OVER THE past decades, Chinese businesses have primarily been known for their manufacturing competencies, but they have now turned their attention to innovation. This trend can be observed in light of a regulatory environment in China that strongly pushes innovation, which is a top priority on the government’s agenda. Further, selected Chinese firms aim at technology and market leadership worldwide. Lenovo became the world’s largest maker of computers in 2013, and Alibaba Group handles more transactions than Amazon and eBay combined.
These firms and many others see innovation as a core pillar of their competitive strategies, and they increasingly collaborate with foreign companies. Huawei Technologies has several research centres in Europe addressing different technology fields, such as future network technology. Nonetheless, many of the ideas for potentially fruitful innovation collaborations are not realised, despite the underlying business logic. With these realities in mind, this article presents a five-step procedure for successful innovation collaboration.
Opportunities for collaboration
There are great opportunities for collaboration between Chinese and Western firms related to technology and innovation. In addition to many well-known US firms, there are highly innovative companies in Europe and other regions. Germany’s economy and trade offerings match well with those of China. Apart from the high-tech and automotive sectors, high-end manufacturing and green energy play an important role in Germany, and the Chinese government and companies plan to strengthen these areas.
Innovation collaborations may benefit from distinct top-management approaches in many Western and Chinese firms. These typical differences may lead to major challenges, but they may also enrich innovation collaborations – if the differences are managed well. For example, with respect to decision-making and communication, the Chinese way of compromising – in order to create harmony within an innovation team – could be complemented by the Western emphasis on individual opinions and debates, in order to avoid “groupthink” which may negatively impact innovation.
Steps for success
While there are excellent opportunities for innovation collaboration, successful implementation remains difficult. Figure 1 provides an overview of five critical success drivers for innovation collaborations of Chinese firms. Together, they provide the basis for a positive “START” on collaboration.
Strategy: The first driver is a clear strategy. This is always important, but it becomes even more essential if innovation plays a critical role. Chinese companies need to develop clear objectives for collaboration regarding the technologies and joint innovation projects that are involved. In addition, Chinese managers have to set up a clear plan for the evolution of the cooperation and for how these objectives may actually be achieved. This strategy should also be clearly communicated to the potential partner, to enable a closer ability to work together and thereby help lead to subsequent success.
Technology: The second success factor is technology. Many Western companies have substantial expertise in their particular fields of technology, and they are well-known for technological prowess that is high-end, mechanical, automotive, green, and generally engineering-related. In addition to prominent large firms, such as Google in the US and Volkswagen in Germany, there are many relatively unknown companies that are technology and market leaders in their particular niche markets worldwide. These companies are typically medium-sized firms, and they are much more difficult to identify as potential partners than the large and well-known names. Nonetheless, many of these firms have renowned engineers, scientists, and other experts, and collaborations with these firms may be very fruitful for Chinese companies.
Advantage: The third driver of success is a clear advantage that is associated with a specific collaboration. Based on a formal strategy and a focus on technology, Chinese managers should develop plans for collaborations that lead to a clear advantage – for both partners. Thus, the partners should attempt to “enlarge the pie” that may be shared between them, rather than stimulate a learning race where each partner gets a slice of the pie with a given size at the expense of the other partner. If new technologies and innovative solutions are developed in a specific collaboration, these results may help both companies in their respective positions. Consequently, managers should map the alliance-based advantages for both partners as compared to the situation for both partners if they were not to enter the partnership.
Research: The fourth major success driver is doing sufficient research with respect to potential collaboration partners. Typically, Chinese companies may want to seek support either from public institutions or technology consultancies in the respective country. This support by local experts will allow Chinese firms to spot the best partners possible. Identifying the most suitable partner may be doable in technology fields that are very close to the technological core competencies of a Chinese company. However, if a Chinese firm wants to enter collaborations in a less familiar field, it is beneficial to seek support by an external expert, especially if the potential partners are relatively unknown medium-sized firms. An expert consultant has the local know-how and networks, along with a variety of analyses – such as patent data analyses – to help a Chinese firm identify the ideal collaboration partner.
Trust: The fifth and final major success factor is trust. While this may seem to be a very general suggestion, it has some very specific implications for innovation collaborations. Technology development is always associated with uncertainty, new insights, and potentially valuable intellectual property. Consequently, the successful management of a specific alliance needs to develop over time. The initial phases of entering the collaboration, shaping and signing the contract, and getting to work on the joint technology and innovation project will typically take longer than the partners imagine. However, when these initial tasks and activities are completed successfully to the satisfaction of both partners, the cooperation may proceed smoothly, and potential disagreements may often be solved quickly. Moreover, a Chinese or Western firm can develop the reputation of being a reliable partner in a series of collaborations with multiple other firms.
Getting STARTed
The importance of new technology and innovation continues to grow in Chinese firms. In this respect, the internal innovation projects of Chinese firms may be complemented by collaborations with Western companies. To enhance the probabilities for success in these collaborations, Chinese managers may follow the five-step START procedure. The management of innovation-related collaborations between Chinese and Western companies is likely to gain further importance in the future because of the growing relevance of innovation in China and the specific technological competencies of many Western firms, e.g. from the US and Germany. In particular, collaborations with medium-sized companies can be very beneficial. For such collaborations, however, the support of an external consultant in selecting the right partner, entering the collaboration, and managing the ongoing work is critical. Along with support for the legal issues of such collaborations, guidance from technology and innovation experts is paramount, as local innovation management know-how is often vital for making a specific collaboration successful. The START procedure is thus a valuable guide and tool for enabling Chinese firms’ managers to enhance the effectiveness and efficiency of innovation-related collaborations with Western partners.