Why You Have Nothing to Fear From Chinese Entrepreneurs (For Now)
During my recent trip to China, I talked to about 30 entrepreneurs. It quickly became clear in my discussions with them and with high-ranking Chinese politicians that there are two distinct kinds of entrepreneurship in today's China. Fortunately for you, neither kind is based on true innovation and neither will bring China's entrepreneurs to the same level as their American competitors.
Duplicative entrepreneurship
One of the young entrepreneurs I spoke to was pretty blunt in his assessment about the state of innovation in China. He told us, "China equals copy." Many times, we heard that a certain company was "the Chinese version of [insert American company here]." It was as if the entire Chinese economy was incapable of inventing anything on its own.
This did not surprise me. China's theft of intellectual property and reverse-engineering of foreign products have been well-documented and continue to worry many CEOs and policymakers. But what was interesting was how open these Chinese entrepreneurs were about this issue. They are well-aware of how the global economy perceives Chinese companies -- as being capable of nothing more than duplicating someone else's idea.
One thing worth noting: This duplication is only moving up the value chain. Whereas it wouldn't have been uncommon for street vendors to offer fake handbags or pirated DVDs just a few years ago, now they hit you up to buy iPods and iPhones. The duplicators can now produce high-level technology, even something as complex as smart phones.
Derivative entrepreneurship
Most of the "high-tech" companies I saw didn't involve revolutionary innovations or cutting-edge technology. For instance, I talked to a couple of companies that are working to manufacture LED lighting components. Though this is still a burgeoning industry, the Chinese didn't invent the technology. But they are trying to make money by distributing the existing technology to the Chinese market.
American companies have made billions out of this kind of entrepreneurship. Michael Dell didn't invent the computer and Ray Kroc didn't invent the hamburger, but both made fortunes by delivering their products and services in new ways.
Perhaps this kind of entrepreneurship will work out well for some Chinese companies, but it hardly seems like the vehicle that will move the economy of 1.6 billion people from its current status as the "factory of the world" to become the "knowledge economy of the world."
The creativity gap
One of the companies I visited involved Android technology left behind by Google when it pulled out from the Chinese market. The Chinese government, through its own actions, has actually encouraged duplicative and derivative entrepreneurship through this type of crowding out of foreign companies in order to support domestic firms. On one level, this is just old-fashioned protectionism, but it has implications for the economy as a whole.
If Chinese companies are constantly coddled by a government that is willing to intervene and stifle competition, then it will become increasingly difficult for Chinese entrepreneurs to bring forth the truly new inventions that will produce scalable firms. Entrepreneurs can only be truly innovative when they are set free from government constraints and can let their imaginations run wild. Investors will typically only invest in new technologies or startup firms when they can be assured that their money will compete on a level playing field.
The most common question we received from Chinese entrepreneurs, academics, and policymakers during our trip was some version of "How can we make our country more innovative and creative?" So far, the Chinese government has struggled to answer this question, instead favoring a strategy of usurping creativity from abroad rather than creating it at home. Until we see the next iPhone, electric car, or energy efficient lighting designed (and not just manufactured) in China, then American entrepreneurs have nothing to fear.
What do you think, readers?
Read more of the Startup Economy:
- This Is Not the American Dream
- The Most Important Web Company You've Never Heard Of
- Even Communists Need Entrepreneurs