​Goodbye, Shanzhai: The Future of Innovation in Asia

Meeting the innovation imperative
That labor costs are skyrocketing in China is a good thing for China. That rapidly ageing  workforces are crashing the future outlook for manufacturing in Korea and Japan are good things for Korea and Japan.

Labor costs and ageing workforces are driving technological advancement in Asia; advancement that is desperately needed for a host of far more important reasons other than labor costs and ageing.

Oxford University and CitiBank, authors ofThe Future Is Not What It Used to Be, argue that wage pressure on Asia, especially China, is a “a silver lining” for the country, because it was exactly wage pressure that influenced the first industrial revolution in the 18th century.

For Asia, on the cusp of being the first to actively confront the Fourth Industrial Revolution, such comparisons bode well:

“We are at the beginning of a revolution that is fundamentally changing the way we live, work, and relate to one another. In its scale, scope and complexity, what I [Klaus Schwab, founder, World Economic Forum] consider to be the fourth industrial revolution is unlike anything humankind has experienced before.”

Context-aware technology
Asia—beginning first in China, Korea and Japan before heading south—is being presented with an opportunity to leapfrog its manufacturing industries out from under the rap of shanzhai or “copycat technology” to an unprecedented leadership role in global industrial automation.

It’s a fast-approaching age where smart factories will replace laboratories as hubs of innovation. New tech inventions as well as process improvements will derive from the machines themselves during the course of manufacturing.

As Asia leapfrogs the laboratory for the factory floor, it will gain an edge in innovation, the speed of innovation, patents and other intellectual property, and the speed of technology transfer from innovation to real-world practice.

In short, the factory floor will become the laboratory; the factory floor will become better than the laboratory ever was.

Imagine a machine telling its operator that one of its parts is about to malfunction. That’s what’s called context-aware technology: a machine or other asset offering up data on its operation as well as its relationship to other machines or assets.

Imagine the operator wondering why the part is imminent to failure and how it could be corrected—not by just switching the part out for a replacement—but actually analyzing the data—the steps to failure—and then innovating a better part because of that analysis. That’s innovation!

Now imagine getting even smarter by going from 3D to 4D modeling tech, allowing the operator to toggle back through time to understand the point at which the part first began its journey to failure.

The factory is suddenly a laboratory!
Asia is now faced with an opportunity to leapfrog from laboratories to smart factories operating context-aware technology—at scale!

China, for instance, as it switches out tens of thousands of workers for tens of thousands of robots across entire industries, has enough spring in its manufacturing legs to make a quantum leap in industrial innovation; a leap that may not soon be equaled anywhere in the West.

Such an opportunity would align with Chinese President Xi Jinping’s quest to catch up with the West in everything from aircraft engines to quantum teleportation. The state Xinhua news agency lists brain science, deep space, smart manufacturing and robotics as other of his key goals.

McKinsey has labeled China more of an “innovation sponge” than a true innovator, “absorbing and adapting technology, best practices and knowledge from overseas.” What in China has come to be known as “Shanzhai” or copycat technology.

In Asia, copying is a tried-and-true legacy means of uplifting a country; it’s only in the West that it’s gained such a pejorative connotation. Both Korea and Japan took it as a “golden wind” of economic opportunity. In and of itself, it’s a kind of leapfrogging.

East to West “copying” was foundational to the First Industrial Revolution. Arnold Pacey’s Technology in World Civilizationtraces the line of descent of Chinese silk looms to Italy and then to the Netherlands and then as progenitors of Arkwright’s looms in Derbyshire.

In short, that’s how technology gets around, and always has. Technology travels, gets adopted, gets adapted, improves, and the improvement moves on yet again.

Asia’s leapfrogging from its less than efficient telephone landlines to cell phones was a huge economic windfall. Asia went on to improve cell phones and then reintroduced them back to the West. Japanese high school girls were the drivers for the installation of the first cell phone with a camera.  And look where “selfies” and YouTube videos have brought us ever since.

What took the West two hundred years to accomplish, Asia did in less than fifty, is how Singapore’s late leader Lee Kuan Yew saw it.  Being an “innovation sponge” played an important role in that time compression.

Korea and Japan are mature economies with decades of experience in turning themselves into domestic innovation engines with thousands of homegrown technology products.

China, on the other hand, although it acts like and is an economic behemoth, is still an emerging country with a per capita GDP lower than that of Bulgaria, Botswana and Mexico. Then too, unlike the economic rise of Korea and Japan, China lacks time; it doesn’t have decades of a “golden wind” at its back.

However, being late to the party seems to present China with an advantage: lack of an established high-tech manufacturing infrastructure may well be a boon when trying to leap from laboratory-oriented innovation to innovation derived from a smart factory with context-aware technology.

“Asia’s business landscape is poised not only to benefit greatly from AI’s rise, but to also define it,” reports MIT’s Technology Review

China, unlike its East Asian rivals, Japan and Korea, has a job of epic proportions ahead of it, if it’s to take advantage of smart factory innovation. Tens of thousands of China’s state-owned enterprises (SOEs) will need to be retrofitted to meet the new opportunity plus thousands of new factories need to be constructed.

The end game for all three of these nations is to firmly establish persistent innovation consistent over time, a goal which will not be realized through copying or being a technology sponge. The smart factory with context-aware technology, especially robot-driven automation, is the only way out.

Business as usual for China won’t cut it any longer. As the Financial Timespoints out:

“China needs to boost productivity if it is to escape the ‘middle income trap’ where a low-wage manufacturing economy fails to make the leap to one based on invention and technology.

“However, multi factor productivity, a broad proxy for innovation, is actually declining, accounting for just 30 percent of GDP growth in the past five years — a fall from 40-48 percent in 1990-2010, according to McKinsey.”