the long term, the economic
expansion of both emerging economies requires that
their respective innovation strategies succeed.
Instead of the past confrontational approach
defined in terms of containment or protectionism,
it is in America's interest to promote engagement
with both China and India and facilitate the
continued integration of these two vast emerging
nations into the world economy. Engagement is also
in the interest of US business. US corporate
profits in China passed $2 billion the first six
months of 2006, up more than 50% from the first
half of last year.
Until recently, "higher
value-added" was the privilege of the entrenched
multinationals in the US, Western Europe and
Japan. Today, emerging multinationals in China and
India seek to convert cost advantages to more
sustainable competitive advantages, often through
innovation. The growth rates of innovation output
- as demonstrated by the patent data - are
impressive, even dramatic. Still, the development
of these capabilities is not a sprint, but a
marathon.
The long march has begun.
Notes 1. See Dan
Steinbock, Toward the Innovation Frontier: The
Rise of Chinese and Indian Innovators, India and
China, edited by K G Kulkarni and P Prime
(Delhi: Serial Publications, 2007).
2. Dan
Steinbock, "Can Intel grow through cuts?", Beijing
Review, September 27, 2006. On localization as the
condition of globalization, see also Steinbock,
"The mobile revolution and China", China
Communications, Vol 3, No 2, April 2006; and
"India and the mobile revolution", Strategic
Innovators (IIPM/India), October 2006.
3.
Typically, anti-piracy efforts in both China and
India have accelerated as these nations have opted
for innovation-driven development paths. Yet these
two vast emerging economies remain on the priority
watch list of the International Intellectual
Property Alliance. According to the IIPA, the 2005
estimated trade losses due to copyright piracy in
business software, records and music, motion
pictures, entertainment software and books totaled
$443 million in India and $2.4 billion in China
respectively.
4. Emulating the patent
trends, venture-capital volumes are primarily in
the US and Western Europe, but the rapid growth is
in China and India. In 2005, venture-capital
investments worldwide reached the level of $31.3
billion. The United States, Canada, Europe and
Israel represent 93% of capital invested, while
China and India account for the remainder. See
Ernst & Young, Venture Capital Insight
Report, London, May 3, 2006.
Dan
Steinbock is the ICT research director of the
India, China and America Institute. He serves as a
strategic consultant for multinational
corporations, international organizations and
government agencies.
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