Insights from Shanghai and its innovation ecosystem

By Stevie-Ann Dovico, current student of the University of Sydney Business School MBA program

stevie pic 2015China’s development over the last 30 years has been amazing. The speed in which things can happen in this country, the paper thin margins, global focus and move towards world class innovation signals it is destined for further growth. Here are a few of my key insights following the MBA international module in China:

Innovation
There are over 300 policies from across all levels of government to encourage mass entrepreneurship and innovation in China, as well as over $8.2m USD granted to these areas. This includes the provision of land and facilities (Innoparks), managing and backing incubators, angel investors and venture capital institutions, tax benefits and talent policies like the 1116 Plan, which financially compensates talented Chinese nationals from around the globe who return to work in Shanghai.

Looking at incubators specifically, there are over 1800 in China and 198 in Shanghai. Many of these incubators actually started as property development companies that recognised the saturation of the industry and moved into innovation to diversify their assets. If we compare these numbers to Australia, where we have roughly 25 incubators/accelerators nationally, the gap is huge.

Easy access to capital, lack of quality projects and talent
Government and speculative funding in China has created easy access to money, while quality talent, particularly in business entrepreneurship, remains a key challenge. This is where synergies form with Australia. We surely have the talent, with great innovation coming out of our country. Startups like Atlassian, Freelancer, Kogan, Wotif have all achieved significant scale and success in a relatively short amount of time. However, Australia has some of the lowest VC funding in the world, and a relatively small market, so increasingly we are seeing these businesses leave the market for overseas. With China having both the market and the capital, this presents a significant opportunity.

Generally speaking, there is a strong desire to adopt Western business models in the Chinese innovation space, although we found that there is a huge variation in business practice depending on the type of organisation.

Some companies we visited like iSpace and their partner incubators in the tech innovation space were more innovative in their practices.

One incubator cited that they believed the success of Silicon Valley was due to ‘freedom of thought’, which bolsters creativity and innovation. This was really interesting and in my view, very progressive given how controlled communication is within China. We also saw more of the Google style modern offices, with foosball, “hangout areas”, table tennis and bean bags. This signals to me that Shanghai is really embracing a ‘new way’ of working.

Other businesses we spent time with cited more traditional ways of working and highlighted key issues stemming from bureaucratic processes. For example, at a one global manufacturer we visited, we found it took over 36 process approvals just to make a hat. Employees were apprehensive to share information between departments, causing massive inefficiencies.

In the pre-departure ‘bootcamp’, we sat through lectures warning us about the importance of hierarchical seating arrangements and the way to give business cards. I found it a little unnerving to be honest, as Australia is more of an egalitarian culture and this kind of formality is not general practice.

However in reality, we went to over 30 meetings in 3 days and in the majority  of our meetings, we didn’t sit in these traditional hierarchical positionings. We were actually told by the companies not to make things formal and that meetings were casual and this was a relaxed environment. Additionally, rather than swapping business cards, we swapped ‘Wechat’ QR codes.

The proliferation of social media in the Chinese market and the breadth of capability of apps, which are essentially platforms for all sorts of capability, amazed me. Studying cases like Wechat and Alibaba was really interesting, as these applications are multiplatform, dynamic and integrate many needs into one place. A truly human-centred application of software development.

Conversely, the impact of public policy on employment runs deep. As a consequence of the 1 child policy, millennials in China have a different work ethic to those of the earlier generations. They stand to inherit the fortunes of their parents and grandparents solely, and this has a huge impact on truancy in the workforce. This spurs a further issue around a lack of employee training. Many employers do not feel the need to invest in training and their employee value proposition, because turnover is high. This vicious cycle perpetuates the lack of employee engagement and is detrimental to the sustainability of businesses.

Even the exit process was cited as merely handing back a name badge. Which suggests to me that employers may not be willing to listen to feedback. Perhaps it’s a “saving face” thing, where the employer doesn’t encourage a feedback rich environment? Perhaps its even a matter of the fact that culturally, employees are not willing to be critical of their company and superiors openly?

Hukou: In order to limit mass rural migration, the Hukou policy was introduced. This means that having citizenship in China doesn’t automatically give you citizenship into Shanghai. This has an impact on working families. If a parent applies and is granted citizenship for Shanghai, and they have children, unless their children are also granted citizenship, their children must leave and go back to their parent’s hometown. This affects employee retention. Citizenship for Shanghai is almost as difficult to get as getting country based citizenship.

Overall, China is a really interesting place; the more I learned, the more I was confused, and the more I realised I had to learn. Its complexity runs deep, but its potential is huge. What an amazing journey!

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