How China Is Eating Our Lunch – Not What You Think

By Shlomo Maital   


The Innovation Efficiency Lunch: China is #1

   INSEAD’s Global lnnovation Index is out for 2012.  It’s a rich source of insights into comparative innovation across nations.  One such insight:  the GII ranks countries according to “innovation inputs” (R&D spending, etc.) and “innovation outputs” (patents, creative goods and services, online creativity).  The ratio between them defines innovation efficiency.  Here is how leading countries rate, in converting ‘inputs’ into ‘outputs’ for innovation:

   Country       Innovation Efficiency ($)       Rank in World

   China                110 %                                              #1

   Canada               70 %                                            #74

   U.S.                    70%                                                #70

   U.K.                   80%                                                #44

Germany              90%                                                #11


    What makes China (and to some degree, Germany) so efficient in converting innovation inputs (investment, resources, etc.) into innovation outputs?   There are many reasons. But here is the main one, I believe.  China focuses on process innovation. Give a Chinese factory a set of blueprints for making a product, and they will find a way to make the product, while continually improving the process (and often the product as well).  It is well know that process innovation pays a far higher rate of return on investment than product innovation.  And Germany’s mittelstand mid-size manufacturers too are very good at this. 

    Many nations are focused on increasing their R&D spending to spur innovation. (China too has this goal).  Perhaps a better approach might be to focus on how efficiently the existing innovation resources are being used.  Improve existing processes with creative ideas.  China does.  And look what it has brought them.