Charting China’s Course to Innovation

Forum 2016 MnAThe 2016 Duke International Forum at Duke Kunshan University looked at innovation in China from every angle, including entrepreneurship, mergers and acquisitions, advances in scientific research and intellectual property protection.

China is seeking to shift its economic focus from manufacturing to innovation. It’s a huge undertaking but Tom Zhu, a 2010 graduate of the Daytime MBA program at Duke University’s Fuqua School of Business and general manager of Tesla China, said the sheer size of the Chinese market “will not just encourage domestic innovation, but also attract lots of advanced technology globally to this market. That will help us accelerate in the coming years and to excel in so many areas.”

Fueling the acceleration is a growing middle class demanding better health care services. Jesse Wu, former chairman of Johnson & Johnson China and a 1982 Fuqua Daytime grad, said he’s hopeful the combination of demand, government support and private investment can fuel health care innovation in China for years to come.

“Multinationals and local startups alike can capitalize on this trend and serve as the forerunners in the unveiling of China’s next innovation renaissance,” he said. “In doing so, they will all play a part in making meaningful improvements to China’s quality of life and future prospects as a  global leader in innovation.”

Jeffrey Li, general manager of Tencent Mergers & Acquisitions, said China is well placed to innovate within its borders because of competition within a young, talented and motivated labor force.

“In China the competition is so fierce,” the 2004 Fuqua Daytime graduate said. “Everyone is cutthroat, trying to compete with each other. A survivor of the Chinese market has a much higher capability in other areas, and the potential to build a much bigger enterprise and success in the global market in the future.”

Derrick Xiong has his eyes on that global market. Xiong is chief marketing officer of EHang, a drone startup he cofounded a year after graduating from Fuqua’s Masters of Management Studies: Foundations of Business program in 2013.

“There is a grassroots generation of entrepreneurs in China,” Xiong said. “People are just starting companies everywhere.”

Xiong said other parts of the world seem unaccustomed to seeing firms go from startup to a public company within four or five years.

“But this is happening every single day in China,” he said. “That’s a major difference and that’s why I’m thinking China is one of the best places to start a company.”

Chinese companies are also looking to innovate through acquisition, but its shrewdest investors know innovation can’t be bought by simply snapping up cutting-edge firms. Ou Wang is managing director and the head of the private equity investment department for the China Investment Corporation, which manages assets of more than $800 billion on behalf of the state.

“The easy part is buying,” said Wang, a 1998 Fuqua Daytime MBA graduate. “The difficult part is the post-merger integration.”

Yi Shi, managing partner of the biotech investment firm Lilly Asia Ventures, said investing in innovation is also extremely risky.

“Most people still don’t appreciate how risky it is,” said the 1999 graduate of Fuqua’s Daytime MBA program. “People only look at the successful cases and not at the 90 percent that failed.”

Stronger intellectual property protection is one key to fostering innovation. Xiqing Gao, former president of the China Investment Corporation, said the lack of a system to protect intellectual property is part of what has stifled creativity and innovation in China.

Gao, a law professor at Tsinghua University, said that while intellectual property protections are now in place, it takes time for attitudes to shift.

“In reality we know things are not quite there yet, but at the same time we know compared to 20 or 30 years ago, we’ve made a tremendous amount of progress.”

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