June 21, 2019 | 02:24 AM


20.11.2013Frugal Innovation Evolves In The Next Phase Of China's Rise As Tech Economy

China's transition to a tech economy based on innovations rather than copying continues to gain momentum.

Rebecca Fannin, Forbes.com

China’s transition to a tech economy based on innovations rather than copying continues to gain momentum. It doesn’t take a microscope to spot the signs.

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Chinese engineering and managerial talent is multiplying, while e-commerce and mobile communication innovations are unfolding. A rebound in China’s venture capital market after the “Death Valley” of the 2011 and 2012 and the rise of angel investors, many of them multimillionaires from the first generation of China’s “techpreneurs,” are escalating the trend.

Speaking at recent Silicon Dragon panel on innovation trends, debate over China’s rise as a world-leading tech power took center stage. ”China has definitely evolved from copycat to process innovation to now what’s called frugal innovation,”  said angel investor Brian Wong of Hong Kong-base Seacliff Partners. He added that the market is fueled by that old adage, “necessity is the mother of invention.” See video clip.

Wong, a former top executive with Alibaba for nearly a decade, observed that homegrown innovation has developed from a need in China for products and services that didn’t exist in developed markets. “So the Chinese have created it themselves,” he said. In the next phase of this evolution, he foresees China innovations expanding  in other emerging markets such as Eastern Europe or Vietnam. For example, the talk-to function of Tencent’s WeChat messaging service can be applied to many emerging markets where people may not read or write.

China’s innovations are bubbling up in many spots — big data, cloud computing and mobile apps, observed KPMG partner Egidio Zarrella, pointing to mobile aps for financial services as a prime example. The uptake in mobile apps capitalizes on China’s huge mobile communications market, the largest in the world, where residents of Shanghai, Beijing and other mega cities often use multiple handsets.  “Right now, the U.S. is seen as the innovation leader of the world, and China is right behind it. But in five to ten years’ time, China could lead,” he said, adding that the domestic China market will drive innovation that the US and Europe will want to learn from.”

Increased protection of intellectual property in China is adding more fuel to the Chinese tech innovation fire, observed Vickers Capital Investment Chairman Jeffrey Chi. He noted that Chinese tech company Huawei has become a world leader in the number of new patents filed and surpassed U.S. counterparts.

Despite the uplift, Chi and other panelists commented that China will need increased spending on core research and development to catch up with the breakthroughs of the West.

Silicon Valley is the mecca of high tech, especially for backbone technologies and even consumer technologies, commented Henry Wong, a venture partner with Garage Technology Ventures. “It is the place to go if you want to do research and grow fast,” he said, while adding that what works best in developing products is leveraging the resources of both this Western stronghold with the lower costs and huge markets of Asia.

Turning to another indicator of China’s growing tech power, panelists pointed to the march of Chinese Internet giants acquiring companies in the U.S.

In reaching out to new markets and expanding their influence, the Internet giants Baidu , Alibaba and Tencent have learned from the mistakes of some early American entrants to China, which settled for secondary positions against local competitors, set up joint ventures or ultimately withdrew. Today, the so-called BAT are not managing overseas outposts from back home but instead delegating authority and setting up offices locally within these outreach markets. They are taking minority stakes in startups, getting observer board seats and learning the characteristics of each locale.

The Chinese Internet players such as Tencent have figured out that they need to be close to the innovation, close to the investment in funds and early stage deals. This is the way they ”learn the secret sauce,” pointed out James Mi, managing director at Lightspeed China. Earlier in his career, Mi spearheaded Google's GOOG -0.62% initial efforts in the Chinese market and witnessed how centralized decision-making at U.S. headquarters hurt the search engine’s prospects in China against strong local rival Baidu.

He added the trend of Chinese companies acquiring companies rather than building new services or products internally is fed by a need to keep up with fast-moving upstarts in China that are putting pressure on the market leaders to continue to quickly innovate and protect their turf. Baidu’s minority acquisition of travel search site Qunar is one example within the local Chinese market. “It becomes much better to buy it than to build it. If you don’t buy it and build it, you are already  a few years behind,” he said. “If a competitor buys it, you are in even more trouble.”

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