Open Innovation in China

May 17, 2017
Innovation Insight

XNode Blog

Open Innovation in China

China has long been considered the home of copycats. However Chinese super corporates like Haier and Lenovo have shown that instead of imitating, they are INNOVATING. In recent years, Chinese companies have stopped playing the “catch-up” game and are instead paving a new road for the rest of the world to follow.

The critical key to this success has been “open innovation”, innovating through receiving and sharing industry knowledge, innovating through fostering connexion with the "outside". Here are 6 open innovation strategies used by Chinese corporates that have accelerated them to the top of their league.

1. Innovation Through Acquisition

For a score of Chinese corporate, that do not have the capacity or the resources for self-developed innovation, acquisition remains a practical means of open innovation. Companies like Midea have openly innovated from the outside by acquiring other companies with better innovation capabilities or unique technologies and absorbing these resources into their own.

In 2016, Midea acquired Kuka, a German industrial robotics arm maker in order to integrate Kuka’s robotic technologies in Midea’s manufacturing capabilities. Prior to this acquisition, Midea’s manufacturing capabilities were regarded as atypical of an “Industry 2.0” company who’s main capability is in mass-production.

However by purchasing Kuka and applying the company’s robotics manufacturing hardware into Midea’s manufacturing process, Midea hopes to become one of the first Chinese corporate with an “Industry 4.0” fully automated manufacturing capacity. This would help Midea innovate the Chinese and global manufacturing sector by forming the first hardware production line that converges IoT and cyber-physical robotics to improve the quality of products and the efficiency of manufacturing.

2. Innovation Through Ecosystem Interaction

For many years Haier has dominated the Chinese and global white goods sector and the company is using open innovation to stay at the top of its industry. Haier launched the HOPE portal (Haier Open Partnership Ecosystem), a set of tools and an innovation network created by Haier to accelerate the company’s ability to launch products and develop new technologies.

HOPE is an online portal that facilitates technology exchange and innovation by linking interactions between inventors/tech entrepreneurs and corporate users to solve technological challenges. The portal is currently used by 30 associate corporates who use the portal as a forum to pose innovation questions from 370,000 problem solvers including entrepreneurs and engineers from large corporations such as Bayer and Honeywell.

By creating this portal, Haier has access to a rapidly-growing community of entrepreneurs, academics, and manufacturers etc. who help to innovate on or test new products and emerging industries such as IoT. This ultimately reduces the transaction costs that come with collaborating in the market for intellectual capital, and allows Haier to openly innovate on products with industry experts, startups, and stakeholders.

3. Innovation Through Academic Collaboration

In the past few years, Huawei has resurged as a world leader in hardware and consumer technology, especially in the smartphone sector. Much of this has been credited to it’s Huawei Innovation Research Program (HIRP) a sustainable open innovation system that allows Huawei engineers to solve technical problems by partnering with academics from top universities.

Huawei’s open innovation program matched the company’s innovators with academics and both parties benefitted from the match-up: the company’s innovation teams could provide a holistic approach to innovation and knowledge of ecosystem trends, whilst academics received funding and hardware assistance from Huawei and could provide in-depth technical expertise and report the latest developments in research.

The HIRP revolves around individual projects with their own management teams, who research according to predicted future technological development trends, customer demands, or current product issues. The project teams then have the freedom to elect to collaborate with external researchers, and begin “HIRP Open” innovation projects, which will be funded by the company. For example, in 2015 HIRP initiated a two-year open innovation project with the University of Manchester exploring grapheme use in the ICT industry.

4. Innovation Through Collaboration With 3rd Party Developers

WeChat was created in 2011 as Tencent’s reply to the increase in personal messenger apps like Kik and WhatsApp. In seeing the success of both apps, Tencent knew it needed it’s own messenger app and quickly followed suit by releasing WeChat. 6 years later, Kik has shrunk in users and WhatsApp is seldom used in China thanks in part to Tencent’s open innovation of WeChat by developing the app alongside 3rd party internet services and developers

Part of the success of WeChat, was Tencent’s open innovation strategy in partnering with 3rd party services and developers who were given free-reign over Tencent’s platforms and large user base. This helped to develop Tencent’s WeChat as a more user-friendly and service-based app, as opposed to simply being a messenger app.

Tencent created tools for 3rd party services developers to help them launch in-app services and allowed it’s developers to traverse Tencent’s platforms such as mobile QQ, Q-zone and QQ mobile browser to attract users. For example, popular social shopping services such as Meilishuo and Mogujie began as in-apps on WeChat and Q-zone and ultimately brought audiences to WeChat’s in-app service market.

Although other factors can be credited towards WeChat’s success, Tencent’s working with 3rd part developers is an open innovation success as the utility of 3rd party services attracted more users to the messaging app.

5. Open Innovation Through User Interaction

Although Xiaomi has slipped in the Chinese smartphone market, it was once the new kid of the block and the shining star of China’s phone market. How it got there was nothing short of a process of open innovation which involved it’s users in the design process. Unlike Apple’s rather arbitrary iOS system which is created and evaluated by Apple engineers, Xiaomi made it’s name through it’s MIUI which is highly interactive and accepts development ideas and suggestions from it’s users.

At one point Xiaomi had an active community of 150 million daily active users from which to draw inspiration. This initially allowed Xiaomi to update the operating software weekly which was co-developed with leading users allowing for a personalised user experience that prolonged customer commitment with the brand.

Ultimately, users also had a say in the innovation path of Xiaomi’s products and software. Although Xiaomi’s sales have declined in China recently, at it’s peak in 2013 Xiaomi outsold Apple in China’s smartphone market, a phenomenon that can be credited to Xiaomi's used-based open innovation strategy.

6. Open Innovation Through Startup Collaboration

Lenovo has long been an inspiration for companies seeking open innovation and it’s no secret why Lenovo is often considered a rockstar amongst China’s most innovative companies. In 2014, Lenovo took it’s innovation a step further by creating the an internet business platform “Lenovo New Business Development” (NBD).

The platform is similar to a startup incubator and allows Lenovo to work with the world’s top start-up teams in exchange for access to Lenovo’s software, hardware development, market, channel, and other services in exchange for startup equity. By working with startup through this platform, Lenovo has been able to innovate its product line and better meet the needs of customers.

It’s latest products include a pair of smart glasses, which come in both everyday and industrial modes and was developed in cooperation with American optical technology start-up Vuzix and Beijing-startup Yunshi Zhitong. According to Lenovo’s CTO the NBD has allowed the company to openly innovate it’s products with the help of startups who are “Focused on unique, innovative concepts”, adding specialized industry expertise in fields that the company has no experience in.