China’s Embracing Innovation Leads to the Future

The international academic community has for a long time been preoccupied with China’s innovation model. What is behind China’s rise, and what enabled the country to become the world’s second largest economy in less than 40 years?

What is behind the legacy of China? The country’s emergence from a weak to a strong power has not been an indisputable fact. It is important to understand, however, if this change and the country’s rise was a sudden phenomenon, or if it was based on a deep historical and cultural foundation. If it is the former, China’s prosperity will decline just as suddenly as it rose. In this case, there would be no sustainable development. If the latter is true, then China’s rise is attributable to its long-term historical accumulation, a solid cultural foundation, and it seized an important opportunity to find significant solutions through innovation. This means that China has a heritage, a continuity of history and culture, and thus it is bound to have sustainable development.

The Chinese economy has strengthened since the country instituted its reform and ‘opening up’ policies in 1978. It grew at a rate of 9.3% per annum from 2008 to 2012, accounting for 29% of the global net economic growth. After 2012, the economy slowed but still maintained a growth rate of 7.0%. At this point, China's economy will remain stable and keep growing steadily while resisting protectionism. China has shown the world that it is following the trend of sustainable development as the locomotive of world economic growth, but that it also serves as a world innovation engine. The international community describes China's great development and achievements as “miracles”. But again, what is the impetus behind these achievements?

What is it?

Based upon my 20 years of academic research on China’s technology and innovation strategy, the competitiveness of China and Chinese firms, the country’s sustainable development and observations of what has happened between West and East, I have referred to China’s innovation as “embracing innovation” in my book Competitiveness of Chinese Firms: West Meets East.

"Embracing innovation" is a strategic model of the wise who are seeking common development, sharing resources and win-win solutions. It is a social innovation with Chinese characteristics. It refers to a novel and innovative solution to a complicated social problem. The solution is more distinctive, effective, efficient, equitable and sustainable than the existing approach. At the same time, it creates value for the benefit of society as a whole. Its essential elements, which are also regarded as the four pillars of China’s embracing innovation theory, are as follows: a) embracing contradictions; b) heading with the times; c) seeking common ground while maintaining differences; and d) creating harmony and tolerance.

"Heading with the times", along with the other pillars, has created prosperity in China. What allowed this country to lift itself out of poverty and become an economic power in less than 40 years? China has embarked on a sustainable social and economic development path, which is unprecedented in any other country in human history. Needless to say, this is closely related to the essence of "heading with the times". China, in the midst of fierce debate, joined the World Trade Organization without hesitation in 2001, and subsequently lifted 500 million people out of poverty. Similarly, in 2014, China established the China Free Trade Area, and in 2015 abolished the national policy of birth control, which had been in place for 30 years. Such major strategic initiatives of “heading with the times” have contributed to China's rising.

The value system of “embracing innovation” can be summarized in three "integrations": an integration of a planning economy with a marketing economy; an integration of Western management with Eastern philosophy; and an integration of prescriptive strategies with emergent strategies. It is more reflected in the superstructure and the ideological field and contains two levels. First, it refers to concept and philosophy innovation, which is designed as a top guide to break the shackles of the spirit and helps to inspire people's thinking and problem-solving; it delivers social sustainability. Second, it refers to innovation of technology and management, which balances indigenous innovation and imitative innovation, and helps to build a solid economic foundation, which delivers economic sustainability. The two levels of “embracing innovation” are complementary, making the concept a soul of national progress, an inexhaustible power of national prosperity.

The Originality of China’s Embracing Innovation

In the late 1970s, China entered into a special historical period of development and faced its poverty problem, with its unprecedented challenges and its national economy being on the edge of bankruptcy. What was next for China? The philosophical wisdom of ancient Chinese philosophy and its innovative thinking, including "embracing contradiction", stimulates innovation, which in turn created a framework for China's strategic guidance. Such an innovation, drawing strategic insight and wisdom from ancient Chinese philosophy and aligning it with the development of the modern pulse of China, was borne spontaneously. It is inseparable from the essence of Chinese classical philosophy. The theory of “embracing innovation” is deeply rooted in Chinese civilization. 

In Chinese classical philosophy, the Northern Song Dynasty philosopher Zhang Zai summarized the law of dialectics into four points: “有象斯有对,对必反其为;有反斯有仇,仇必和而解。” This means that (1) everything opposite to what you believe has two aspects, opposite the direction of movement of both inevitable contrasts; (2) being contrary phases in hatred; (3) hatred leads to revenge; but, in the end, (4) hatred leads to reconciliation. A deeper interpretation of this last point could be referred to as "embracing contradictions”.

This argument has a profound theoretical basis and historical origins. China has no lack of philosophy that embraces contradiction. Moreover, Chinese philosophy is not a single school of thought but a collection of various schools of wisdom—some even contradictory. In ancient China, there were numerous philosophers: “Hundred Flowers were in bloom” and “Hundred Schools were in competition”. They were not only distinctive, but their contributions to philosophical thinking also progressed with the times.

In Zhang Zai’s summary of the dialectics, the core is that “hate in the end will lead to reconciliation and the solution”. I believe that this is an excellent interpretation of the Chinese philosophy of “embracing contradictions”, inspiring innovative thinking and powering innovation.

Contradiction and Innovation

“Contradiction" and "innovation" appear to be unrelated and independent of each other, but the two concepts are actually closely linked. As far as the word “contradiction” is concerned, we are surely not unfamiliar with it. From a perspective of dialectical materialism, contradiction exists between opposites themselves. The concept of “innovation” was first coined in 1912 by American economist Joseph Schumpeter. It is the eternal theme of human society.

Contradiction and innovation are inseparable. I find a very interesting distinction and contrast among the concepts of innovation theory when studying the theory and various types of technological innovation. Some are dialectical and united; some are full of contradictions. The types of innovation include the following:

1. Product innovation vs. process innovation.

2. Radical innovation vs. incremental innovation.

3. Architecture innovation vs. component innovation.

4. Competence-enhancing innovation vs. competence-destroying innovation.

It is even more interesting to see that Clayton M. Christensen, Harvard Business School, detailed the exposition of continuous innovation (sustaining innovation) and fracture innovation (disruptive innovation) in his book The Innovator’s Dilemma. According to Christensen, even good management practices lead a successful business to decline in the face of “disruptive innovation”. That is, if mastered, some emerging companies can break the existing economic model with invention and can defeat any big company. This disruptive innovation causes many good managers of large companies to panic. It is the reason why Amazon and Google are embarrassed and frustrated when they encounter competitors such as Alibaba and Baidu.

Cases of Successful Chinese Firms

China’s embracing innovation has not only been in the position to interpret the country’s competitiveness, but also to interpret the competitiveness of Chinese firms. I further explore the relationship between “embracing contradictions” and the management of innovation in Chinese enterprises by adopting a multi-case study. These cases involving Chinese enterprises prove academically that the followers can not only catch up with their forerunners through technology transfer, but also surpass their forerunners through technological leapfrogging by “embracing contradiction”. Such companies, for example Lenovo, Haier, TCL, Huawei and Geely, have become well-known international brands within a short period of time. 

Lenovo’s and Geely’s Bold Attempts at “Embracing Contradiction”

Lenovo has made a bold attempt at and succeeded in embracing contradictions and enterprise management innovation. Lenovo’s capability was widely questioned when it attempted to acquire IBM’s PC business in 2004. So many differences existed between these two companies, including in their management approach, philosophy, and cultural background. On the one hand, as IBM was established in 1924, it has a mature and rigorous operating system and management experience. Nevertheless, its executives were aging. On the other hand, Lenovo was founded in 1984, and the average age of its executives is about 30, resulting in a company full of vitality and vigour. Indeed, these fundamental differences provided Lenovo with a large puzzle. If Lenovo had chosen avoidance in the face of contradiction and given up on the original attempt, it would not be the company it is today.

Geely successfully acquired the luxury car brand Volvo in 2010 and proactively helped Volvo build a plant in China. Together they became successful in the world’s largest car market. This acquisition, however, has not been easy. Major players were the powerful Swedish trade unions. Geely chairman Li Shufu won over the Volvo employees and unions with his unique sense of humour, great wisdom, love, and sincerity. Like Lenovo, Geely encountered a similar problem in managing Swedish employees, which was a major challenge. Problems and contradictions included different values and different mentalities. For example, the company had hoped to take the “popular” road so that more people could afford a Volvo. Volvo, however, has not given up on retaining their luxury label. In the dispute, the relationship between both parties intensified. Li Shufu compromised by considering business sustainability, seeking common ground and embracing contradictions. Ultimately, they are out of the woods.

Closing Remarks       

The 21st century is an era of reflection, reconfiguration, and reconsideration, an era that calls for great wisdom, strategy and inclusiveness, to have an open-mind and to be forward-looking. The ancient Chinese philosophy of embracing contradiction underpins China’s legacy in the last 38 years. This philosophy tells us that embracing contradiction powers innovation.

In fact, as established above, embracing innovation has fueled China’s competitiveness and legacy. The concept of "fate community", rooted in the Chinese culture for thousands of years, can be traced back to the “embracing culture”, which advocates harmony. “Fate community” has a long history and contains the universe of heaven and man, the concept of harmony, a universal view of the world, various social values and moral goodness. In 5000 years of Chinese civilization, the nation has always pursued and inherited a firm idea of peace, harmony and tolerance. Nevertheless, the gist of China’s embracing innovation is to seek common development, share resources and seek win-win solutions. Furthermore, the spirit of embracing innovation demonstrates that there is no future for narrow-minded and short-sighted anti-globalization movements. It is helpful to embrace contradiction, seek common ground while maintaining differences and, in the 21st century, build bridges and stronger ties rather than walls. Embracing innovation is not only a major strategic plan for solving complicated social and economic problems in China, but also provides a feasible strategic approach for international society, leading to the future and the realization of social, economic and environmental sustainable development.