Potential to Become the World’s Innovator
Over the past 10 years, China’s environment for innovation had improved significantly. China outperformed other mid-income countries and moved closer to high-income countries in terms of innovation capabilities and results. For example, from 1999 — when Chen investigated the feasibility of setting up the CTC — to 2012, China’s gross domestic expenditure on R&D increased almost 15 times, from ¥68 billion (0.76 per cent of its GDP) to ¥1,030 billion (1.98 per cent of its GDP) (see Exhibit 10).17 For the same time period, the country’s number of researchers increased 2.6 times, from 531,100 to 1,404,017.18 The quality of education, and levels of experience, for these researchers had increased as well.
Furthermore, according to the Global Innovation Index (GII) 2014, China as an upper-middle income economy moved up by six places from 2013 to reach number 29, making it comparable to the high-income countries that dominated the top 25 rankings. If China continued to improve at such a pace, it would move to the top 25 within only a few years. In contrast, India slipped to number 76, and Brazil was number 61, in the GII rankings.19 Thus, the CTC could benefit from its location advantage when redefining its new role.
Untapped Industrial Internet
In 2013, GE started to realize its Industrial Internet vision. This involved gathering data from all machines, including medical devices and industrial equipment, for control, analysis, prediction and also allowing machines to communicate with each other. Not only would this reduce labor costs for operating the machines, but it would also facilitate predictions about repair and maintenance for these machines, hence reducing, or even eliminating, unplanned downtime.
The Industrial Internet connected people, machines and analytics on a large scale. According to the McKinsey Global Institute,20 China was going through a digital revolution. Using healthcare as an example, when China’s Internet was moving from consumer-oriented to enterprise-driven, by 2025, there would be a potential annual savings in healthcare expenditures of ¥610 billion, or $99 billion,21 which was 13 per cent of the growth in healthcare costs projected from 2013 to 2025. The savings would come from initiatives such as electronic personal healthcare record systems, regional healthcare networks that connected hospitals for coordinating referrals and follow-ups, tele-ultrasound remote healthcare systems and web-based patient tracking systems. Hence, the CTC could play a fundamental role in this revolution.
To facilitate innovation and penetrate the mid-range market, other MNCs and local Chinese companies had strengthened their R&D investment both in China and worldwide. Siemens Corporate Technology had over 20 technology centers in different developed markets and emerging markets, including Russia, India and China. It employed nearly 7,000 scientists, software developers and intellectual property experts worldwide. In 2013, Siemens invested EUR€4.3 billion, or $5.9 billion22 — about 5.7 per cent of its revenue — on R&D for its wide range of businesses.23 In China, Siemens set up a technology-to-business innovation center in Shanghai in 2005 to join its R&D unit in Beijing, established in 1998, to develop local solutions. The company would soon open another R&D site in Nanjing, Jiangsu Province.24
Philips Research had eight centers in developed markets and emerging markets, including India and China. It employed about 2,000 R&D people worldwide to focus on consumer-centric research in all of its three business sectors: healthcare, lighting and consumer lifestyle. In 2013, it invested €1.2 million, or $1.7 million,25 about 5.2 per cent of its revenue, in R&D.26 Its Shanghai center, had recently set up branch laboratories in other cities, such as Suzhou in Jiangsu Province, to increase fundamental research in areas such as medical imaging solutions. To expand its product portfolio to the lower end, Philips bought Goldway, a Shenzhen-based company that manufactured patient and fetal monitors.27
In the healthcare sector, Toshiba Medical Systems set up an R&D base in the Dalian High-Tech Industrial Zone in 2012.28 With nearly 200 R&D staff, it aimed to develop imaging products for global sales.29 Mindray quickly broadened and upgraded its technologies by recruiting overseas experts and going through numerous mergers and acquisitions in China and overseas. In 2013, Mindray acquired ZONARE Medical Systems, Inc., a U.S.-based technology leader in the high-end ultrasound segment, for its R&D capabilities and distribution channels.30 Mindray also strengthened its R&D infrastructure in China, the United States and Europe (see Exhibit 11). The company replaced Aloka to become the fourth-best player in China’s ultrasound market, which was estimated to have generated $1 billion in sales in 2013.31 It also led the in vitro diagnostic products category in China, in which GE was not highly involved.32 There were an increasing number of local start- ups that focused on developing niche technologies, such as PET scanners, to compete with GE.