What’s China’s secret to innovation?

Thirty years ago, the only Chinese company to appear on the Fortune Global 500 list was China National Petroleum Corporation (CNPC). Twenty years ago, in 2003, there were 8 Chinese companies on the Fortune Global 500 list (State Grid Corporation of China, China National Petroleum Corporation (CNPC), Sinopec Group, China Mobile Communications Corporation). Today, Fortune's Global 500 list of the world's largest corporations includes 145 Chinese companies in total, roughly one fifth of the list. How was China able to gain so much ground so quickly? What are the principles that these Chinese companies grasped that allowed them to grow so quickly? Can the rest of the world borrow a few pages of the fast growth principle from China to their own organizations?

I’ve summarized below the methodology that I’ve seen that allows Chinese companies to capture explosive growth.

Centralized decision-making

China has grown at unprecedented speeds in the past decades. One large pillar that one must give homage to is its government. But beyond an one-party system which has obvious advantages when it comes to growth, the leadership philosophy in the central government trickles down to leadership in companies.

You might say, from a western point of view, that the practice is drastic or something that you would never want to be a part of, but what is undeniable is that it works. Imagine if an executive team worked in one direction, instead of being politically divided into factions – the CMO is but a shadow to the CRO who runs opposite to the CPO who never agrees with the CFO. There will be enough meetings amongst the executive team to last for months before a decision is made and then executed to the respective teams. Now imagine a company in China in which the CEO calls the shots, with supplemental information given to him by his executive team. Every milestone, KPI that he or she spells out is supplemented by the way each function then upholds the target.

Competition

China has the world’s largest population at about 1.4 billion people. That’s almost three times that of the US. The more number of people = the more choices this consumer market would need. If you walk into a supermarket in China versus one in a western market, you’ll notice that the local brands are trying so many times harder to keep up with the changing demands of the Chinese consumer. Multiply that with the number of competitors that are in the ecosystem. Pretty soon, you’ll see one brand pushing another brand to iterate, innovate or do something better. Otherwise, the one that is not innovating is pushed out of the market.

This is a phenomenon called “Neijuan” or Involution. Originally birthed from the story of college entrance exams in which a high school student takes a test similar to the SATs, neijuan meant that if a student next door was studying hard, then you better study harder. In a way, this is basically competition in a natural capitalistic society. But in China it is taken to the extreme.

Fast execution

“In China, we don’t take time to explain what we want to do. We just do it first and we explain after what we did.” It’s better to spend time and energy to define and execute what you need to do in China rather than to ask for permission on what you need to do. So that’s why you need to have a certain trust from the organization and a certain framework. But you need to be free in this framework to be able to address the continuous disruptions of this market.

There is a saying that Alibaba has, which is, “changing the motor of an airplane while we’re in the air”. What this sentence is trying to convey is often, we don’t have time to pause, think and reflect to doing something. We just act. This means that Chinese companies will not always wait until something is perfect before acting. The lengthy discussion meetings that is common amongst western Zoom calls occurs less frequently in China. Instead, they like to act quickly and let the market tell them yes or no. For example, a product could be released quite quickly to market even though it’s not 100% ready.

Embrace change

Another leadership value that Chinese companies will enact is embracing the notion that “the only constant is change.” 计划赶不上变化 which means the pace of planning is always slower than the pace of change. This is widely felt amongst westerners who do business in China. In a traditional western setting, there is a planning session, targets are set, then each department is told to execute. In China, a similar set of steps is taken, but the goal of the project or milestone numbers can be constantly changing. An insurance company might have 10 million dollars as its target, but mid-year, it might suddenly double. The autocratic leadership style from the top and its obedient subordinates is amenable to these changes. This might seem disorganized from the outside, but this allows the company to constantly push itself in reaching higher targets and pivot fast in a competitive market.

Never put your eggs in one basket

While having a Plan B might be obvious to some, this principle is usually not as much applied in business as it should. The Chinese term for this principle is 赛马 sài mǎ or, horse-racing. Similar to its name that evokes a gambling game, it is when two or more project teams are trying to achieve the same goal. While it might seem at first a waste of resources, it actually breeds internal competition and helps both teams to excel. Sometimes different things can only be accomplished with select individuals. Putting two different people or teams on the same project might have different results. One might fail, the other might succeed, so “horse race” was invented to describe an internal business’ decision to put two players on a similar path and see which one wins. When you are locked to one team trying to achieve a goal, you are limited to the power and resources of that team. People, time, etc are all limited. But when you split this goal to two or more separate teams, suddenly you have two ideas on how to tackle one problem, two ways of operations. The better one usually wins.

Differences bring balance and harmony

Deeply entrenched in Chinese business philosophy is its roots in Confucianism and Taoism. There is a call for balance of things that are different. There is a Confucian maxim that states, “harmonious while different.” In other words, people in organizations should work harmoniously together while accepting different statuses and viewpoints. Even in Chinese medicine, in which the body is divided into “hot” and “cold” camps, foods of the other camp is recommended in the diet for balance. For instance, if your body is “hot”, eastern medicine will recommend you to eat “cold” foods, and vice versa. A balance of Ying and Yang is needed. One cannot thrive without the other. Similarly, in a work setting, a team must be made up of a diverse range of experiences: both men and women, young and old, people from different professional experiences, in order to be the greater than the sum of its parts. In a meeting, an opposing thought is encouraged, this is so that the different thought pattern can balance the main opinion of the room. Once the argument settles, the opposing side must agree with the final decision, whether it was his idea or not.