China takeover as tech innovation center inevitable

China takeover as tech innovation center inevitable

Summary: Asian giant will eventually dominate in many areas of innovation partly due to market opportunities, and government support, but will still not entirely replicate Silicon Valley, industry watchers say.

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Technology innovation is starting to shift toward China due to the market opportunities, strong capital availability and government incentives around certain IT areas, industry watchers say. However, they note the shift will take some time and it will not entirely take over Silicon Valley.

According to Frederic Giron, principal analyst at Forrester Research, more technology companies are investing in China to develop research and development (R&D) centers, while leveraging a massive pool of scientific graduates from the country's strong education system, Giron observed, citing that China has the highest number of engineering graduates, and more foreign undergraduates head there every year.

Benjamin Cavender, associate principal at China Market Research (CMR), agreed, adding that a trend of companies moving certain capabilities to the Asian giant has surfaced. For instance, with companies in the mobile and Internet gaming industry, the large number of skilled programmers and major consumer market has made China the logical choice to growth, he pointed out.

The China market is also responsible for the innovation shift, he noted. In order to sell a product or service to Chinese consumer or companies, having a localized R&D presence is very important since the needs and demands are very specific to China, so many are shifting to the region, Cavender added.

There is also increasing availability of venture capital funds in the Chinese market from both local and overseas capital, he added. This will further drive the local innovation, especially for the start ups, which has significantly grown over the past two years, Giron explained.

The industry watchers were responding to a KPMG survey last month which found that China is set to be on par with the United States in terms of tech innovation. 71 percent of business executives polled said China and the U.S. had the most promise for disruptive breakthroughs, and 44 percent of them said the tech innovation center of the world will shift from Silicon Valley to China.

Innovation shift will take time
Some areas where China will dominate in terms of innovation include cloud computing, software-as-a-service, mobility applications and machine-to-machine (M2M) technology, as the government has made clear its strategy around it, Giron noted.

While Chinese firms will be leaders in these areas, it is not a given that China will become the dominant provider or consumer of these services due to concerns related to data security, Cavender noted. This is a situation that is evolving but it means that initial growth over the next year may be slower, he explained.

However, Chinese firms will be able to catch up with technology adoption due their thirst for IT global best practices, even though it may take some time, Giron surmised.

Cannot replicate Silicon Valley entirely
Yet, the innovation shift does not mean that the Asian giant is going to replace Silicon Valley, Cavender noted. Silicon Valley offers an environment where companies, funding, and talent pool together efficiently in a place that is hard to replicate, he explained.

Elaborating, Bryan Wang, principal analyst at Forrester Research, noted that China is still lacking the entrepreneurial spirit due to the absence of the "creative destructive capability"--being able to disrupt existing market norms that is against traditional culture like Steve Jobs did with Apple. The U.S. is a startup-friendly environment, where entrepreneurs are highly regarded and failure is not stigmatized, he added.

"There will be increasing opportunities for development in China due to the emergence of high-tech zones, government incentives, and a large body of entrepreneurs and graduates with technology expertise but this is not necessarily going to come at the expense of Silicon Valley," Cavender explained.

Topics: Tech Industry, Emerging Tech, Government Asia, China

Ellyne Phneah

About Ellyne Phneah

Elly grew up on the adrenaline of crime fiction and it spurred her interest in cybercrime, privacy and the terror on the dark side of IT. At ZDNet Asia, she has made it her mission to warn readers of upcoming security threats, while also covering other tech issues.

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6 comments
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  • There is no reason to think this

    None of the Asian countries, including even Japan, have any history of being "innovation centers." With few exceptions of any note, culturally they tend to embrace things invented elsewhere and then refine them in features and build quality, and to be able to do so at high volume and low costs. There is no reason to think that China will be any different.
    JustCallMeBC
    • Re: There is no reason to think this

      No reason? Other than the fact that China led the world in innovation for centuries, you mean?

      Inventions such as:

      Paper
      Gunpowder
      Silk
      Rocket-propelled arrows
      Seismic detectors
      The compass
      Civil service
      Vast architectural complexes that have lasted centuries?
      The Summer Palace, destroyed by the West, that was a marvel of the world?

      Etc.?

      If your time horizon is limited to the last two centuries, you would be correct in saying that the Chinese, during their time of stagnation and impoverishment, failed to keep up with the West. In fact, I'll grant you that the West has greatly outpaced China since the Industrial Revolution, as the latter was closed to the world for much of that period. Contact with the rest of the world and its commerce of ideas is essential to sparking innovation -- for all countries, including, not incidentially, those in the West.

      But to say that the Chinese are incapable of innovation is unwarranted given the full scope of history and an understanding of technological innovation with in the context of national development.
      JustYourAverageCommenter
      • Now, now....

        They have been coming rapidly up to speed on getting patents at least: they are now the world's top patent filer, moving ahead of both the U.S. and Japan. But, as we all know now, patents don't exactly equate with innovation in this day and age. On the other hand, someone else may invent the wheel, but all the big money is in getting patents for all the little bits involved in it, from methods to attaching an axle to the size and shape of the contact patch.
        JustCallMeBC
        • you should read more news

          For one thing, China is opened up for 30+ years comparing to western of 300+ scientific discovery phase. Expecting them to invent something new after western lead of 270+ years is really overreaching don't you think?

          But, recently they did invent something last year:
          http://blogs.wsj.com/tech-europe/2011/12/19/chinese-scientists-develop-self-cleaning-cotton-cloth/

          It is a new invention though not sure how useful but still they did that within 30+ years of scientific development is nothing short of amazing isn't it?

          They are also one of the few leaders in high-tech such as lasers and rail guns. Their EAST fusion reactor also passed 1000 seconds of electricity generation. They have the longest distance in matter teleportation experiments. Lastly, they are the leader in Quantum communication and may launch the first ever Quantum satellite in 2015. All of these within their short time span of focused scientific development. it's not too shabby isn't it?
          prastagus
  • Living in Beta

    Very interesting article Ellyne. I work for a design consultancy that has worked on developing innovative products for the Chinese market. Since the Chinese marketplace is forever evolving, one of our teammates wrote a blog post on our experience designing for the market and how you must always be “living in beta”, you can read more here: http://continuuminnovation.com/Thinking/Insights/July-2011/Prototyping-China--Living-in-Beta.aspx
    EPaisner
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