Adapting to an inventive Asia

Photo ParisTech Review / Editors / October 22nd, 2010

CO-PRODUCED WITH

Knowledge@Wharton

For most of the last half-millennium, technology has been a Western game. One invention after another helped to make the West rich and, eventually, to subjugate much of the rest of the world. Now the advantage may be shifting beyond the familiar exception of Japan to most of mainland Asia. Although higher technical education is still stronger in the West and the infrastructure for starting new ventures more established perhaps in the United States, experts see a dramatically different competitive landscape ahead, and argue that changes need to be made now to better position the “old” developed world for an Asian-driven future.

We do the brainwork; they do the rest. That was the idea anyway when Western companies started moving their manufacturing and back-office work to Asia two decades ago.

But that’s changing now. If present trends continue, China is on track to become the largest patent-issuer in the world in 2011, ahead of both the United States and Japan.

That pending shift may inflate the amount of real innovation going on – the government reportedly pays a bounty to people who get a successful patent – but it is a clear indication of China’s technical aspirations.

All over China, companies and universities are pushing to expand their research facilities. President Wen Jiabao has made innovation a top priority, and the government plans to invest 1.9 percent of China’s GDP in research and development by 2020, up from less than half that figure in 2000. As one recent Thomson Reuters report on Chinese patent activity concluded, “Never before in history has such a concentrated culture of innovation grown so quickly and with such unity of purpose.”

Jean-Michel Yolin, president of the innovation and business department in the French Ministry of Economy, Finance, and Industry, has no doubts about China’s capacity to reach its goal.

After all, he points out, the Chinese have led the way for most of human history. “They invented writing, they invented printing, they invented navigation, they invented many things in medicine,” he says. “Up until the 14th century, for 4,000 years, China was the main innovative civilization.”

Nor is the growth in innovation likely to be confined to China. By the numbers, Asia’s other giant does not look nearly as impressive: India is ranked 58th for new patents. But in its own shambling way, the subcontinent may be finding a path ahead. Distributed computing, low-cost cars, portable, battery-powered EKG machines, and more have all been developed on Indian work benches.

Nor are the new ideas in India confined to high-tech research centers such as Bangalore. Over the past 10 years, volunteers from India’s National Innovation Foundation have trekked 12,000 kilometers through remote villages, looking for inventions, according to a recent report in India Today. On average, they’ve found more than 10 for every kilometer walked. The group has noted over 140,000 innovations, including a device that can absorb carbon content from a 12-horsepower engine, a bicycle that can be pedaled on land or water, a bicycle-powered washing machine, and a solar-powered mosquito killer.

Add to the mix Malaysia, Singapore, Taiwan, and South Korea – which already spends 3.23 percent of its GDP on R&D, about 40 percent more per capita than the United States — and it seems more likely than not that the inventors of the next new, new thing will hash out their ideas over curry and rice rather than burgers and fries.

For the planet as a whole, this is all to the good. Generally speaking, when it comes to new ideas, more is more. But experts say that economically and politically, it could mark an epochal shift, whose nearest analogy is the rise of the United States at the end of the 19th century – or even the rise of Europe in the 16th.

What next?

What will this mean to the West? To big business, it’s an opportunity. Already, large companies such as Cisco, IBM, and Xerox have made major research investments in Asia.

Small Western companies also stand to gain, as it’s easier than ever for entrepreneurs to create global networks of expertise. Even the smallest firm now has access to computing power and communications technology that only the largest multinationals had 15 years ago, says Hal Varian, chief economist of Google. “Engineering students who studied together in advanced countries can start up companies that are international from the beginning,” he says. “These ‘micro-multinationals’ can have a huge effect on innovation in the future.”

For Western countries, the course is not so clear. Some pundits have suggested encouraging more specialization. Hermann Simon, Germany’s answer to Peter Drucker, has noted that Germany’s strongest companies are almost all mid-size firms that picked a fairly small niche, such as wind power, and strove for excellence within that area. So far, indeed, this has worked out well for Germany, which has been a key industrial supplier to China during its long boom. Andy Grove, the former CEO of Intel, has also argued that the United States should be doing something to hang on to more of its industries.

But part of what makes these companies great, Simon has written, is the proximity of other strong competitors; often the number 2 company will be right across the street from number 1.

Economists have long noted how often excellent companies tend to grow together in clusters, of which Silicon Valley is a shining example, yet the degree to which such clusters can be willed into being is unclear. After all, a number of Germany’s industrial clusters have roots that go back to Middle Age guilds. Even some of China’s clusters go back generations. And Bangalore got that way partly because its local princes had progressive ideas about public education as far back as the 19th century.

Varian, for one, is not sure about the ability of governments to create clusters out of whole cloth. “I won’t totally condemn industrial policy but I think it has to be applied with a light touch,” he says.

Instead, like a true northern Californian, the former Berkeley professor believes in startups. “The biggest thing that governments can do is to get out of the way of entrepreneurs,” he says. “It is claimed, probably wrongly, that George Bush once said ‘the French don’t even have a word for entrepreneur.’ OK, it’s a funny line, but there is a problem in Europe in this regard. There are entrepreneurs, but they have way too hard a time in creating new companies and new jobs.”

Others argue that the West’s last best advantage is education, and that it must capitalize on this lead.

Indeed, some of the leading American universities have been vast engines of innovation and value creation: Stanford graduates created Hewlett Packard, Yahoo, and Google.

Nor is this advantage going to vanish overnight. Jim Spohrer, director of IBM UP (IBM University Programs World-Wide), estimates that it will take between 10 and 20 years for skill levels and research quality in Asia to catch up with the West.

For France, Jérôme Fourel, an Asian-based venture capitalist and graduate of both the Science Polytechnique and Stanford University, argues that the most important step the country could take would be to build up a “Stanford-like” Paris Tech, where scientists, engineers, and business people could be brought together. “So many things would pop up if, like in the USA, we allowed, side by side at age 20-29, a brilliant mathematician, the scion of a Rockefeller-like fortune, and a crazy designer!”

A liberal visa policy is also extremely important, Fourel says. Much of the Silicon Valley miracle had to do with the fact that a large supply of foreign technical talent was allowed to study and then work in the United States. Now, many of these engineers and scientists have returned home, to China and to India.

Big ideas occasionally do occur in isolation – Philo T. Farnsworth had the idea for the electron tube, the crucial part of the television, while a high school student in Rigby, Idaho. But as science writer and Wired magazine co-founder Steven Johnson has pointed out, the bulk of good ideas are a social phenomenon – he even goes so far as to link the rise of science and industry in the 18th century to the birth of the coffeehouse. (See the TED Talk below]

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Varian agrees that openness and education are advantages. “Don’t underestimate education and openness — that’s how the West grew rich in the first place,” he says. But it’s no longer the magic formula it once was, he cautions: “Many countries in the rest of the world have figured this out and they are emphasizing education and at least economic openness.”

If you can’t beat them…

These days, Fourel argues, it’s not helpful to think in national terms. Not unlike the French thinkers who saw the European Union as the only way out of a dangerous, perennially destructive competition with Germany, Fourel reasons that the only way for the West to win against China and Asia generally is to make innovation cooperative rather than confrontational.

Fourel, a partner at Sindeo Ventures, a Taiwan-based venture firm, thinks that French technical graduates should be sent to work in Asia for a few years, just to get a sense of it. Not summer camp, he says, but a real work experience. The world needs more “cross-dressers,” he quips – transnational “Califrasians” familiar with both Western and Eastern culture who can see opportunities on either side.

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