Study: The Puzzle of Innovation in China | Page 14

14
05
BARRIERS
TO INNOVATION
FIG. 12 І BARRIERS TO INNOVATION
59%
45%
37%
$
17%
HUMAN RESOURCES IP CONCERNS HQ INFLUENCE FINANCIAL RESOURCES
At a certain point in time, there are barriers that hinder
companies from transitioning from one stage to the next,
making it difficult to gain a sustainable foothold in China.
Our survey indicates that especially human resource shortages,
headquarters’ influences and intellectual property
concerns prevent a company from developing its full potential
in the Chinese market. Interestingly, financial resources
seem not to be a major problem (see fig. 12).
Human Resources can impose a significant barrier to innovation.
Only around 25% of questioned firms are satisfied
with the innovation capabilities of their local employees
and see potential for improvement, especially with regard
to creativity, critical thinking and complex problem solving
capabilities. Consequently, innovation might fall by the
wayside as employees are not sufficiently qualified to drive
innovation forward. However, this hurdle can be overcome
by consistently training the Chinese workforce, integrating
employees with high innovation capabilities into the team
and securing know-how transfers from the international
headquarters to Chinese entities.
Yet, the transfer of knowledge can constitute a delicate
topic itself, as companies fear the effective protection of
their Intellectual Property (IP). This affects not only the
sharing of internal know-how but also the establishment of
their own local R&D competencies in China. As our survey
indicates, a major reason for companies not to invest further
in local R&D is IP concerns. Inevitably, high-value jobs
and research competencies are created everywhere else but
China. As regulatory initiatives by the Chinese government
remain largely ineffective, companies themselves must take
the lead. Although there is yet no way to fully guarantee
IP protection, certain measures can help to reduce the
risk of IP violation – including using proprietary distribution
channels, keeping business secrets among the closest
employees and avoiding the use of the latest technology
that, often, is also not required.
However, the protection of IP remains a topic that is of high
importance for international headquarters and thus is one of
the reasons why they strive to retain strict control regarding
their Chinese entities. Also, other factors such as quality
aspects and risk control contribute to the fact that headquarters
keep hold of the reins. Not surprisingly, 42% of surveyed
companies indicate that the decision making for their
product supply is mainly conducted by their headquarters.
As a side effect, Chinese entities are lagging behind regarding
speed-to-market and overall innovation performance.
Therefore, MNCs should think about easing up and loosening
the reins to enable their entities to push innovation
further. The clarification of decision rights and the introduction
of strong governance structures can be first steps. In
addition, governing the global-local balance will empower
local organizations to capture cost, speed and market proximity
advantages while at the same time ensuring global
standardization and headquarters control over critical IP
rights. ||