By Christopher Hire

ANALYSIS, Business — China story is high-risk, high-return business story.

Longer-term it can be big, but as usual, the risks are being understated. Here’s why…

7 reasons why China story on innovation is risky:

7. China is a large nation of nation-states, much like the EU. There is no single ‘China’ nation, something missed on Westerners.

6. Legal protection may be improving, but observation and enforcement of laws varies province by province

5. Cultural differences under-estimated, as well as no single ‘China language’

4. Lack of cultural freedoms in mainland China. Communism!

3. Grinding poverty in much of China

2. Intellectual Property protection not observed in legislation

1. Intellectual Property protection not observed in practice.

Business succeeds best in consistent regulatory environments, and those places with wealthy domestic markets. Communist ideas are hard to kill, especially in the country.

No communist country has succeeded in broad-based innovation.

Hire Innovation Loop model

Innovation is positive change.

It’s components can be explained as inspiration, implementation and market access.

Inspiration in China is low, grinding poverty mainly, massive pollution and much IP theft. Longer-term this may change, if Chinese recognize it’s importance, and also eradicate anti-intellectual communist policies.

Inspiration comes from intellectuals who are educated and allowed to explore.

Communism kills intellectuals. Full stop. Talk to intellectuals in ex-Communist countries, and witness Eastern Europe’s embrace of other systems.

China needs to make it clear intellectuals are welcome, and reduce red-tape for it’s entrepreneurs.

Implementation: Western countries are using China as a factory, and in return China is gaining a knowledge transfer of IP.

I would argue there are some strategic risk of outsourcing food production or strategic goods to China, as is being discovered in the USA at current. Regulation won’t cut it in China. Electronics, plastics and other industries quality ratios are improving.

Market Access: Long-term strong domestic markets derives from innovation. Anyone predicting the decline of USA, Germany, Great Britain or France as large markets is really subject to hyperbole.

Japan had a remarkable success focused solely on technological innovation, but is having trouble adapting to an emerging knowledge-creation economy. It has good chances.

The size of the China market is significant but lack of IP protection means that too much success will be widely copied.

China will most likely overcome these obstacles. But it will be a bumpy ride, and is higher risk than other innovation opportunities. High-risk, high-return people only need apply, with capital and stomach for risk. I don’t think it has been sold to shareholders that way, as executives try to find the China solution.

China Innovators

If I was looking at China, I’d start in Shanghai, and find local business partners for a long-term business relationship. This is pretty much the gist of all advice I have read on the topic from the success stories.

And I would examine China as a regional story, not a ’single nation’. This is how many Chinese think.

But in innovation terms, the risk is higher than alternate opportunities with good innovation opportunities, and stronger climates of inspiration.

The risk is far lower in the similarly homogeneous Eastern Europe, especially pro-business Czechs & Poles. The risk is lower still in a United States/Canada market, although costs are higher, business in a US domestic market from East or West coast hubs is difficult to compete with.

Australia & China Innovation

I would like to point out I am in Australia as I write this, and would state for the record, that Australia is best-placed to work with a successful China as a cultural bridge nation.

It is the Chinese system that is the issue, as we have had a huge number of successful Chinese-born nationals succeeding entrepreneurially regionally in Australia and Hong Kong, both with degrees of freedom.

As a broader nation China needs to protect IP, and show respect for intellectuals. In the long-run I believe they will. In the short-run, my money is on other opportunities inside the US & EU markets.

And for those doing business in China, understand your regions and don’t let cultural assumptions let you assume one billion plus consumers…

Take Care,

Christopher-where’s-my-suitcase?

Christopher Hire
Innovator-In-Chief
2thinknowTM : Global Innovation Agency