Actively promoting independent business innovation and transforming economic development

0 CommentsPrint E-mail, May 12, 2011
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(Wang Zhongyu, president of the China Enterprise Confederation & China Enterprise Directors Association)

The topic of this year's National Entrepreneurs' Day & Annual Conference of Chinese Entrepreneurs is "promoting independent business innovation and transforming economic development patterns." The main task of the conference is to discuss how to improve businesse' independent innovation capacity, stimulate the transformation of economic development patterns, and encourage economic restructuring to promote sound and rapid growth.

1. Improving business innovation capacity is imperative to ward off the impacts of the financial crisis and speed up the transformation of economic development patterns, and is also compulsory for businesses' sustainable development.

The 17th National Congress of the Communist Party of China outlined the strategic task of accelerating the transformation of the pattern of China's economic development. Following the financial crisis, China's development has witnessed great changes on domestic and international fronts and the need to transform the country's pattern of economic development has become even more urgent.

From an international economic standpoint, the world economy is likely to enter a slow growth period in the years following the recent financial crisis. Global demand will shift as many developed countries change their over-consumption patterns. In addition, we have seen a rise of increased trade protectionism against China and friction with global trading partners. This instability and lack of security in the international economy will surely bring more risks. Also, new development has been shifting towards "green economies" characterized by high efficiency, low energy consumption and low pollution models. In order to deal with these global changes in global economic trends, China needs to speed up the transformation of its development patterns.

China has maintained a high growth rate since the adoption of the reform and opening up policy. By 2009, China's GDP reached 33.53 trillion yuan and became one of the world's largest economies and a major manufacturing and trade power. But generally speaking, science and technology have contributed far less to China's economic development than that of developed countries. We have been highly dependent on foreign technology and have had to import many different kinds of crucial parts and equipment to enable production at home. Many strategic emerging industries which are likely to take a leading role in future science and technology have just started operations and are not very competitive on the global market for the time being. An inflexible industry structure has prevented business with antiquated growth models, high energy consumption and heavy pollution from exiting the market. The contradiction between economic development and the need to save resources and protect environment has become increasingly conspicuous. China's energy consumption per unit of GDP is obviously higher than that of developed countries and the global average. Therefore China is facing great pressure caused by resource and environmental constraints. Large-scale inefficient use of energy and environmental problems have become the main barriers to modernizing China's economic development.

From a sustainable development perspective, the contradiction between economic expansion and the need to save resources and protect the environment has become increasingly apparent. Investment constraints have increasingly hampered business development. With the gradual disappearance of low-cost development space, China's competitive advantage has weakened. To achieve sustainable development and compete at a higher level in the international market, local businesses need to improve their capacity for independent innovation. Judging from the experience of developed countries, once a nation's industrialization reaches a certain stage, total economic output comes to a certain point, and resources exert an increasing restraint on business development, businesses need to find new ways to retain their competitive advantage.

Independent innovation will become the major impetus to increase businesses' competitiveness and promote their development. European and American businesses experienced such changes at the beginning of the last century and so did Japanese businesses in the 1960s and 1970s. The international environment and the science and technology development cycle provided Chinese businesses with good development opportunities over the past 20 years. External conditions enabled them to catch up with world class businesses. However, whether they can make good use of these favorable conditions as well as the strategic opportunities provided by the reform and opening-up depends on their future innovative capacity in technology, management, business strategies and resources allocation. China has no choice but to get rid of its image as the world’s factory and focus on innovation, if it wishes to advance to the upper end of the global industrial chain.

2. Cultivating and improving businesses' independent innovation capacity and enabling them to play a leading role in innovation

The development of the economy and the private sector in recent years has enabled Chinese businesses to play a leading role in encouraging independent innovation. China has decided to set up a market-oriented technological innovation system led by businesses which combines production with research. This has allowed many businesses to gain many achievements in independent innovation. For example, Haier Group has created a world famous brand; China North Car Locomotive & Rolling Stock Corporation Limited (CNR) and China South Car Group and China South Locomotive & Rolling Stock Corporation Limited(CSR) have developed the high speed rail and made important breakthroughs in rail technology, which has given China a leading role in high speed rail construction in the world; companies like Daqing Oilfield Limited Company have developed original oil exploration technologies which have made China a leader in this sector; the 3rd generation mobile communications technology developed by Datang Telecom Technology Co. Ltd and high-tech military industrial technology developed by the China Aerospace Science and Technology Corporation and China Aerospace Science and Industrial Corporation have also set examples for Chinese businesses in regard to independent innovation. However, generally speaking, our businesses still need to strengthen their innovation cultures in order to become world leaders.

In order to turn businesses into major players in independent innovation, we must increase their awareness to enable them to fully recognize the significance and urgency of innovation to long term strategic development. Businesses also need to pay attention to the following important links: Businesses, especially large and medium-sized companies should improve their independent innovation systems; Businesses should set up innovation plans which include making innovative decisions, organizing innovative activities, utilizing research and development (R&D) resources, establishing innovation platforms, cultivating talent, and industrialization and marketization of innovative achievements; Businesses should combine technological innovations with management reforms. They should remove various systematic obstacles to technological innovation and provide support for technological innovation through management reforms. Businesses should speed up cultivation of innovative talents, further optimize innovation encouragement mechanisms, and explore ways to link income distribution with innovation. Those who have made great innovations should get larger bonuses; this will surely arouse peoples' enthusiasm for innovation. Businesses should increase R&D investment so that their R&D expenses gradually approach and even reach the level of international firms. Businesses should make full use of various government policies to encourage independent innovation and utilize all types of social resources to attract innovation resources to businesses. In a nutshell, there are large and small businesses. With different internal conditions and at different development levels they may produce different kinds of products. We advocate that every business should explore the innovation path suitable to its own development.

3. Encouraging businesses to make headways in technological advancement and promoting business transformation

Over the past 20 years Chinese firms have made constant explorations in technological research and have developed some good practices in regards to building an innovation culture in their businesses. Some businesses which are relatively strong in science and technology or those which cannot obtain certain technologies due to foreign embargoes have decided to pursue their own research and transform their discoveries into high-tech products or production methods. Although the number of businesses which gained success through their own original technological advancements is small, they represent the current trend of Chinese business development. Many businesses have improved their technology through importing advanced equipments or technologies from abroad. Others have formed key competitive power through absorbing foreign technologies and have become the industry leaders. In the 1980s and 1990s, under the instruction of the policies made by the government economic departments, thousands of state-owned companies carried out large-scale technological acquisitions as well as innovations to improve their positions during the process of market restructuring. Given the wealth of experience accumulated, firms should share their best practices to meet current challenges.

We should also encourage businesses which have imported advanced technologies to absorb these technologies to create their independent innovation capabilities. Against the backdrop of economic globalization and rapid development of science and technology, actively importing advanced foreign technologies is still a great necessity for the development of our businesses. However, businesses which have imported technologies do not automatically acquire the capacity to innovate. They should attach great importance to absorbing imported technologies and making new innovations instead of following the path of "importing – falling backward – importing again – falling backward again."

Current businesses, especially small and medium-sized companies, should combine technological transformation with the adoption of the Scientific Outlook on Development and follow a low-carbon and green development path. Businesses should undergo technological transformations focusing on upgrading their business models, improving efficiency and conserving resources. Businesses should widely adopt new technologies, new techniques, new materials and new equipments and actively promote informationization transformation. Businesses should also make use of various advanced manufacturing technologies and management methods and implement lean production.

Businesses with sufficient technology, funding and talent must start down the independent innovation road as soon as possible. International technology transfer proves that core technologies needed for the development of modern businesses is not bought but has to be achieved through businesses' independent R&D. Businesses can only make technological breakthroughs through their original innovations. Currently we should pay special attention to the development of strategic emerging industries. History tells us that each major economic crisis is usually accompanied by new technological breakthroughs. New technologies such as the information technology, new energy, new utilization of raw materials, biological engineering, energy conservation and environment protection, low-carbon technology, aerospace have the potential to affect countless human lives. These new technologies and emerging industries will not only help businesses to increase their international competitiveness but also can serve as pilots for reform in the science and technology sector, thus increasing the nation's innovative capacity. After the financial crisis, major developed countries mapped out strategies and plans for future economic growth. These countries attach great strategic importance to emerging industries, as they provide the greatest chance for firms to gain in the new round of industrial development occurring around the world. If our businesses do not make headway in developing new strategic technologies, they will lose their competitive edge. Businesses, especially large and medium-sized companies, should pursue an innovation culture with an eye on the world's cutting-edge technology and fully explore emerging industries to allow their international competitiveness to soar to new heights.

(This speech was delivered by Wang Zhongyu at the 2010 Conference of Chinese entrepreneurs)


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