When it's time for US to be No. 2 in tech

Is it time for the U.S. to relinquish its leadership position in the tech industry and hand over the baton to rising star China, or even India? Perhaps, but questions about innovation and market environment will first need to be addressed.
Written by Eileen Yu, Senior Contributing Editor

I recently watched a panel discussion on TV debating whether America was ready to be the world's No. 2 economic power, on the premise that if it didn't commit more R&D spend and encourage immigration as well as diversity, it would not be able to retain its leading position. 

The episode aired on local broadcast station Channel NewsAsia, and featured economists, educators, and the U.S. ambassador to Singapore. The panelists touched on factors like democracy, education, focus on military power, and R&D that can and have impacted the country's status as an economic superpower. Over focusing and spending on militarism, for instance, can lead to its eventual downfall like it did the Romans and education standards in the U.S. have been slipping. They noted, though, that its democracy has aided market growth. 

One panelist pointed out, however, the success of Asian markets clearly demonstrate that we don't need political systems like the U.S. in order to achieve market growth. 

In addition, 51 percent of U.S. patents are owned by non-US companies. 

The question about which country would then take over as No. 1 was inevitably posed and quite unanimously, most pointed to China. 

In his commentary published early this year, Kishore Mahbubani, dean of Lee Kuan Yew School of Public Policy at National University of Singapore (NUS), had asked the same question: is America ready to be to be No. 2? The professor previously served as Singapore's Ambassador to the UN and as President of the UN Security Council.

Mahbubani noted that, in 2019, China is expected to become the world's leading economy in terms of purchasing power parity (PPP), marking a significant historical milestone as the first non-Western power bypasses the U.S. for the first time and pushing the latter to number two. In PPP terms, China's economy is projected to be double the size of the U.S. by 2020, he added.  

He further noted that the American population is ill-prepared to face this change for several reasons, mostly because it refuses to believe another nation — least of all China — is capable of overtaking its No. 1 position. "Most American intellectuals continue to indulge in wishful thinking. In their minds, there is a deep ideological conviction that democracy represents the future and Communism represents the past. Since China is still run by the Chinese Communist Party, it can only represent the past, not the future.

"Many American intellectuals also believe that since they live in the world's freest society, they cannot possibly be prisoners of any ideology. This is massive self-deception. When it comes to understanding China, Americans have allowed ideology to trump mountains of empirical data. This is why they cannot even conceive of China becoming No. 1," he explained. 

"When it comes to understanding China, Americans have allowed ideology to trump mountains of empirical data. This is why they cannot even conceive of China becoming No. 1."

~ Kishore Mahbubani, NUS

He added that U.S. politicians are reluctant to even mention the possibility that the U.S. can be No. 2 for fear of damaging their political status. "In the land of free speech, there is no effective freedom for serving politicians to speak undeniable truths," Mahbubani said quite plainly. 

For the university dean, it is a foregone conclusion that the current economic superpower will eventually lose its leading status. 

No. 2 in tech, too?

It got me thinking about whether this also would become true for the U.S tech industry, especially amid China's collection of rising stars including Alibaba, Xiaomi, Huawei, ZTE, and Lenovo.

Some may argue that China still lacks key ingredients for success, namely, true innovation and market mechanisms. The panel noted that doing business in China can still be fraught with uncertainty and the country hasn't exactly produce significantly innovative technology, often choosing instead to emulate what other countries and companies are doing. 

In comparison, Microsoft, Apple, and Facebook are recognized examples of U.S. innovators and leading market players. The panel added that the country is "entrepreneurial by nature", which is different from anywhere in the world, and carry a DNA that stands out from other countries.

In an interview with WSJ this week, Huawei's Huawei’s senior vice president Chen Lifang addressed that issue when she was asked why there was "a sense that China is behind the innovation curve". She alluded to the U.S. marketplace that had spurred much innovation in the country, and this was something China itself was still working on. She pointed to four key factors that drive innovation and added that China had most of these on hand.

"The first one is about market. Only with a big market that can attract companies to make more investment. China does have that. The second factor is talent. You need a good talent pool to generate good ideas. China has an advantage because of the large number of graduates. Another factor is economic development. If we can enjoy continued and sustainable economic development, that would be a huge attracting factor for people to make investments. China is also quite good on that. 

"The fourth one is about mechanism. America has the best innovation mechanism to motivate so many people and so many companies to continue to innovate. China is also making progress," Chen said through a translator. 

If we look at Alibaba, it didn't exactly achieve success by offering a unique, innovative product or service. Ma had famously visited the U.S. for the first time in 1995 and couldn't find any Chinese beers in the search results when he keyed "beer" online. So he returned to China to start an internet company to fix this, before setting up e-commerce business Taobao to compete with eBay. 

But while it started out chasing what others were already doing in the U.S., Alibaba has since grown to become an Chinese e-commerce giant offering a range of services including mobile payment, mobile messaging, and cloud. It is already China's largest online shopping business and its U.S. IPO was the largest in history. 

Chinese handset maker Xiaomi is also challenging the positions of Apple and Samsung, especially in its home turf where it raced past the two global players to take No. 1 position in second-quarter 2014. 

It is true that China appears to lack innovation despite filing more than 825,000 patent applications last year, but it has several things going for it. While its economic growth may be slowing, it still has the humongous market size that global players including the U.S. are fully aware cannot be ignored. This size also gives way to the large pool of talent, as Chen rightly pointed out, generating many math and science graduates including several who have come out of U.S. universities. 

To become No. 1 in tech, China still needs to address a couple of key issues. Trust, for one, is high on this to-do list. There are still lingering questions about security, although the U.S. itself faces the same questions, and it is still perceived as a manufacturer of knockoffs and questionable product quality.

It needs to looking within for its own brand of innovation, instead of simply coming up with cheaper versions of products that look like its global competitors. OK, so offering to enlarge your customer's jeans pockets to fit their larger iPhone 6 units may not exactly be great innovation, but it's still a pretty cool idea.

Lest we forget India

And while much attention, and assumption, have gone to China as the next No. 1 superpower, let's not forget India. As the world's second most populous country, it also has the market size to lure investors as well as generate highly-skilled IT professionals. Lest we forget, India is a pioneer in outsourcing and has generated several great IT companies including Tata Consultancy Services, Infosys, and Wipro. 

It also has a bustling startup community that includes the likes of Flipkart, WebEngage, Zoom, Hike, and Zomato, which has been shoring up millions in VC funding.

What India needs is better infrastructure and policies to support the industry, and perhaps a stronger sense of urgency that will push the market to move at a much faster pace — one that better matches China's.

And there are opportunities for both countries to tap, and bypass the U.S. market. I had noted in my earlier posts that the current judiciary ambiguity regarding cloud data sovereignty in the U.S. opens up a gaping hole that Asian cloud players should step forward and plug. The Chinese and Indian governments, however, would first need to assure enterprises their data laws and regulations are updated to keep pace with cloud requirements.

That the U.S. will one day relinquish its No. 1 position is probable, after all, no one can hold on to any power forever just like the Romans and the British that came before. But perhaps what matters more is the tech industry in the respective economies, be it the Chinese, Indian or the U.S., realize economic prowess isn't necessarily the only indicator of a nation's superpower status.

As the panel noted, there are other factors such as assuming more responsibility in climate change, focusing on quality of living, and its treatment of other citizens. Pointing to Wikileaks and the NSA incidents, one panelist noted that the U.S., for instance, needs to thing about what it means to remain as No. 1 when it is not measured by GDP.

The panel also posed this interesting question: is the world ready to help China become No. 1?

The US ambassador to Singapore then highlighted the common assumption that the U.S. and China are constantly in conflict, when it doesn't necessarily have to be. Both countries do things differently and have different economies. "The power of us together is an exciting thing, not a scary thing," he said. 

Hmmm, not quite a scenario that seems possible today but, hey, like they say in the U.S., it's the land where dreams come true. Right.

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