Understanding China’s Next Wave of Innovation

Three types of emerging innovators in China are making it increasingly difficult for Western multinationals to compete.

In recent years, a handful of Chinese companies have emerged as global innovators and have garnered a lot of attention. This group includes online retail giant Alibaba, appliance maker Haier, search and data technology provider Baidu, and Tencent, the social communication and gaming ecosystem. These companies are challenging the R&D strategies of foreign companies to keep up with the pace in China,1 and they are providing valuable lessons on how to make ideas commercially viable.2 But there’s another, less obvious force to be reckoned with in China as well: thousands of innovative companies that are quietly disrupting numerous industries, overtaking incumbents, and developing new products and new business models. For a variety of reasons we’ll discuss here, these emerging innovators are not easy to identify — yet they pose real threats, often in unexpected places.

For example, Royole, a Shenzhen-based startup that develops electronic products capable of bending and folding, has entered the automotive market with a superthin flexible display that can serve as the interface of a car’s dashboard. Backed by an abundance of venture capital, Royole has also introduced the world’s first bendable smartphone, which can be folded like a wallet.3

By expanding the distribution of their products, some established companies are also catching multinationals off guard. One such company is Jiangsu Dongcheng M&E Tools, a manufacturer of power hand tools. In the early 2000s, Dongcheng operated at the low end of the local market and was not seen as a serious rival to name-brand competitors like Bosch and Stanley Black & Decker. However, today it is China’s best-selling power-tool brand, outselling Stanley Black & Decker 10 to 1 there, and it is competitive in markets all over the world.

Over the past decade, we interviewed hundreds of executives, entrepreneurs, and investors in China and studied more than 200 Chinese companies. Our goal was to understand how innovation is being practiced in China and how it is changing. We identified three types of Chinese innovators, each of which presents a different set of challenges for competitors. We refer to them as hidden champions, tech underdogs, and change makers. (See “About the Research,” and “Three Types of Emerging Chinese Innovators.�

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