COMMENTARY

------By Mark Godfrey

A few hundred executives got an earful recently when China and India's Science & Technology ministers sat down together on a couch in Beijing. Guests of the World Economic Forum's annual Beijing gathering, the two were encouraged by a sycophantic moderator to compare their particular approaches to innovation for the benefit of the corporate foot soldiers who put innovative ideas to work as viable products.

After 26 years of opening up, China has become an innovation based economy, announced Xu Guanhua, China's minister on the World Economic Forum's sofa. True, three million patent applications have been received here since 1985. And two years of research and the words of 2,000 entrepreneurs, engineers, academics and policy-makers have gone into a national plan for science and technology which outlines China's goals in the sector through 2020.

Xu's Indian counterpart Kapil Sibal, Minister of Science and Technology and Earth Sciences of India, said his government has begun reforming legislation to resemble that of the US. More than 40 percent of the world's innovation happens in the United States, noted Sibal, because US legislation backs innovation by protecting intellectual property rights. So India will do the same.

Political breast-beating aside, the ministers charged with innovation in the world's two most innovation-dependent developing economies were agreed on one thing: government support is essential to drive new ideas and products. But each had a different idea of what such help should look like. Private enterprises must lead the way, said Xu, but government help would come in tax incentives, financial assistance and better protection of intellectual property rights (IPR), he promised.

What could be

India thinks that governments should lead with major funding of universities. Private enterprises alone can't foster innovation, went Sibal's logic. Nearly half of all R&D funding in the US comes from the public purse. Partnerships between publicly funded universities and private business - cross fertilization, the Indian minister called it - is how India would like to progress.

China and India differ on more than just who should lead when it comes to innovation. Public funding for research must be matched by venture capital when a new product idea comes to fruition. It is here that India's lively stock market steps up to the plate. India has no shortage of management skills and entrepreneurs, either. But its challenge is how to put more money into universities so that more talented people have access to quality higher education.

China lacks venture capital in a free market economy, but it has a more equitable education system. Yet even though China has more people in college, it can't afford to be complacent, not while its university system remains more about passing exams than about meeting the demands of an innovation-based economy. Citation in Chinese papers has climbed, but there's a quality gap between China's university output and that of universities elsewhere that are more in tune with the requirements of a modern economy.

If China is, as Xu declared, now an innovation-based economy, Chinese universities need to empower graduates to think for such an economy. Chinese universities need to encourage good research papers. In the meantime, the skills which have become scarce in a quickly modernising economy can be supplemented if China can bring experts (a majority of Silicon Valley people are Asian and management talent has proven to be Taiwan's secret weapon) back home with the right incentives.

These carrots could include more availability of venture capital - matched by suitable rewards. Patent filing might be up in China, but if IPR isn't protected why would an innovator bother bringing a new idea onto the market here? Serious IPR protection and fair and open competition in a free market would help entice overseas talent to seed start-ups in China. Innovation, after all, usually happens in SMEs, not in multinationals that are too busy worrying about driving profit.

Sound IPR laws and plentiful venture capital has helped build Taiwanese start-ups like Acer into global giants. And in India, a vast developing market more comparable to mainland China, good IPR protection has given pharmaceutical SMEs the confidence to plough a large percentage of sales back into research, granting them the power to compete in the global market. That's more value-added than just allowing R&D to come in through foreign direct investment which owns it then.

Too much handholding of start-ups just for the sake of innovation won't work either. The sight of the gallows clears the mind about what can work and sell. After all, 90 percent of startups fail. But China also needs the kind of acceptance of failure that keeps innovators and entrepreneurs going back for another try. That means a major cultural change in face-conscious China. A spirit of competition is something else needed in China where the interest of the community is usually held above the individual.

China and India have much to learn from Silicon Valley. But yet for all the praiseworthy references to American examples coming from the minister's sofa summit in Beijing, the USA isn't the bright shining city of innovation on a hill it once was. Whereas prior to World War II, innovation was driven by independent inventors, the onus has more recently fallen to the state sector. The creation of the National Science Foundation and increased government funding of universities have turned ideas into enterprises - many, like Nike, started on-campus - and created a new innovation ecosystem. Government must invest in innovation, or it's not going to happen. But over the past decade, US companies have sharply reduced investment in their own R&D efforts, relying on universities to do all the running.

Get off the couch

China's minister Xu had a point then by saying innovation would come from private business. Surprisingly, China is ahead of the US in some respects. American bureaucracy has started to clog the innovation pipeline. Businessmen complain it has become easier to do R&D in China than in the US: drafting a memorandum of understanding can take up to two years in the US, whereas in China companies can get approval in a month.

But if technology transfer has worked so well for China why bother with innovation? China is, after all, chuffed at the Sino-German Maglev high speed, high-tech train project in Shanghai. But China's future is not just in technology transfer and R&D, it's in people. China needs a 'can do' culture. Chinese graduates need to be given the space to think. And Chinese entrepreneurs can't be afraid to learn through failure.

And then there's innovation that no one wants. Innovators behave as if locked in a room, unaware of what the customer really needs. The New Coke was a great marketing innovation, but a total flop with customers. Can China and India build world-beating companies like Nike, Microsoft and Apple from an idea that people want? Yes, but government needs to spend the money that will give people the chance and the reason to come up with ideas.