Shaun Rein, author of The End of Copycat China talks to Campaign Asia-Pacific‘s David Blecken about the factors behind the country’s surge in innovation
That China’s ‘copycat’ culture is at an end is a bold claim. What are you basing this on?
A lot of people think China’s growth has been based on IP infringements and that’s generally true, but what we’ve seen in the last two to three years is entrepreneurs focusing on innovation. This is due to squeezed margins. Right now we are at the stage where companies are innovating for China specifically. Three years ago there was so much low-hanging fruit that there was no need to focus on innovation. But it’s important to differentiate between invention and innovation. We’re still not at the invention stage. China’s great strength is in business-model innovation; technological innovation still needs improvement. Xiaomi, for example, is winning because of its business model innovation—selling online at a low price and selling services afterwards.
Define innovation in the Chinese sense.
Innovation is improving models to fit market demands, and that’s what the Chinese are great at. So they’ve been brilliant at adaptation for China and customising for local conditions. Now, we’re seeing two areas that will become global. The first is mobile device services: there are more mobile users in China than anywhere, and most internet users’ first online experience is via the mobile phone, so people are building services with phones at the beginning. That’s why the services here blow away those from America. It also doesn’t cost much to build on mobile. That’s why a lot of top technology guys are going into the field: it’s cheaper and faster. The second sector where we are seeing lots of innovation is biotech. There are a lot of great workers in this area, and the government is actively supporting them.
What are the most significant changes in consumer behaviour that you see amid this new climate?
A large part of innovation is being driven by consumer demand. People don’t want to buy copycat products anymore. They want individuality and an authentic Chinese dream. In the past, luxury consumption was driven at a mass level. Now, it’s about experiences rather than just physical objects. People are focused on niche brands that allow them to express themselves. People are taking pride in their Chinese roots, considering what it means to be Chinese and thinking, let’s stop slavishly copying. That means advertisers are really going to have to rethink their campaigns. You can’t just put busty blonde women on ads now. I think we’ll see a rise in Chinese apparel and consumer electronics—but I’m still bearish on the auto sector.
To what extent is this new era of innovation changing the way brands market themselves?
Frankly, a lot of advertisers aren’t changing quickly enough. They still differentiate by saying, ‘We’re foreign’. Companies must understand that they can be global but need to localise for China. They don’t need to reinvent themselves, but they do need to make their products and advertising relevant. They need to create shapes that fit the Chinese conception of beauty, they need to create furniture that fits more cramped homes and they have to tap into national pride.
I think Chinese companies are now starting to understand the importance of branding, where in the past, they focused on sales and distribution. But innovation is easier than branding for Chinese firms. Innovation can be led by one or two people, while the creativity needed for branding is not necessarily there. Two people can create incredible products, but you need hundreds of people to understand a brand’s positioning. It’s tough. Huawei is doing well on handsets but what is their positioning? It’s a great time to be an ad agency, but a lot of them are not very good. They typically don’t have great creatives, so they still tend to bring in a white person who is creative but doesn’t understand the consumer.
What are the implications of a more innovative China domestically and internationally?
Consumers had better get used to using Chinese brands. We’re seeing it with WeChat. It eclipses Facebook in Indonesia; in South Africa, everyone is using it. It won’t be such an easy win for Western brands any more. They have to continue to innovate, find different price points or acquire Chinese firms. Being foreign and high price is not enough, and a lot are getting caught flat-footed. Typically, Chinese firms have competed by being ‘cheap but good enough’. That term is now gone as many are as good as or better than foreign firms, and I’m not sure that Western brands understand that. But you’re either going to see ‘Made in China’ becoming top-of-the-line, or even worse quality. At the low end, people are going to cut corners even more.
What challenges lie ahead for continued innovation?
There are still a lot. The first is IP. The laws are OK but there is not a good level of enforcement. The fines for copying are very low, so it makes sense to break the law because you can make a lot of money. There needs to be an overhaul.
The second is talent. There’s still a lack of talent, and China needs to improve its education system. It is improving—many people are studying in the West—but there is fear in the government that innovation will create instability so there needs to be a mindset change.
The government is supportive of innovation it can control, such as heavy industry and biotech that won’t threaten the primacy of the party. When it comes to areas that can be used to do ‘negative’ things, like technology and new ways of communicating, they see the problems that can pose. Then there is the quality of life issue. When we talk to wealthy people, the majority of them have a foreign passport. People want better access to clean air, healthcare and education.