Witnessing China's radical transformation

William A. Fischer
While the changes in the forest are genuinely impressive, it is the individual tree stories that provide insights into what comes next.
William A. Fischer

When the definitive history of the twentieth century is written, it is entirely possible that the brightest story of that war-torn and economically challenged century will be the return of the Chinese people to a prominent role on the world stage.

In fact, today, in our time of petty economic bickering and trade war posturing, it is still worthwhile to reflect on all that has been accomplished by the realization of Deng Xiaoping’s re-engineering of what had begun as early as the 1960s, under Zhou Enlai’s guidance, as the Four Modernizations (agriculture, industry, national defense, and science and technology) and which today has grown into the modern Chinese economy.

I feel as if I have had a privileged view point of this saga, as my family and I first moved to China in 1980, just as the reforms were beginning in the industrial sector. I have also been fortunate to return to China in one form of work engagement or another for each of the following 40 years. Like all such stories, this is both about seeing the forest and the trees. While the changes in the forest are genuinely impressive, it is the individual tree stories that provide insights into what comes next.

In 1970, during the so-called “cultural revolution” period (1966-76), China’s exports to the world accounted for only 2.49 percent of its diminished GDP (US$92.6 billion in current US dollars), while imports represented only 2.46 percent for that same year.

For a big nation, this was as closed as one might imagine that a closed economy might ever be. In 1990, ten years after the industrial reforms had begun, two-thirds of China’s population were still living below the World Bank poverty line of US$1.90 daily.

Today’s China has moved way beyond these numbers: China’s GDP in 2018 reached an estimated 90 trillion yuan (US$13 trillion), ranking it second in the world in nominal terms, and China is by far the world’s largest exporter as well. According to World Bank data, only 0.7 percent of the Chinese population was living below the poverty level in 2015.

This is a story of national achievement that is unmatched in modern macroeconomic history, and which I believe is a testament not only to the labors of the Chinese people, but to the catalytic effects of opening up an economy to external influences. But there is also a story unfolding at the microeconomic level that reinforces this.

At a recent innovation summit of the venerable home appliance giant, Haier Corporation, in Qingdao, Shandong Province, the 2018 Nobel laureate in Economics Professor Paul Romer observed: “We are better off being part of a bigger ecosystem. We are better off inviting others in!”

To which he later added “Progress, then, is very much about ‘who we are’ (as an ecosystem). No longer dividing us versus them.” This is an important message in today’s “anti-global” age.

Learning better and faster

Several years ago, I wrote a piece for Forbes, entitled “Made in China, Smarter Companies?”

The argument was that Chinese companies were building a new future on the basis of learning better and faster than their foreign competitors.

At that time, I was referring to simple listening and responding. Today, however, at the level of the firm and below, what we are seeing are organizations that are attracting and harvesting more new ideas by virtue of being radically open and entrepreneurial.

At Haier, the firm that I know best in my role as one of their Management Innovation Consultants, the new frontier in innovation is organizational, which has been best expressed in the development of a Platform Organization which attracts new ideas from anywhere and encourages autonomous micro-enterprises to exploit these new ideas.

China’s long march from almost doing everything by oneself in the 1960s and 70s to establishing a presence of being outward-looking today is consistent in my mind with the experimentation that Haier is enabling, and this also affects the way that the rest of us will see our own organizations developing in the future.

According to platform strategist Simone Cicero, such organizations, by finding new growth at the edges of what they are involved in, develop organizations that rely on autonomous energies to take command (so that leadership devolves to the micro-enterprises) and transform their identify to that of the ecosystem. This is not easy, nor natural to do for most companies.

Yet, openness to the world — and to new ideas — is not only radically changing the Chinese economy but has the power to change corporate innovation as well.

The author is a professor of Innovation Management at IMD (International Institute for Management Development). He co-founded and co-directs the IMD program on Driving Strategic Innovation. Copyrigh: IMD.

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