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“China going global” has long been a buzzword in foreign policy and economics circles as Chinese companies, for the first time, begin to expand globally. Political scientists have maligned the phenomenon, Chinese pundits have celebrated it, and foreign consumers have mixed feelings. Given China’s rapid economic growth in the last three decades, it comes as no surprise that Chinese companies are looking to expand their global market presence. The real question is: why do so few Chinese companies go “global”?

The importance of R&D to Going global (2)

 

Huawei, a telecommunications company based in the Chinese city of Shenzhen, provides us with a successful case study of what it takes to jump from the domestic technology market to an international one – and highlights what other Chinese companies have yet to do.

A Continuous Chain of Knowledge

Huawei’s success is partly due to the company’s consistent focus on bottom-up product development and innovation. In the 1990s, Huawei executives decided to begin developing their own product designs. The process took a long time; quality control and system bugs plagued early mobile models. Today however, the investment has paid off; over a third of the world’s population now uses Huawei’s technology in some way.

But Huawei is the exception to the trend in China. While international technology brands are known for releasing highly anticipated new products each year, Chinese brands are still best known for pirating and improving upon preexisting designs.

A McKinsey report on innovation in China highlights this disparity: while China has excelled at innovating in consumer-oriented industries like internet retailing and appliances, it falls short of globally-mature products which require more intense research and development. One recent workaround has been for Chinese companies to acquire other technology companies with already established R&D centers. For example, when Lenovo bought Motorola Mobility from Google in 2014, it immediately acquired Motorola’s R&D and marketing platform. However, without the intensive and sustained internal training and education, simply buying research and innovation capabilities does not ensure that Chinese companies can replicate global competitiveness at each step of the design and production process.

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Now, Huawei outpaces even Google and Microsoft in R&D spending per annum, ensuring that its products remain innovative and original as compared to competitors in mobile technology. 16 of its research and innovation centers are based internationally, including their flagship center in Silicon Valley, California. Moreover, Huawei has been able to create a broad repository of internal knowledge regarding each step of the product development and production process.

Developing a Global Edge

Chinese companies are still in what George Yip, a professor at the China Europe International Business School, calls the “fit for purpose” innovation. “Fit for purpose” products satisfy domestic market preferences and often cost less, but pale in quality and features when compared to international brands innovating at a global standard.

R&D is a slow and arduous process that can take decades to pay off. That can be daunting for Chinese companies operating in an ever-shifting competitive environment that values quick results. China has come a long way from being merely a “copycat nation” in terms of innovation. However, to jump to the global level, China will have to persist in building up its R&D capacity and know-how before it can make products that are globally unique but internationally competitive.

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