American companies have been investing in China for years — but mainly in the form of cheap labour. With all the R&D moving into Asia, there’s a huge opportunity for companies to invest in innovation abroad. But they need to know how to approach the market.In A CEO’s Guide To Innovation In China, McKinsey’s Gordon Orr and Erik Roth, who are based in the company’s Shanghai office, discuss the four biggest obstacles to innovation in China:
1. To really understand Chinese customers, companies need to be fully immersed in the market
Too many companies fail by using “fly over” management. But some multinationals appear to be investing the necessary resources; for example, we recently met (separately) with top executives of two big industrial companies who were being transferred from the West to run global R&D organisations from Shanghai. The idea is to be closer to Chinese customers and the network of institutions and universities from which multinationals source talent.
2. American companies need to employ more educated Chinese workers
China’s universities graduate more than 10,000 science PhDs each year, and increasing numbers of Chinese scientists working overseas are returning home. … Talented Chinese employees increasingly recognise the benefits of being associated with a well-known foreign brand and like the mentorship and training that foreign companies can provide. Some multinationals energize Chinese engineers by shifting their roles from serving as capacity in a support of existing global programs to contributing significantly to new innovation thrusts.
3. Chinese workers aren’t as comfortable with risk taking and failure
Failure is a required element of innovation, but it isn’t the norm in China, where a culture of obedience and adherence to rules prevails in most companies.
4. Because of this, Chinese workers need to innovate in teams
To combat these attitudes, companies must find ways to make initiative taking more acceptable and better rewarded. One approach we found, in a leading solar company, was to transfer risk from individual innovators to teams. Shared accountability and community support made increased risk taking and experimentation safer.
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