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Expert Roundtable 5 Can China and India Innovate?


This summer, BusinessWeek brought together 13 of the smartest people we could find for an online roundtable on the past, present, and future of China and India (see below for a list of participants). On each of eight days, we posted a new question. Economics Editor Peter Coy moderated the discussion. The experts communicated both with us and with each other on everything from geopolitics to generation gaps. Now we're sharing the discussion with you -- and invite you to offer your comments. Please note that not all 13 participated every day, and comments have been edited for style and clarity.

With some exceptions, China and India have been "fast followers" in technology rather than innovators. Will either or both of the countries become leaders in technological innovation? And if so, in what fields?

Oded Shenkar

Imperial China accounts for key inventions (e.g., the compass, gunpowder) but has failed to develop the scientific foundation that would permit a solid innovation stream. The country is also hampered by its Communist legacy, which sought innovation by decree, by an education system that has traditionally encouraged rote learning, and by lack of intellectual-property protection, which reduced the incentive to innovate.

Today, Chinese firms are by and large followers and imitators rather than innovators. The country's R&D expenditure of about 1% of GDP is low by developed nations' standards, though it buys more, given wage levels for scientists, and it grows with the Chinese economy. India's R&D spending is even lower.

On the positive side, the Chinese government is undertaking educational reform and is enticing the best and brightest among its overseas graduates and scientists to return home. India will probably try at some stage to do the same. The Chinese government also continues to provide incentives for the transfer of technology and knowhow, and R&D intensity among U.S. China affiliates is three times their global average.

The bottom line: The jury is still out. Success will mean that China may become a global leader in certain technologies. Failure will imply continued dependence on the foreign investors, who account for the bulk of China's technology exports.

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Donald Straszheim

It is hard to imagine that either China or India will be a real economic innovator in the next five to ten years. The innovation has come from developed countries for a long time. China and India have their hands full in building out and capitalizing on the opportunities in mass production of goods and services that are so plentiful. The path of least resistance in China and India to riches and rewards is this build-out. The companies that will lead in innovation likely will remain in the developed West.

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Wenran Jiang

Both China and India are the latest of "late comers" in the modern history of industrialization. Thus both are likely to encounter some kind of "late-comers' effects": They have benefited from and will continue to take advantage of the newest technological innovations available. By leap-frogging ahead of the learning curve, the two countries will build their economies first of all as "fast followers," as Japan and Germany did long ago.

In this regard, China is ahead of India and has displayed substantial vigor and sophistication in dealing with technology transfer and innovation in the past 25 years.

Another late-comers' effect facing China and India is the fact that they were and to a certain extent still are at the bottom of the innovations ladder with a weak technological base, lack of capital input for R&D, are short of expertise in all areas, and are facing a virtual monopoly of high-tech areas by the advanced industrialized countries. Therefore, they have no choice but to be followers rather than innovators.

But that does not mean China and India will stay at the rank of followers forever or even for long. The Japanese development path earlier and the Chinese experiences recently have demonstrated that it won't take long for late comers to have a competitive edge in many areas of innovation. The Chinese leadership has been keenly aware of the importance of innovation in its efforts to modernize the Chinese economy and to catch up to the West. In the first decades of the People's Republic of China, "reverse engineering" was the method to unlock the technological secrets from abroad.

From the 1980s, China's "open-door" policy has become the means of absorbing foreign technology and knowhow. The Chinese are especially eager to get technology transfer in their FDI and joint-ventures. The rationale is that unless you have the latest available technologies in a given area, you will not be able to make further innovations. There are clear indications that India is about to do the same.

So one major indicator of whether either or both of the countries will become leaders in innovation is the extent of their engagement of other advanced industrialized countries and the level of FDI they can attract. So far China is doing better, but India is likely to follow closely.

Another major measurement is the level of basic and professional education of its population. While China is much better at providing basic education, India has a strong [tradition of] higher education and the advantage of [more of the population speaking] English, although it has a long way to go for its basic education. China has a huge overseas Chinese community and a growing army of overseas students that compensate for its weakness in post-secondary education.

While the future is promising, neither China nor India will have much luck in producing Nobel Prize winners in major science categories in the near future. But to put things in perspective, with a per capita GDP of $1,000 or less and so many living in deep poverty, China and India may settle for being "fast followers" if they can maintain a good pace of economic growth to meet the challenge posed by the their huge populations.

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Rajni Bakshi

It seems unlikely that major new, world-changing, technologies will come out of either India or China in the near future. However, what is crucial for defining our place on the world stage is the intensity of technological innovation at the ground level, in harnessing renewable resources for fuels and dispersed industrialization that generates livelihoods.

China appears to have an advantage in this sphere. It was able to tap its polytechnic network to design and maintain small, mobile wind-based electricity generators in the 1970s. It has created brilliant modern applications of its bamboo resources.

Similar technological talents are plentiful in India but, they are mostly expressed in local-level initiatives that are not up-scaling in a serious manner. A serious infusion of social venture capital, with supportive government policies, could proliferate innovative technology initiatives and transform India's social and economic base. This would make it a still bigger market and a more competitive economy.

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Subroto Bagchi

Though India and China have been adaptive and not innovative, my sense is that we will see a change in that. First of all, we will witness a substantial amount of process innovation coming from these two countries -- some of these will have global impact. We will also see a lot of business model innovation. This will be followed by product and technology innovation with a lag. Large multinational corporations setting up their own centers and the flow of VC money will create a potent generation in five years' time.

Meanwhile, we are beginning to see the spirit of innovation coming in from a whole bunch of nontraditional folks. Today Indians make films and write books or design dresses with a global audience in mind and they are selling. Heard about Monsoon Wedding? Bend It Like Beckham? Jhumpa Lahiri or Arundhati Roy or Ritu Beri? I think these are important as "proofs of concept." These are coming from a bunch of next-generation folks who are not given to incumbency.

I see this as a key directional indication because innovation always happens within an ecosystem. When we see a certain pattern in which flora is getting influenced in a rain forest, it is an indication of how we will soon see changes in the surrounding fauna as well. We seem to be on the cusp of things. Indians are getting in touch with the right brain.

A very fundamental requirement for the spirit of innovation to work is in the creation, nurturing, and celebration of diversity. Different countries in the region will embrace that reality differently. As a result we will see degrees of innovation as we go along.

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Manoj Singh

I am cautiously optimistic that India and China will become leaders in technological innovation over the next 10 to 15 years. They certainly have the right DNA. Clearly some of the best minds come from these two countries, and they have been immensely successful outside of their countries, and have been at the front end of technological innovation from microprocessors to software. This would indicate that if India and China were to create similar environments, and more importantly markets, the intellectual capital these countries produce could become innovators in their own countries. Of course, this is a lot easier said than done.

India and, in particular, China have a rich history of innovation which is well known -- cotton production, iron casting, gunpowder, printing, porcelain, shipbuilding to name but a few -- but in more recent times they have been content to adopt and build on Western technology. Deloitte research has shown China is emerging as a key player in shaping technology standards -- standards that could define the nature of global competition for years to come. From operating systems and software applications to storage media, wireless communications, and satellite positioning, Chinese government agencies and companies are looking to break the hold of the West on standards and are working to shape new technology standards.

In India, a number of technology companies from Motorola, Texas Instruments, GE, Intel, and others have already established R&D bases besides software giants like Microsoft, Oracle, and SAP. India is also rapidly becoming a key player in high-precision automotive parts. Multinational corporations are increasingly relying on professionals in India for greater contribution higher up the value chain than they did even two years ago. This trend represents the start of India potentially being a leader in technological innovation.

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Viveca Chan

I am confident that China will become a leader in technology innovation in the 21st century. China has a history of innovation that peaked during the Ming Dynasty and started to decline. China has reached a new phase and is on its rise to prosperity.

China has a background in research and innovation. In fact, Chinese researchers and scientists have contributed significantly to technological innovations in the West in the past century. China now has the economic power to support extensive R&D and should be able to attract talent back and develop a new pool of talents. What China needs is a whole support system to ensure the inventions can be successful in the marketplace.

Inventions need to be partnered with the right marketing approach (translating it to the right product, the test market, the right price, the right distribution, etc.) and the right management. With the growing sophistication and growing size of Chinese companies, I believe we will see China starting to lead in technological innovations in the 21st century. It is a natural and necessary evolution if Chinese companies are to become global and market leaders.

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Jiang Li

I believe China would be able to become a leader in technology innovation in the foreseeable future. The more than 300,000 engineers graduated every year, the many higher-education schools across the whole country, the numerous emerging high-tech companies and enterprises, the heavy R&D investment from international corporations, and the huge market requirement are some of the [reasons] that I can list here. For example, I am working in a research lab of Microsoft in Beijing, Microsoft Research Asia. We published about 10% of the total papers of the most influential conferences in the IT industry last year.

Although the IP belongs to Microsoft, the people who did [the work] belong to China. The innovation and its ability will finally spread and penetrate to the IT industry of China. Besides, the IT industry of China has also been making innovation in the adaptation of new technologies, in creating new user experience, and new business models. For example, the so-popular use of mobile devices and the so-hot short message service exhibit China's business innovation beyond the rest of the world.

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Madhav Bhatkuly

Path-breaking innovations do not occur everyday, and for those infrequent ones, both India and China have to go through their own learning and development process. Also both countries have too much low-hanging fruit that they can pick purely on the basis of low cost for them to really focus on technology that sends man to the moon! The Chinese haven't needed to produce anything path-breaking to be world leaders in toys. The critical drivers were low price points, scale, and variety, and the Chinese delivered these boundlessly.

On the other hand, the Indian's have done remarkably well in generic pharmaceuticals, where critical drivers were high chemistry skills and quality manufacturing at low cost. Thus the point to take home here is that there is enough that they can do easily [that it doesn't make sense] for them to start focusing on path-breaking innovation just yet. They also need to go through the development process cycle, and when they do, they will have their [own] technological innovations.

Meanwhile there is already some visibility of what might come in the years ahead from India. Tata Institute of Fundamental Research (TIFR), India, has one of the world's largest groups working on cutting-edge [physics] research in string theory. India is among the six countries in the world with knowledge to build and launch satellites. Texas Instrument's Bangalore center is responsible for over 30% of TI's global patent filings. About 600,000 students from India have been enrolled in U.S. universities for higher education in the pat 20 years.

At the current pace of growth, this would be more than 2 million in the next 20 years. Nine Indians were among the top 100 innovators under the age of 35 in 2004, according to the Technology Review, MIT's magazine on innovation. The telecommunication and networking group at IIT Madras has developed an ATM machine costing $1,100, compared to $10,000 for ATM's supplied by global giants such as NCR and Diebold.

India is among the few countries in the world to build a supercomputer. According to the American Association of Physicians, 35,000 of its members are of Indian origin, and 14 of every 100 researchers in U.S. pharmaceuticals laboratories are from India. Over 20 nanotechnology patents are filed from India annually. Indian nanotechnology scientists are working on nanotechnology applications including cancer treatments, heat-reflective glass coatings, aerospace materials, TV screens, etc.

The Institute of Bioinformatics at Bangalore has identified 43 genes which were never predicted by any group globally. The Centre for Cellular and Molecular Biology has developed an indigenous gene-mapping system. With a headcount of over 2,000, Intel's India development center has now overtaken Israel's, which has 1,700 people.

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Saurav Adhikari

The general consensus from the discussion above appears to be that both China and India may not be in the forefront of immediate and dramatic new technologies but will be, given their historical tradition [of innovating] around "appropriate" and "relevant" technology. This is inevitable.

Take drugs. With dramatically lower costs of R&D, the hub of research is shifting. Take technology. With increasing production of tech products especially in China, the inevitable innovations will occur. Both India and China have developed several low-cost technologies such as medicines, agricultural methods/implements, IT/tech products, albeit with collaborative support from the outside world. But then in an interdependent world is that not the way forward?

The key question is will India and China provide breakthrough technology solutions based on R&D in the near to medium term given the economic and social imperatives of development?

The Participants

Saurav Adhikari

Corporate vice-president for strategy, HCL Technologies

India

Subroto Bagchi

Chief operating officer, MindTree Consulting

U.S. and India

Rajni Bakshi

Activist and author

India

Madhav Bhatkuly

Managing partner, New Horizon Investments

India

Viveca Chan

Group chairman & CEO, Grey Global Group

Hong Kong

Subir Gokarn

Chief economist, Crisil Ltd. debt-rating agency

India

Wenran Jiang

Associate professor and associate chair

Department of Political Science, University of Alberta

Canada

Jiang Li

Research Manager, Media Communication Group, Microsoft Research Asia

China

Arun Maira

Chairman, Boston Consulting Group (India)

India

Oded Shenkar

Professor of management and human resources, Ohio State University Fisher College of Business

U.S.

Manoj Singh

CEO, Deloitte, Asia-Pacific Region

Hong Kong

Donald H. Straszheim

Chairman & CEO, Straszheim Global Advisors

U.S.

Wang Yong

Associate professor, School of International Studies

Director, Center for International Political Economy, Peking University

China


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