Category Archives: Thoughts

A new global innovation landscape?

The ‘webopshere’ has been awash with comments on ‘A CEO’s guide to innovation in China‘, a short piece recently released by McKinsey.

Not surprisingly, one reads that China is home to an increasing number of innovative products and patents and that competition between Chinese and foreign firms is bound to get more intensive. The piece also highlights some notable differences between domestic companies and MNCs: the former excel at time-to-market and can rely on the government’s strong support while the latter are better at nurturing a culture of innovation in-house.

The piece leaves one fundamental question aside: how does the transformation of the Chinese innovation eco-system re-define the global innovation landscape? Stay tuned if you are interested in the answer….

West meets East?

Ever heard of Tasly Pharmaceutical, the Kanglaite Group or Lanzhou Foci Pharmaceutical? All three companies are either engaged in clinical trials in the United States or applying for registration in the EU with drugs derived from traditional Chinese medicine (TCM). Akin to the research carried out on malaria by Youyou Tu, TCM may offer promising avenues to cure some of the world’s most lethal diseases.

Recognition of TCM by Western drugs agencies however rests on the capacity of scientists to clearly identify the active ingredient, something rather difficult for researchers used to traditional methodologies (e.g., water decoction, immersion, etc.) to process herbs.

There is no doubt that important efforts will be needed to conform to Western agencies’ strict protocols of registration so as to ensure the safety and effectiveness of drugs derived from TCM. Time may have come for both “worlds” to cooperate and devise together strategies to bridge the gap between Western and Chinese medicine.

Ready for 4G?

Here we go again with Chinese telecommunication standards and regulatory procedures.

According to Caixin the very much expected roll-out of 4G networks may run into delays. Results of network testing conducted by China Mobile are being withheld and, instead of the usual group approach, the Chinese carrier appears to be holding one-on-one discussion with network equipment vendors.

The process is somehow reminding us of the 3G saga in which operating licenses were given out once domestic firms had managed to offer a working standard that could match the established European and American standard.

Being a state-owned carrier may not always secure a competitive advantage, in particular when the regulator interferes with the market.

No better way to summarize China

Capturing the diversity and dynamism of a country the size of China is not an easy feat.

This week’s announcement from the People’s Daily is likely to achieve it: the online avatar of the Chinese Communist Party’s (People’s Daily Online) is going to be listed on the Shanghai stock exchange.

For many one of the CCP’s mouthpieces embracing capitalism may seem a contradiction in terms or, worse, the proof that the Party has definitevely distanced itself from Marxism-Leninism. It shouldn’t. Symbolism aside, the People’s Daily is not very much different than any other state-owned enterprise listed on the stock exchange: it is majority-owned (and controlled) by the government raising capital where it is available. In fact, it is a similar story than with the Internet where the government has always shown its intent to embrace it while controlling it.

One can’t get more pragmatic than that!

Abroad, mobile but virtual

China Telecom, the largest fixed-line provider in China, is going mobile in the UK…

Neither the mode of entry via a mobile virtual network operator (MVNO) nor the segment targeted (Chinese tourists) may sound very threatening to established mobile operators like Vodafone or O2. While such a low-key market entry carries little downside risks, it also provides little upside benefits. Nevertheless, it sends a mighty signal to carriers across the world that Chinese operators are no longer only concerned about their domestic market.

In spite of China’s accession to the WTO a decade ago and the ensuing  ”liberalization” of the telecommunication market no foreign operator has really ever managed to crack the Chinese market. Competition may now take place elsewhere and, given the deep pockets of Chinese operators, it may be fierce.

The -est

The longest bridge, the tallest dam, the fastest supercomputer (at least for a while..) and the rest: the list of China’s technical achievements seems endless and 2011 a year of many superlatives.

All signs are there that China’s transformation into an innovation powerhouse is gaining momentum. For sure, it is still hard to pinpoint a particular breakthrough or name a leading Chinese personality associated to innovation – the search for the Chinese “Steve Jobs” in the Chinese Internet sphere is a case in point. But the data points are getting more and more numerous (e.g., emergence of an IP culture, growth of venture capital) and the government is not showing any slowing down in its plan to work China’s way up to first place.

For skeptical, the surprise will be large. Maybe the largest.

China’s key words

Baidu, China’s leading search engine, has published the hottest searched keywords in 2011 – my comments:

1. Tiangong-1 – China’s space technology slowly filling the void left by the US

2. Jobs – not employment although that may be the case in the future if the government does not manage to re-balance the economy

3. Gadhafi – another testimony that Chinese netizens are global citizens too

4. Earthquakes – a sober reminder that the ground shakes frequently in China and causes massive damages. Still a mystery since one tends to be concerned by the future ones and not the past ones.

5. Food safety – this is not about fake organic pork but rather life-threatening products which make it through the controls of China’s  State Food and Drug administration

6. Personal Income Tax Threshold – The People’s Congress announces that tax exemption was raised from USD 314 to USD 550. Do the netizens trust Baidu more than the People’s Daily?

7. Housing prices – High time to have a structured product to hedge against real estate bubbles in China. But of course, this requires someone to be bullish on real estate in China.

8. 90th anniversary of CCP founding – The party is reaching a respectable age but doesn’t seem intent on retiring yet.

9. Laden – Gadhafi, Laden. The one missing is Kim Jong-Il…

10. European debt crisis – I wonder if the Chinese are more concerned about than the European themselves!

As a “comparison” in Europe the fastest rising words on Google in 2011 are: Rebecca Black, Google Plus, Ryan Dunn, Casey Anthony, Battlefield 3, iPhone 5, Adele, Tepco, Steve Jobs and Ipad2.

China’s most valuable brands

Brandz has published its annual ranking of China’s most valuable brands.

While there is not much change at the top of the list, one may nonetheless be surprised by two aspects: First, it is the overwhelming presence of the State. In fact, except for Baidu and Tencent (active in the Internet), all firms are state-owned and belong either to the telecommunications, financial or natural resources sector. Second, Huawei is absent from the list.

The Chinese ranking is somewhat different from the global BrandZ ranking where one finds a mix of fast-moving consumer goods (Coca-Cola. McDonalds  and Marlboro), technology products and services (Apple, IBM, Microsoft and Google) as well as industry (GE). The other difference lies in the valuation of the brands: China Mobile whose value is estimated at more than USD 50 billion comes only 9th in the global ranking. The most likely explanation for this is that, even with the huge domestic market, Chinese firms tend to remain at home. How will the value of Chinese brands grow once the firms start ti make serious inroads abroad?

The synergy between fish and rice

No, this is not a sushi advertisement but the result of a scientific study reported by Nature.

In southern China, farmers have been cultivating fish and rice in the same fields for more than 1,200 years — with good reason, according to a group led by Xin Chen at Zhejiang University in Hangzhou. Farming fish and rice together (co-culture) achieves the same rice yield as growing rice alone (monoculture), but uses 68% less pesticide and 24% less chemical fertilizer.

Both cultures ‘help’ each other and themselves. Rice benefits fish by providing shade and reducing water temperature during the hot season. Fish swimming among the rice plants bump into the stems, knocking off as many as one-quarter of pests called rice planthoppers. In addition, nitrogen from unconsumed fish feed is taken up by the rice plants, boosting yields.

There are probably plenty of other instances in which co-culture does as well if not better than technology.

Ultimate growth

A growth rate of 19218% (no, you didn’t miss a comma: nineteen thousand and two hundred eighteen percent).

That’s what the winner of the 2011 Deloitte Technology Fast500 Asia Pacific achieved over a 3 year period. Launched in 2008, the Store Corporation (Yihaodian) provides Chinese customers with a one-stop shopping platform, offering all their essential daily items at competitive prices (3-5% cheaper than in supermarkets).

The next question is of course whether such growth can be sustained. So far, one of the biggest problem faced by the firm is storage. At least one company feels it’s worth the try: Walmart acquired a minority stake in the firm during the summer: it may not be enough tho maintain such hyper-growth rates but a strategic partnership with the world’s largest supermarket chain will at the minimum bring some insight into the logistics aspect of the business.

P.S.: According to BCG another 30m Chinese will go online to shop for the first time every year until 2015.