China takeover as tech innovation center inevitable

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.
Written by Ellyne Phneah, Contributor

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.

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