Chinese Cost Innovation, the Shanzhai Phenomenon, and Accelerated Innovation

Abstract

This chapter traces the evolution of Chinese innovation strategies starting with cost innovation, accelerated innovation, and its roots in Shanzhai and concluding with digital innovation, which is at the leading edge of Chinese innovation. The distinctive features and antecedents of each of these Chinese approaches to innovation are explained and illustrated. Cost innovation involves using Chinese cost advantage in radically new ways to offer customers around the world dramatically more for less. Accelerated innovation is achieved by re-engineering innovation processes to increase the pace of innovation while reducing costs. The genesis of these capabilities to accelerate innovation can be traced back to Shanzhai: the practice of rapidly copying competitors’ products. Finally, digital innovation by Chinese companies using big data, machine learning, and artificial intelligence algorithms is explored.