Thanks to Cathy Tao for pointing out this trend
Learning from Asian innovation
Asian companies are different from Western companies in their approach to innovation. For companies that want to be more effective in their business creation there’s lots to learn across continents and cultures.
In brief and very generally, there are 4 main characteristics of Asian style innovation:
- Suitable: Products fit customers budgets and needs precisely
- Letting go: Asian companies are willing to change style, image even line of business, if they sense a market opportunity
- Fluidity: The business environment expects and supports change and it is tolerant of uncertainty
- Catching up: Asian companies are young, their organizational structures are flexible, and there’s an urgency in their efforts to grow.
These are the conclusions from the Asia New Business Creation project, conducted by the Danish Universe Foundation. Over the past two years, the Universe Foundation has done extensive research in Asian companies, and produced case studies and workshops to exchange methods among 5 large Danish companies, and three Asian companies, from China, Singapore and South Korea. The Chinese participant has been Haier, the giant white goods manufacturer.
Pushing solutions – or responding to needs?
That there is a distinct Asian style of innovation becomes clearer when it is contrasted with the typical approach of Western companies.
A western company that enters an emerging market will typically start by trying to export its existing products. It will seek the upper segment of the market in order to address customers that have needs and budgets similar to its customers back in its home market.
It’s a push approach. The company takes pride in creating offerings that are a bit ahead of the market. It strives to create breakthroughs that can make its brand stand out among the competitors – and justify its relatively high price.
An Asian company will more likely start by listening closely to market needs and identifying an opportunity. The Asian company will typically work from the products and technologies that are already available, and adjust them with a keen understanding of what price, quality and features its customers want.
Through cost innovation, Asian companies can lower prices and reach the very large mid-market segments that Western companies often ignore.
Creating products that are suitable for low-end and mid-markets is not just a matter of lowering specifications and removing features. It’s also about adding particular local features based on a keen understanding of the customers’ context. Haier is a brilliant example. It offers a bewildering range of washing machines, each with variations that suit a very specific segment – for instance by taking into account that people in Chinese rural areas often place their white goods outdoors.
Strong brand – or a burden?
Generally, Western companies cannot compete on price alone. They need to be different, somehow – through advanced technology, better design or a strong brand. But to lead development is costly and it takes time. A breakthrough product requires extensive research and analysis.
Furthermore, for a company with a strong brand, it’s important that its new offerings are perfect when they are launched. A strong brand is a promise of reliability and predictability, and customers are loyal because they can trust that your product works right.
When you are young and trying to catch up, it’s easier to be flexible. Typically, an Asian company is still owned by the CEO who founded it, so the strong boss can make quick decisions and take chances without having to consult shareholders and layers of lower level management.
Also, a young company with a less ”sacred” brand can better afford to experiment. It can launch products that have the latest features at a
competitive price, and customers will be willing to accept that the product may not be absolutely right and free of bugs.
Leader – or fast follower?
Asian companies are often fast followers – and very consciously so. Once they see a smart and successful new feature they are set up to rapidly
develop similar and cheaper versions. This strategy removes the risk of spending heavily on research for products that may fail. It also allows
companies to make lots of small bets by launching frequent adjustments. The difference is clearly illustrated by comparing Apple computer and Samsung. Apple offers one basic type of phone, and new versions have been launched once a year. Samsung launches more than a hundred new handsets every year, and they offer versions for every conceivable market segment.
A Western company is typically organized to deliver a big new product overhaul once a year. Western companies will spend a long time planning and analyzing before they start developing their next big bet. This can create great leaps in quality, functionality and experience, but it also makes the company more rigid and slow to react.
What could you do differently?
The purpose of the Asia New Business Creation project is to find methods and approaches, which can be transferred to inspire and help companies in their innovation process. It’s an important point that there is not one right or wrong method. There are differences – and for a company that is moving into new markets or facing new competitors it may be worthwhile to consider if there is something to be learned by studying the methods of ones counterpart.
Asian and Western are increasingly competing in the same, global marketplace – but often using very different approaches. The fundamental questions for any company to ask are: What would it imply if we tried to do like they do? What would have to change? What could we achieve? Is our current style of innovation really the best possible?
The Asia New Business Creation project is coordinated by the Danish Universe Foundation and sponsored by the Danish ministry of Science,
technology and innovation. The participating Danish companies are Novozymes, Grundfos, Coloplast, FLSmidth and Gabriel. From Haier from China, Woongjin/Coway from South Korea and ST electronics from Singapore are the Asian participants.
You can find more information about the project at www.asianbc.dk
Recently, I was interviewed by Peter Hesseldahl on Asia New Business Creation, an intiative sponsored by Danish Ministry of Science, Technology and Innovation.
One of the things I would urge of Western companies to be really careful when going to China, is to first pay attention to the IP issues, make sure they are well protected, make sure that when you make new IP in China that the rights are properly assigned, make sure you have a good CFO in China that understands how to do your books in China, and the most critical thing of all I think is to find a partner in China who has similar goals as what you are planning to do in China. In Chinese there is a saying, which essentially means you are sleeping on the same bed but have different dreams. That happens a lot when a foreign entity in a rush to enter China finds a partner but they have divergent dreams and goals and aspirations, and the partnership never works out. From the experience of certain multinationals it’s probably better to build on your own capability, build you own team, but of course that takes time. So if you do that in the first tier cities in China, you are too to the game, but if you take the time to build up your own capability in second or third tiers cities, there’s still hope, there’s still a window of opportunity, provided you move fast.
I suspect that the strength of Chinese businesses is to capitalize on those phases of innovation that have really reached maturity and are now being applied to the masses in China, and they often do it at low cost as well. It’s what I call the pressure point principle. They look at the foreign companies — Haier for instance, they look at the US multinationals and they look at where the armor is the weakest, and then they focus there by competing on cost, and then they chink off the weak points in the armor, and then they slowly move on up the value chain. So you see a lot of reverse innovation going on in China where they don’t necessarily have all the cutting edge features but they offer the same features at much less cost. Then subsequently, once they’ve captured the market base, they tap on their applied innovation and they move up the value chain.
In the US you see a lot of venture capitalist putting their money in companies which hardly have any revenue: twitter, facebook… they put a lot of promise on hope and future valuation. But in China, if you look at the top fund, Kleiner Perkins, they rarely put money in any company that is not revenue positive. So they always have some track record before they invest. That’s where you see a dichotomy in thinking. The second angle is that in China everything has to be taken in context vis á vis Western economies where it is taken as matter of fact, taken as an issue. But in China a lot of factors are contextual, they look at all the surrounding factors as a whole before thinking about a particular issue
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