Do The Incentives to Innovate in China Make Sense?

Monday, July 1, 2013 4:53
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innovation in China is a topic that is discussed frequently. Largely because it is one of the more illusive pieces of China’s rise, and once “found, innovation will catapult China to greatness, global brands, and a harmonious society.

While attending an event of leaders representing some of China’s most innovative domestic companies, one of the comments I heard was that in their circle many were unwilling to invest in R&D of new technologies because the payback didn’t make sense. They could co-opting, stealing, or licensing existing technologies leap frog straight into profitability. A trait of the Chinese economy that is often lauded as a sign that the China model “works” better than the “West”, but this was the first time I thought about it in these terms.

For some, as you will see in the clip above, this dynamic is changing, and there is hope for local innovation. A view that I share, but believe a lot of work needs to take place in the areas of incubating executives to take risk before we get there.

Which leads me to the NYT article An unstoppable climb in CEO pay, where the following passage caught my eye:

BOARDS typically assess an enterprise’s performance not only internally against what occurred in previous years, but also externally, against a peer group of companies.

Far too often, though, measures used by company boards to evaluate performance are focused on short-term results. They often miss a crucial element that determines long-term success: the ability to innovate.

[…] Companies that don’t weigh innovation in deciding pay, he added, are essentially rewarding the status quo and failing to reward moves to keep a company strong in the long term, including farsighted efforts to invest in research.

A quote that shows that China is not the only one struggling with this issue, but also opened up a new question for me.

What is the role of boards in China, and how could they move the needle? What role are these members playing in providing a structure that the entrepreneur / organization feels safe to take risk, and is there a space here for experts (foreign or Chinese) to take on board roles with a specific mandate to help incubate the entrepreneur/ organization and drive the the development of innovation within the firm?

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