China’s new innovation paradigm

Dr Markus Steilemann, board member for innovation and global head of polyurethanes segment, Covestro AG

When people talk about innovation, they tend to mean only invention—the creation of new products and processes that do not exist in the market. Innovation, though, is more than that: it is also when an invention becomes commercially viable. Let’s take polyurethanes as an example: when Otto Bayer invented polyurethane 70 years ago, the material itself was groundbreaking. Today, innovation involves new applications for that material, like making polyurethanes into lightweight insulation that helps the Solar Impulse plane fly around the world day and night without a single drop of fuel.

Innovation can take the form of new products, new customer-relationship models, new business functions and new business models. It has to fulfil unmet needs in a market. If there is no market need for an invention, it will not be successful, profitable and commercially viable. To put it bluntly, successful innovation has to make money.

The Chinese way of disruptive innovation

China has a long history of producing new inventions, from gunpowder to ketchup. In the most recent decades, we have seen evolutionary innovation from China, too, as pioneers have taken something people liked and further developed it to fit the needs of a specific market and audience. Today, household brands like Alibaba, Tencent, Xiaomi, Huawei and Haier are globally well known for their innovations. They are good examples of successful consumer- and technology-oriented companies that have innovated not only in the technical aspects of their products but also in their business models.

China has the advantage of being unencumbered by the limiting mindset that we can see in many countries with a long innovation history. Chinese innovators often have less boundaries around their views and apply a freedom to think differently or to ask, “Well, why not?” Their practice of rapid prototyping lets them quickly decide what to keep because it works well, and what to discard because it doesn’t serve real market needs. They have brought about improved versions of existing products that are more competitive because they have the properties buyers covet.

Xiaomi offers one example of how Chinese firms are combining technical innovation with innovation in business models. Its approach of selling high-end phones at low prices via online channels, without any commercial marketing, helped it disrupt the smartphone ecosystem in China and quickly make it to the top in the world’ largest smartphone market.

China’s growing innovation ability is also reflected in the way its companies have quickly developed an understanding of how important patents are for their business. Today, China sees more patents filed than any other country, reaching nearly 100m in 2014. The country now has a comprehensive patent-law system, and in 2014 and 2015, specialised intellectual-property (IP) courts were established in major cities to facilitate better enforcement of IP rights.

The way forward

China does well in innovation oriented towards business models and manufacturing, but to some extent the country still lags behind in science and materials-based innovation that requires original inventions or engineering breakthroughs. China has made the investments in education and research and development (R&D) that it needs to improve its performance in science- and engineering-based industries, but as it moves forward, it will also have to increase its efficiency in innovation and management, to raise these industries’ contribution to GDP growth.

Partnerships and “open innovation” will be crucial to achieving greater efficiency. This means forming partnerships not only between R&D participants but along the value chain. Partnerships must also be made with suppliers and customers. Universities can play a role in coordinating such networks and contributing to research. Covestro works closely with Tongji University in the areas of eco-construction, sustainable development, new materials and energy efficiency for the construction industry in China.

For multinational companies striving to innovate in China, innovation means combining the best of many worlds. This means different things for different firms. For us, it means combining the Western innovation model of developing new products in-house with the Chinese model of improving existing products and business models. German technology and North American know-how can come together with Chinese speed and pragmatism: you just need to take the right approach.

Markus Steilemann holds board responsibility for innovation, and he has served as head of the polyurethanes business unit since January 2016. Before that, he was the head of the polycarbonate business unit globally.

In 1999, Mr Steilemann joined Bayer Group as an internal consultant in the company's former corporate planning division. He held various positions of increasing responsibility and gained broad experience of business modelling, organisational development and supply chain.

In 2008, Mr Steilemann transferred to the polycarbonates business unit of Covestro’s predecessor company, Bayer MaterialScience in Hong Kong, where he headed a number of regional business segments. He relocated to the global headquarters of the polycarbonates business unit in Shanghai in 2011. In mid-2012 he was appointed head of global industrial marketing, and in April 2013 he became head of the polycarbonates business unit.

Mr Steilemann studied chemistry at RWTH Aachen University, Germany, and the University of Zurich, Switzerland. He holds a PhD in technical chemistry and a master's degree in chemistry as well as chemical economics from RWTH Aachen University.

Markus Steilemann
Board member for innovation and global head of polyurethanes segment
Covestro AG

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