How to innovate, the Chinese wayWhen Marxist communism comes to China, it becomes Mao communism. That’s how China’s unique socialism began. In China, the rule of law becomes Chinese legalism, where the party reigns above the Constitution. The same goes for innovation.
Last month, Alibaba’s initial public offering on the New York Stock Exchange showed what Chinese innovation is all about. The success of Microsoft, Apple, Google, Facebook and other American IT companies was made possible by innovative advancement in products and services. However, Alibaba is different. It is far from innovative, as it learned the e-commerce business model from eBay and Amazon. It doesn’t provide any new services. Yet investors in New York pumped $21.8 billion into Alibaba’s IPO.
How was this possible? American consulting firm McKinsey and Company thinks innovation through commercialization is the key to Alibaba’s success. The company took technologies developed in other countries and successfully commercialized them for Chinese consumers. Instead of looking down on it as a “knockoff,” it should be interpreted as “Chinese-style innovation.”
It is directly related to Korean companies’ operations in China. Samsung has been pushed aside by Xiaomi, which pursues the same kind of innovation as Alibaba.
Xiaomi founder Lei Jun has imitated Steve Jobs since the company was established in 2010. While foreign media ridicule him as a copycat, he has no intentions of stopping. He believes that planting the “Apple ecosystem” in the Chinese market will be the secret to success. Xiaomi has learned all the necessary technology from abroad. Xiaomi’s innovation through commercialization has been successful, and it has become the leader in the smartphone market in China.
McKinsey suggests Chinese innovation was made possible by the explosive growth of the middle class since 2000, with about 1.5 million won ($1,346) in disposable income monthly. They are the consumers of the lower-to-middle price range of Xiaomi’s models. Apple and Samsung never intended to lower their prices to compete with Xiaomi. They target richer consumers. Middle-class consumers are the reason why Xiaomi could topple Apple and shake Galaxy’s lead.
It’s happening in all industries. Chinese companies catch up with foreign technology rapidly and pursue innovation through commercialization. The Korean products that we think are technologically competitive, such as cosmetics, pressurized cookers and fashion apparel, are no exception. Chinese rivals will catch up in technology and lower costs to achieve Chinese innovation. The products and industries where Korean companies are leading could be beaten soon. Korea and China have signed a free trade agreement.
Now, Chinese consumers can make or break Korean companies. That’s why we need to be wary of innovation through commercialization by Chinese companies.
*The author is the director of the JoongAng Ilbo’s China Institute. JoongAng Ilbo, Nov. 24, Page 30
by HAN WOO-DUK