Tuesday, January 10, 2012

NTC Seminar on: The Way to China Innovation

Speaker: Michael Lin
Founder & CEO of
Intellectual Property Exchange (www.IPEXL.com)

Mr Lin started off with an informative and insightful introduction to the background of China's innovation. He stated that for anyone to truly understand China's innovation and entrepreneurship environment, one has to have understanding and knowledge of China's historical events that molded China to what it has become today.

The China Revolution started off with the removal of the monarchy, when the common men no longer are seen as slaves to the emperor. However, at that time, it was just a dream, as there were still social classes that clearly determines the income of the people belonging to each class, which widened the income gap between these social classes.

In Mao's era, China's economy didn't grow very much, due to over-investments into the military, while living standards remained poor and unchanged.

In Deng's and Jiang Zhe Ming's Era, between 1978-2004, GDP did began to grow. However, Deng's elitist vision of letting small groups of people first become rich, then lead the others to equal income standards, eventually failed. This was because the continually widening income gap started to create much social unrest which effects were underestimated.
When everyone was poor, there wasn't such problems, because everyone suffered together.
However, when the poor witness the rich getting richer, they felt that they were left behind (Not unexpected, and not without reason).

Now in this 21st century, we might think that China is a growing economical giant, however the truth is that behind the flourishing 1st tier cities, the 2nd to 3rd tier provinces have infact became poorer, and living standards remain unchanged for centuries, while only the 1st tier provinces have became richer and richer.

Critical definition: Innovation is the usage of ideas and methodologies, while inventions is the creation of new ideas, products and methodologies.

The Global Innovation Index
The Global innovation index of Singapore ranks 1st, while China ranks 21st. however, in terms of innovation inputs, Singapore has a score of 2.89 to achieve an innovation performance of 2.01. While China ranking 21st, has an input of 0.06, with a performance of 1.96.

Thus, looking at these indexes from the angel of Return of Investments (ROI), China has a much more impressive ratio than Singapore! Why is that so?

Due to simple probability and the clustering effect, China must have a  higher percentage of talents that have exceptional foresight and intelligence in leading and creating economic progress, and when placed together, they benefit from the effects of sharing knowledge, resources and networks to achieve wonders.

Nevertheless, Singapore's strategic port location, was deemed by Mr Lin as much underestimated, in its importance and strategic leverage which Singapore has been blessed with. Due to our competitiveness in the shipping industry, Singapore pretty much controls the flow of resources (Especially energy and other commodities) among some of the riches countries in Asia.

Threat or Opportunity? The Chinese Middle Class
The Chinese middle class of urban professionals and entrepreneurs with college education, annual income between US$10-60k and average age of 35, continues to grow to become one of the most threatening demographic which all Singaporeans should be aware of!

There are currently over 300million of them, who comprise of about 25% of the total population, and is expected to grow to 612million by 2025 (40% of population), that is 60-100 times larger than what Singapore can offer! And they do not just compete within China, but instead are obviously seen competing all over the world.

However, this is inevitable, and instead of seeing it as a growing threat, it is more rational to decide to leverage on the inevitable, and transform them into collaborative/business opportunities. If there is a potentially successful Chinese right within your network of friends, appreciate them, embrace them, work with them, and collaborate to achieve mutual financial success and benefits!

China Innovation is a MUST!
1. China is starting to peak as a low-cost export manufacturing platform, and to remain competitive, they have to do transform their strategic economic focus.
2. To maintain its dynamic industrial growth, China must and will innovate!
3. Graduates are earning lesser, while housing and standards of living continues to rise, hence more people has to become job creators rather than job seekers!

Chinese Innovation
A. Build Operate Transfer (BOT) Business Model
Examples: 5 stars hotels in China
The governmental strategy of growing infrastructure through private enterprise investments without needing the country to invest their own capital other than the right to use th land for 20 years, and take over the entire enterprise, 20 years later.

B. Design Build Finance Operate (DBFO) Business Model
Examples: Highways
The government allow private enterprises to invest huge amount of capital in high-risk capital intensive infrastructure developments, and allow them to profit from it, infinitely.

C. Build Own Operate (BOO) Business Model
Examples: China Unicom
The government allow private enterprise to invest in building companies and co-own businesses.

China's Business Innovation Driving Forces and Opportunities
Contemplate on the following points to discover reasons behind why each has been labeled under their respective categories.

Areas where business opportunities might arise:
A. China's current strengths
- Improved quality
- Create new market
- Extend product range
- Improve production processes

B. Current opportunities
- Reduce materials used
- Reduce labor costs
- Replacement of products/service

C. Rising stars in China
- Conformance to regulations
- Reduce energy consumption
- Reduced environmental damage

Most important advise for enterprises entering China's market

FIND a reliable local partner!
DO NOT go in alone!
It seems to be almost unthinkable and entirely impossible to succeed without a local partner in China.

What Singapore youths are lacking, in terms of knowledge or attitude?
1. Comfort zone
- Singaporeans tends to grow to become comfortable with small successes.
- They have no desire and no ambition to become the BEST!
- Typically people will say "Why do you have to be so greedy?"
- While in China, EVERYONE wants to be the BEST and the BIGGEST!

2. Singapore market is too small
- Its scale and potential is limited
- To be successful, we have to think beyond our national boundaries!
- However, most of us lacks the ambition, drive, determination and imagination to do so!

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