What are the threats to established global companies?
by Idris Mootee
‘The age of ‘Indovation’ dawns’ – this headline from Financial Times caught my attention while I was sitting on a plane flying out of New Jersey. It is an interesting article about Armin Bruck, managing director of Siemens in India, trying to convince the board of the Siemens of the potential of Indian innovation. He gave them the keys to a Tata Nano to convey the “smell and feel” of a revolutionary mass market product and to persuade his company that it should improve its pipeline of local inventions aimed at Indian consumers.
So, in February, Peter Löscher, the company’s chief executive, and his colleagues Heinrich Heisinger and Joe Kaeser piled into the world’s cheapest car – priced at $2,000 – and drove round New Delhi. I think the same can be said about ‘Chinovation’. Innovation from emerging economies will change the dynamics of global competition and forces every company to rethink or reconfigure their strategy for developing its high-quality technology for low-cost emerging markets. Good quality and low cost products with advance technology will becoming an important battlefield between global companies and local companies in India and China.
FT reported that after three months of that February visit, Siemens had declared publicly its intention to develop more than 80 “base level” products – targeted at financially constrained mass markets – with an investment of €3bn in India, China, Russia and Brazil over the next 3 years. Siemens expects to raise its order book 10-fold in India from these redesigned products during the next decade to €1bn a year. It also foresees double-digit profitability from the low-cost, high-quality strategy – what in India is called “frugal engineering”.
China understands the accelerating competition and the need to develop high value add industries, China is actively transforming itself from a low-cost manufacturer to global innovation test bed. The manufacturing base big domestic market give them a competitive advantage, but China’s companies still face tough challenges in their quest to move up the global value chain, and they still have come a long way, fast.
In short, Chinese companies don’t understand ‘innovation’, let alone innovating beyond manufacturing. The idea of a ‘customer’ is still pretty foreign to Chinese companies and to understand how to embed empathy and user needs to help innovation is a long way away, because of cultural differences as well as business management mind set. China today does not have the talent base for design and at the corporate level, developing leadership skills is vital to close that gaps, and at the same time attuned to the end user will open vast new opportunities for consumer-centric innovation. It is at least 10 years away.
The concept of creative industries (happening in Shanghai and Beijing but not much outside these two big cities) in the context of China raises important issues, they have been trying to develop the creative industries with Chinese characteristics, but there are plenty to be done on intellectual property and copyright protection, design education, regional and enterprise development, consumer activism, and the fundamental tensions within the creative industries between individual design creativity and industrial scale. Only if the barriers are crossed otherwise the creative industries will no more than just fringes.
But the trend is unstoppable and it is a serious threat for those companies in the west such as the Siemens or GEs of the world. Siemens understands the threat and is acting fast.
Idris Mootee is the CEO of idea couture, a strategic innovation and experience design firm. He is the author of four books, tens of published articles, and a frequent speaker at business conferences and executive retreats.