Platt Perspective on Business and Technology

The China Conundrum and its implications for international cyber-security – 7

Posted in book recommendations, business and convergent technologies by Timothy Platt on March 14, 2011

China and the challenge of innovation: When Japan first started competing with the West in manufacturing after World War II, their industrial base, retooled from their wartime Zaibatsu – their military industrial complex, had to go through a great deal of rethinking and relearning. High quality at low cost suddenly became very important where single client, captive audience markets of the type they had faced are usually focused on product effectiveness and product availability much more than they are on cost-effectiveness in production or distribution.

Put slightly differently, monetary cost is not the cost-effective criterion in play when the business is manufacturing critically important armaments and war matériel and their country/client is at war and desperately in need of them.

Then the war ended and the Zaibatsu was broken up, and the major corporations of this now defunct order (e.g. the Mitsubishi Group companies) had to transition into consumer products manufacturing or die. Their learning curves were difficult, with transition into whole new product lines, production with a focus on low cost per unit manufactured and sold, and on high volume production per se, and on competing in an open marketplace. Fairly or not, Japan developed a reputation for manufacturing low cost but low quality goods. And they looked for alternatives and a path out of this challenge.

One of the suites of tools they picked up on was found in the writings and teachings of a quality control visionary who was a product of the West, but who was ignored in his own country: W. Edwards Deming. Deming was a statistician by training who came to see and conceive of production lines and production systems as best fitting statistical models, and certainly for error and defect rates, and for issues of quality control. The Japanese manufacturers who found his teachings began to incorporate them into the core of their businesses.

They also began to develop and elaborate quality control with a focus on systems, processes and approaches that would fit into and resonate with their own culture and with the way their employees would most comfortably work, and relate on the job to each other. Toyota’s quality control circles come immediately to mind in this context where they started with imported ideas and approaches and made them their own. See:

• Liker, JK. (2004) The Toyota Way. McGraw-Hill.

This is a posting about China and innovation, yet I start it with some 400 words about Japan, and that calls for some explanation.

• Little of Chinese manufacturing has until relatively recently been focused on the consumer market, at least for their own internal markets and their own populations, and for a wide range of production areas and product types.
• Much of China’s manufacturing is in fact owned and controlled by its military, as I have discussed in previous installments in this series.
• Between that and the presence of a vast gray market and black market production base, quality has been a real source of ongoing concern.
• And like Japan then, China has often been viewed as being good at imitating, and at mass producing from someone else’s ideas, but they have not been viewed as an innovation powerhouse.

Think of China of today as being in a comparable position to that of Japan in the late 1960’s or 1970’s. They still face real challenges but they are learning from the outside and elaborating on what they import in the way of business and manufacturing insight, to meet their local needs and conditions. Japan is now known for its innovation and creativity in building new products and carving out new market space. China sees that as a primary goal too.

In October, 2010 China’s Tianhe-1A supercomputer officially became the fastest supercomputer in the world. They also currently hold third place too, on the Top 500 list for supercomputers. A very important point here is that while the Tianhe-1A is made using foreign manufactured CPU cores and supporting components, the crucially important interconnect software that connects all of this hardware into a single system was developed in-house at the Chinese National University of Defense Technology (NUDT) in Changsha, Hunan. Their new interconnect software called Arch supports twice the bandwidth of the InfiniBand interconnect standard that has been used in leading supercomputers up to now.

China has specifically targeted computer and computer network technology, Green energy technology and a range of other specific marketplaces for development, and with a goal of achieving preeminence in them that can only come from a combination of market controlling production and market defining innovative leadership.

• I note in this context that an immediate successor to the Tianhe-1A is under development that will be built using Chinese manufactured and designed chips.

China clearly sees shifting towards innovation as a key to its future. Moving innovatively into emerging and rapidly developing technologies is certainly one route to that but I would also suggest a point I have raised repeatedly in this blog – innovation and the creation of unique value proposition can arise in any process or step in a business where it can offer new and defining value to a marketplace. That can be in dramatically new and uniquely valuable products or services, but it can be in consistent and exemplary quality control, supply chain excellence or any other process that has direct and positive impact on the consumer. I write this with the perhaps less individually innovative products and services of the more established marketplace in mind. When China’s manufacturing reputation is tainted with lower quality and even defective baby formula and lower level electronics components, and a wide range of other challenges this affects everything they do in the marketplace.

Innovation does involve breaking into new territory in the high-end and emerging marketplaces of the 21st century. But innovation has to be based on a solid foundation of productive excellence and a reputation of quality that is confirmed on an ongoing basis. China needs its 21st century Deming and it needs to internalize lessons learned and make them their own, if it is to join the path to innovative excellence that Japan and others have taken and make it their own too.

You can find all earlier postings to this series at Ubiquitous Computing and Communications – everywhere all the time as postings 69, 71, 72 and 76 through 78.

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