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News : Innovation Last Updated: Jan 23, 2015 - 2:26 AM


Web Summit expands to Asia - Part 1
By Michael Hennigan, Finfacts founder and editor
Nov 10, 2014 - 6:39 AM

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Time magazine cover May 1971 when American business feared a Japanese invasion - less than 25 years after the surrender of Imperial Japan on the USS Missouri in 1945.

The Economist wrote in 2011 that "around two-thirds of all Japanese firms do not earn a profit (at least for tax purposes). More than a quarter of companies on the Tokyo Stock Exchange had operating margins below 2% over the past decade. Bosses complain that younger executives lack assertiveness; the media grouse about unambitious 'grass-eating men.' Even the governor of the Bank of Japan, Masaaki Shirakawa, acknowledges that the country's near-zero interest rates undermine corporate performance."

Kuala Lumpur: With the successful Web Summit in Dublin over for another year, Paddy Cosgrave and colleagues are turning attention to Asia where it plans to hold a tech conference sometime in 2015.

To be known as Sync, a poll on the website has resulted in a shortlisting of 3 cities: "We have been amazed by the response, and now that voting has closed we can reveal our shortlisted cities are Singapore, Hong Kong and Taipei," a note on the website says.

We expect Singapore to be selected but in time more than one conference could be staged in a year in different cities.

This week China hosts the 25th anniversary conference of the Asia-Pacific Economic Cooperation (APEC) countries - 21 that straddle the Pacific Ocean - and the Chinese do a lot of things on a big scale.

President Xi expects blue skies over Beijing - many workers have been given a week-off;  about half of the capital's cars will be allowed on the roads daily until Wednesday while more than 1,000 heavy industrial plants within a 120-mile radius of Beijing have been ordered shut; all construction sites have been suspended; and residents of Tianjin, a port city 90 miles east of Beijing, will have no central heating until APEC is over.

A conference centre on a purpose-built lakeside campus 40 miles from Beijing cost a reported $6bn while a new elevated expressway links to a 595-room hotel, conference hall, and press centre.

Successful products and services models do not always succeed elsewhere while companies and individuals can vary by cultures can vary in the degrees of tightfistedness or prudence.

The Chinese in Hong Kong and Singapore are likely to be more receptive to boosting the Silicon Valley model than folks in the mainland.

Singapore is the most expensive city in the world according to the Economist Intelligence Unit this year. Its cost of living index of 130 compared with 81 in Bangkok and 70 in Kuala Lumpur.

To replicate the Irish pub crawl maybe Bangkok should be the choice as commercial sex draws many there from the rest of Asia!

China

The Economist wrote last February:

'TEN to 15 years from now, I think China can be eBay’s largest market on a global basis.' So declared Meg Whitman grandly back in 2004. At the time, she was the chief executive of eBay, an American e-commerce pioneer. Things did not work out as planned. Local competition proved so fierce and nimble, in contrast to eBay’s managers, that the company was forced to beat a humiliating retreat.

The local leading the charge was Jack Ma, a school teacher who founded Alibaba at his apartment in Hangzhou, a city near Shanghai, in 1999. The original Alibaba website connected small manufacturers at home with commercial buyers overseas. But Mr Ma sensed early on that the real prize would be serving China’s rising middle classes. So he formed Taobao, a portal that consumers use to sell to each other, and added Tmall, a business-to-consumer (B2C) site.

Alibaba’s triumph has been breathtaking. The firm’s portals control four-fifths of all e-commerce in China. Taobao is the country’s leading e-commerce website, and Tmall leads the B2C market. The firm’s sales exceeded $5.7bn last year on Singles’ Day, a marketing event held annually on November 11th. Measured by the value of goods sold on its platforms, Alibaba is bigger than eBay and Amazon combined."

About 195 Chinese tech startups raised $2.8bn in venture capital in Q3 2014.

Huawei, the Chinese ICT firm has over 150,000 employees and it had 2013 revenues of $39.5bn - it is one of a number of Chinese companies banned from selling to the US government because of security concerns. Huawei was started by Ren Zhengfei, a former member of the People's Liberation Army, in 1987.

The world's second biggest economy is determined to move beyond being an assembler for foreign electronic firms.

China is expected to become the world's biggest  R&D spender within a decade surpassing the US in 2022.

A recent paper [pdf] by Seamus Grimes, emeritus professor of geography, at the Whitaker Institute for Innovation and Societal Change, National University of Ireland Galway, and Dr Yutao Sun, School of Contemporary Chinese Studies, at the University of Nottingham UK and a member of the Faculty of Management and Economics, Dalian University of Technology, Dalian, China, examines the on-going high level of dependency of China’s economy on foreign sources of technology during the period since accession to the World Trade Organisation (WTO). Because this dependency is a major cause of concern for China’s leaders and policymakers, they have sought to shift the direction of the economy particularly since 2006 towards a greater focus on indigenous innovation.

The authors say that achieving such a major transformation, however, in an era when much of China’s economic activity has become integrated within the global value chains of major corporations, is very challenging, and the evidence to date suggests only a modest level of success on the part of Chinese companies to substitute for the on-going dominant position of foreign companies particularly in China’s high technology sectors.

They say that some progress has been made, however, in the private sector’s share of economic activity in contrast to the declining share of State Owned Enterprises (SOEs).

Last December, in its annual global R&D forecast, the US Batelle Foundation forecast that China's R&D spending would surpass the US, the current leader, by about 2022.

Batelle said that this year would see 10 countries spending about 80% of the total $1.6tn invested on R&D around the world; the combined investments by the US, China and Japan would account for more than half of the total.

Together, the US, China, Japan and Europe account for about 78% of 2014’s $1.6tn total.

In 2014, China will continue its two-decade trajectory in R&D investment, consistent with the current Five-Year Plan (FYP 2011 to 2015). According to Batelle, China’s research intensity will increase to 1.95% of GDP in 2014.

China’s FYP is aimed at achieving 2.2% of GDP by 2015 and the foundation says this rate of growth is expected to continue through the end of the decade as China strives to transition from a manufacturing economy to being “innovation-driven” by 2020.

At current rates of R&D investment and economic growth, China could surpass the U.S. in total R&D spending by about 2022.

Grimes and Sun say that a distinction should be made between a relatively small number of highly successful, innovative Chinese companies in high technology sectors, and many state enterprises (SOEs) which are still undergoing transformation from the earlier command economy (Boeing and Sandner, 2011).

While Chinese leaders and policymakers realise the urgency of moving China’s development model more towards knowledge exploitation, they appear to be still struggling to find the most effective way forward. Although always strongly influenced by political considerations, China shows evidence of adopting a pragmatic approach which is often based around hard bargaining with foreign investors. Experience of other Asian countries provide some lessons for China’s future, but the challenges of achieving significant industrial upgrading during a more globalised era may prove quite daunting, particularly when Chinese policy is so focused on its own domestic economy. While China’s primary influence is within its own borders, the complex integration of both foreign and Chinese companies in China into global networks requires an approach which can improve China’s competitiveness within these networks rather than one which seeks to contain innovation within China.

The authors says that a distinction can be made between the political objective of the Chinese state to achieve technological autonomy and the pragmatic approach of many Chinese companies who, rather than cutting themselves off from global markets have considerable cooperation with companies in Japan, Korea and Taiwan. Some of China’s leading firms such as Huawei have called for a more open innovation policy which would allow them more easily to cooperate with foreign firms

The paper says that an analysis of the changing profile of China’s top exporting companies between 2001 and 2012, indicate a dominant, if decreasing role of foreign invested firms and the beginnings of an emergence of the private sector. It is clear, however, that despite their falling numbers and increased scaling, that SOEs continue to play a significant role more generally in China’s exports. It is also clear that major challenges remain for China to transition from playing a relatively subordinate role within global value chains, and rather than focusing on developing a more innovative and globally competitive development model, there are some signs that China’s progress could be delayed by opting for a more inward model of technology autonomy within a relatively protected large domestic market.

Lessons from Japan and South Korea

Fortune magazine wrote in March 2013:

Hiroshi Mikitani, CEO of the Japanese e-commerce site Rakuten stopped by the Fortune offices to promote his new book 'Marketplace 3.0: Rewriting The Rules Of Borderless Business,' where he outlines his company’s strategy for globalization. Founded by Mikitani in 1997, Rakuten is the largest e-commerce site in Japan and with a market cap of $13.5bn and annual sales of over $4bn; it is one of the biggest Internet companies in the world. In the US, it bought Buy.com for $250m and rebranded it to 'Rakuten.com Shopping' earlier this year."

Rakuten bought Viber, the Internet phone and messaging service, earlier this year for $900m and is expanding overseas but incurring heavy losses.

Japan has a limited overseas web presence and it has retreated in consumer electronics from a dominant role two decades ago.

“The Internet is changing everything,” Mikitani said at a press conference in June 2012. “All the electronics manufacturers are struggling because they are behind due to this Galapagos environment” - a term for Japan's tendency to develop technology in isolation from the rest of the world standards akin to the evolution of the animals discovered by Charles Darwin on the Galapagos Islands that helped him develop his theory of evolution.

McKinsey, the management consultancy firm, has asked: Why are General Motors and Volkswagen more successful in China than Honda and Toyota? Why are LG and Samsung bigger in India than Panasonic and Sony? Why is IBM larger in Japan than Fujitsu is in the United States?

McKinsey says in future, building a globalized company will require many Japanese executives to think in new and unfamiliar ways about organization, marketing, and strategy. The approaches that proved successful in the past - for example, replicating practices from the Japanese market in foreign operations - - have outlived their usefulness.

Japan’s biggest companies have been losing relative market share over the past decade: their proportion of the Fortune Global 500’s total revenues decreased to 13%, from 35%, between 1995 and 2009. One of Japan’s longtime strengths is electronics, for example, but its share of the world’s export value of electronic goods has fallen from 30% in 1990 to less than 15% today, according to the Japanese Ministry of Economy, Trade, and Industry. Many Japanese companies have no alternative to globalization if they hope to continue growing.

Japanese companies have a global presence and reputation, but most remain surprisingly dependent on Japan’s domestic market for revenue, while struggling to capture a reasonable share of dynamically growing emerging markets. The analysis showed that Japanese high-tech companies, as a group, still generated more than 50% of their sales in the home market, growing by a mere 1% annually, compared with growth of 5 to 10% in the developing world and 2 to 3% in other developed markets.

Typically in western multinationals, the worldwide company language is English, overseas experience is essential for career progression and there is a unified global structure.

In 2009 Japan had the lowest score of any of the International Monetary Fund’s advanced economies on the Test of English as a Foreign Language, administered to foreign students who want to study in the United States. It had the second-lowest score among Asian nations, outperforming only Laos.

Some claim that it's difficult for the Japanese to pick up English but the Koreans with a similar language are not complaining.

South Korea now dominates in mobile phones and television technology.

McKinsey says South Korea’s largest industrial corporations have continued to grow rapidly, but mostly in new global markets; their domestic employment has fallen by 2% annually for 15 years, leaving job creation to small and medium-sized enterprises (SMEs) and Korea’s underdeveloped service sector, where wages are just 55% of manufacturing pay.

South Korea has a strong tech startup sector and an estimated 10 billion-dollar startups.

In common with Japan, deference to bosses is common in China, while innovation thrives in flat limited hierarchy organisations.

Warren Buffett, the renowned American investor, often says that nobody ever won by betting against the USA.

China's road to a world-class knowledge economy will be bumpy but it will get there.

Crucially, Chinese companies are developing overseas trading experience in developing country markets before taking on western multinationals in their own markets.

Chinese foreign direct investment (FDI) in Europe also reflects a desire to co-opt the local model -  for example usually Chinese investment involves acquiring companies, including German Mittelstand firms, rather than developing greenfield operations from scratch.

Sony in a sorry state

McKinsey:

Japan’s globalization imperative

Rebooting Japan’s high-tech sector

South Korea in need of a new growth formula

*********

Web Summit to select location for conference in Asia - Part 2

Dublin Web Summit 2014: Separating hype and reality -  focus on Ireland

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