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At Peers Consulting, we have recently supported our client investigating the question of what the secret behind China innovation success is.
10-15 years ago, M&M innovation activities have been driven mostly by global companies. But what we see now? HPAL technology has not been successful, but over the few recent years Chinese Huayou Cobalt managed to achieve commercial viability at scale. NMC for many years was considered most promising xEV CAM tech, but China progress with LFP changed landscape, etc.
What is the secret? It is not a coincidence, but rather strategic systematic approach of China ecosystem, including (1) Government (with its strategic long-term priorities and systematic support to business), (2) Fundamental Science Ecosystem (including education programs, national laboratories, etc.), (3) Companies heavily investing in applied R&D in priority areas.
At the beginning of 2000th, Chinese Government with the involvement of scientific community made strategic bets, outlining six priority innovative industries, including xEV cars. These priorities have not been changed. Chinese approach to develop in xEV sector might be described as consistent integration within xEV value chain. Focused consistent approach that resulted in xEV value chain consolidation within the country.
During first phase in 2000th, Chinese companies actively cooperated with global companies to get up to speed in technology development within priority innovation industries, global companies received cheap labour force in return. In parallel China fostered systematic R&D expansion and ecosystem development (companies with Government support developed R&D laboratories, intensified practical applied R&D activities in priority industries). When the basis was formed, China localised R&D activities and focused them on deep practical production technologies research in priority segments.
We see following success factors of China R&D innovation progress
1. Link to country long-term strategy and state support
2. Unified ecosystem, cooperation along value chain
3. Systematic approach to develop R&D competencies
4. Large R&D budgets, access to cheap long-term financing
5. Focus on applied research, lots of experiments
6. High tolerance to R&D risk at each level
... at the same time, overcapacity and intense competition made many Chinese companies currently struggle balancing at break even point.
What is your view, will China continue to dominate R&D innovation in priority industries and at the same time manage to improve profitability and valuation mid-term?
