De-Brief

THE BURNING ISSUE

CHINA TURNS TO INNOVATION

Can innovation flourish in a state-managed economy? The Chinese government believes it can and is offering huge incentives to universities and businesses in a bid to leapfrog the world’s major knowledge economies. As well as shaping the future of the Chinese communist project, the initiative is focusing minds in Europe.

From manufacturing to knowledge…
The last two decades have seen China emerge as a manufacturing powerhouse, drawing on a vast supply of cheap labour to undercut western manufacturers in everything from T-shirts to DVDs. Now the People’s Republic wants to move from Made in China to Invented in China.

… and from rental to ownership
Although China is now exporting vast quantities of commodities, a dependence on knowledge and expertise “rented” from other countries is restricting profitability. On the sale of a DVD player, the Chinese exporter will typically receive less than 5% of the price, compared to nearly 60% for the foreign patent owners.

The Chinese government has made it a top priority to enhance the country’s innovation capability, allocating over 70bn yuan, or more than €7bn, last year to investment in science and technology, an increase of nearly 20% on 2005. A similar year-on-year increase is planned for the next five years.

Problems
The Chinese education system is not geared towards churning out innovators and entrepreneurs. There is a strong emphasis on theory and little attention given to problem-solving and working in a team. Few Chinese graduates have the practical and language skills needed to work in the type of competitive multinational environment in which innovation tends to flourish.

While small, private companies have emerged as the main engines of innovation in the West, China’s political and financial systems provide little support to private entrepreneurs. Risk-averse, state-controlled businesses receive around 75% of bank credit and dominate the Chinese stock market. Ambitious private entrepreneurs are often dependent on family members for start-up capital, greatly limiting the scale of their projects. With few incentives for independent innovation, Chinese students educated in foreign universities have tended either to stay abroad or to return home as employees of foreign-owned multinationals.

Will the policy work?
In terms of brute numbers, the policy is already producing results. In 2006, China overtook Japan in its spending on research and development, and now ranks in second place globally behind the US. China has also crept up the charts in terms of new patent filings and now stands fifth in international rankings, ahead of Germany.

The progress has been sufficiently marked to scare the wits out of Europe. The innovation performance of the EU has for several years been lagging behind that of its major global competitors. Even though some individual member states’ economies are among the most innovative in the world, Europe suffers from the dispersion of limited financial and intellectual resources among the large number of countries and businesses within its borders.

Under the so-called Lisbon Strategy of 2000, the EU set itself the objective of becoming the world’s leading knowledge economy by 2010. Although this objective has long since become a laughing stock, recent meetings have seen EU heads of state focus more closely on encouraging innovation in specific key technology areas, such as hydrogen and fuel cells, nanoelectronics and innovative medicines, by agreeing to match private investment with EU subsidies.

Game on
Over in China, it is too early to tell whether the state-led innovation policy can succeed. Will an upsurge of entrepreneurial energy be allowed to push China steadily closer to free-market orthodoxy? Or will it be nipped in the bud by the more conservative elements within the government? Either way, the fear of a massive new competitor in the East is encouraging the EU to focus less on meaningless headline goals and more on practicalities. This has to be a good thing.

LEARNING FROM THE MASTERS

TAILORING YOUR MESSAGE

In James Joyce’s Ulysses, Samuel Beckett’s Waiting for Godot, W.B. Yeats’s The Second Coming and Oscar Wilde’s The Picture of Dorian Gray, the “Gaelic revival” of the late 19th and early 20th centuries produced some of the great works of modern literature. It also saw a coterie of hard-drinking Irish novelists, poets and dramatists achieve global fame and modest fortune.

Their success is testament to the benefits of knowing your audience. Although portraying themselves as aesthetes and bohemians operating above the vagaries of the market, these Irish writers were masters of reinvention. In Ireland they would parade as experts in the wantonly obscure modernism to which they gained exposure in Europe. When travelling the continent, however, they would shamefully peddle the Irish folklore and mysticism for which they displayed contempt in their homeland.

The key to their success was an ability to be both cosmopolitan and local at the same time. All of them were able to converse in several European languages and, with the exception of Yeats, none spent any significant period of his adult life in Ireland. But for all their continental sophistication, each knew when to deploy a clichéd Irish drunk or a timely Dublin aphorism to liven up a text.

Spending time in the major cultural and intellectual melting pot of the day was also crucial to their magic. Joyce, Beckett, Yeats and Wilde all lived in Paris in their twenties and thirties, and all four of them died in France.

HOW TO...

SURVIVE A TRADE SHOW WITH DIGNITY

Whether the product is motor homes, lingerie or combat aircraft, the modern trade show follows a familiar pattern of over-hyped CEO speeches, pyrotechnically enhanced product launches and a creeping sense of futility and anti-climax. Following a few essential guidelines can help to make this necessary evil of commercial life a more bearable and profitable experience.

Avoid caffeine overload
The unseemly fight for custom between rival exhibitors has one welcome by-product in the shape of inordinate quantities of free coffee. By all means take one or two cups to ease the jet lag, but don’t drink yourself into caffeine-induced hysteria before the first keynote address.

Maintain basic standards
The competitive, masculine atmosphere may tempt you to make ribald jokes at the expense of the scantily clad drama students draping themselves over the merchandise. Sexism isn’t funny or clever in the office, so don’t indulge in it at the trade show. The laughter of your peers will be that of embarrassment, not admiration.

Take it easy on expenses
Like a class of 12-year-olds on their first school trip, otherwise mature businesspeople have a tendency to overdo things at a trade show. Turning up for a meeting unshaven and stinking of Sambuca is unlikely to impress potential clients. If you must get drunk, save it for the last night.

MAN OF THE MOMENT

Scheving created an alternative economy in Iceland, with millions of euros of “LazyTown vouchers” being traded for a range of goods from health foods to gym memberships to sportswear. The Icelandic government credited one episode of LazyTown with increasing the sales of fruit and vegetables by 22% in a week.

Having conquered Iceland, Scheving is now seeking to extend his brand worldwide, for example establishing links with the International Olympic Committee ahead of the 2012 games in London. But he claims not to be in it for the money.

“I have seen a lot of billionaires but I have never seen one smile,” he says. “LazyTown is driven by passion. When you are a character in your own show you cannot fake it because kids can see it in your eyes.”