Page 2 of 3 Innovation the name of the
game By Dan Steinbock
industries include petrochemicals,
pharmaceuticals, hand tools and power tools.
Private companies drive innovative
activities, but academic organizations play a
significant supporting role. During the past
half-decade, of the 30 first-named assignees, 26
were companies. The top four patent players were
Hon Hai, Microsoft, China Petrochemical, and China
Petroleum and Chemical Corp. Academic
organizations - including Tsinghua University,
Changchun Institute of
Applied Chemistry (Chinese Academy of Sciences of
China) and China Academy of Telecommunications
Technology - are among leading innovators.
Finally, one cannot ignore the role of the
multinationals. Of the total, US (Microsoft, IBM,
Great Neck Saw Manufacturers, Intel), Chinese
(China Petrochemical, China Petroleum, Huawei,
Semiconductor Manufacturing) and Taiwanese (Hon
Hai, Winbond Electronics, Foxconn, Inventec)
organizations owned 38%, 34% and 19% of the
patents respectively. The rest belonged to Hong
Kong and Japan. Measured by the locations of
headquarters, the growth rates of foreign
multinationals were significantly higher than
those of indigenous producers.
In India,
from 2001 to 2005, 43% of the 37 companies among
first-named assignees were in pharmaceuticals or
related industries (health care, medical). Some
22% were in electronics and another 22% in
computers. The remaining companies sold
petrochemicals and consumer products.
A
greater share of innovation in India derives from
the private sector. The top four innovators were
IBM, Texas Instruments, GE and Ranbaxy. However,
there were three major public-sector players,
including the Council of Scientific and Industrial
Research, the Department of Science and Technology
and the National Institute of Immunology (NII).
As in China, multinationals have played an
important role. Half of these innovators were
based in the US and some 40% in India. The rest
came from Switzerland and the UK. Measured by the
location of headquarters, the growth rate of
foreign multinationals has been 50% faster than
that of indigenous producers (30.5% and 19.7%
respectively).
In both countries, as in
the US (with such places as Silicon Valley),
innovation output trends demonstrate substantial
regional specialization. Between 1985 and 2005,
the top four patent regions in China - Guangdong,
Zhejiang, Taiwan and Beijing - accounted for 34%
of all domestic applications, while the top eight
regions accounted for almost 55%. In 2001 and
2002, only two regions in India - Delhi and
Maharashtra - accounted for some 56% and the top
eight regions 92% of the total.
Multinational enterprises, local
employees In many industries, innovation is
migrating from high-income nations to emerging
economies. In the past few years, multinationals
and indigenous producers have been particularly
busy building R&D hubs, and developing brands
and designs, in China and India. As the notion
that innovation will remain in America has proved
untenable, IT has been relaxed. Here's the new
version: "Well, China and India may dominate as
suppliers, but the foreign multinationals are the
true winners."
True, the rise of China as
the leading ICT goods producer has gone hand in
hand with the increasing role of foreign
multinationals in China, which may account for
more than half of China's trade in ICT goods
(imports plus exports). But even the idea's
reformulation is rooted in ignorance. Talent,
intelligence and enterprise are not exclusively
Western or American characteristics. Indeed, many
of these companies are increasingly led and
managed by highly driven local residents.
Initially, the senior executives and workforces of
these companies came from the home base and the
headquarters, but, in most cases, localization has
been very, very rapid.
Take, for instance,
the story of Intel, the world's leading
microprocessor maker. When Intel first arrived in
China, most of its staff was drawn from operations
in other countries. But the company moved quickly
to train local employees. A case in point: within
18 months of starting up, the number of foreign
employees in Intel's executive team at its
Shanghai plant dropped from 97 to six, and middle
management was entirely local Chinese. In the long
term, multinational R&D is vital to leading
Chinese companies, moving from cost advantage to
quality and innovation.
Today - after more
than 21 years in China - Intel has invested more
than $1.3 billion in R&D, test and assembly,
while growing its sales and marketing operations
to more than 300 cities. Profits followed these
investments. Between 2000 and 2005, the proportion
of Intel's revenue in the United States fell from
$12.4 billion to $5.7 billion, while that from
China rose from $2.1 billion in 2003 to over $5.3
billion in 2005. "The economic interdependencies
between the US and China are deep and growing,"
said James Jarrett, Intel vice president and
director of worldwide government affairs, who also
served as president of Intel China from 1996 to
2000. "You really need to tap into the wealth of
engineering talent in China and participate in
emerging markets. If you don't participate there,
somebody else will." [2]
As Chinese and
Indian senior executives and talented employees
learn from the multinationals, the catch-up
process speeds up, reflected in advancements in
innovation output. Last October, figures from the
World Intellectual Property Organization showed
patent filings in China (half of them by Chinese)
increased sevenfold in the past 10 years.
China overtook the European nations to
become the fourth-largest source of patent
application filings, underscoring the increasing
prominence of northeastern Asian countries in
intellectual property. In December, China also
overtook Japan in R&D. According to the OECD,
IT is expected to invest $136 billion in R&D,
which is still well behind the $330 billion the US
will invest. Furthermore, patent rights are no
longer just a US concern; Chinese companies have
defended their rights with increasing aggression
in US courts. Like Japan, Korea and Taiwan before
IT, the transition toward innovation translates to
increased efforts in protecting intellectual
property. [3]
From mimicry to
innovation Today, "innovation" is the
buzzword in Beijing and New Delhi. In the past, it
was the scientific academies in China and India
that advocated increasing R&D. Now yesterday's
science and technology policies have morphed into
national industrial policy.
In January
2006, Chinese President Hu Jintao set the tone
with his call for his country to make the
transition from a manufacturing-based economy to
an innovation-based one. Innovation was also a
major theme at the National People's Congress,
with the government unveiling its latest five-year
plan
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