Nokia’s recent burning platform travails serve as an object lesson to companies trying to navigate a rapidly-changing global economy. As multinational corporations pursue opportunities in emerging markets, they’re bound to stumble if they overlook the developed economies, and vice versa. Without operating in the former, they won’t be able to attain economies of scale; sans the latter, they’re unlikely to continue developing state-of-the-art technologies.
Nokia, for example, commanded market shares of 40% in China and 56% in India by 2008. Capturing (or, in China, recapturing) dominant market positions in the world’s two largest markets, despite the relentless onslaught from low-cost competitors, suggests that the company did get China and India right.
However, Nokia ran into trouble by underestimating the speed at which technological developments in the United States, pioneered by rivals such as Apple, are transforming the mobile telecommunications business. Moreover, it forgot that it will continue to do well in China and India not just by keeping costs low but also by developing new technologies.
Notwithstanding their rapidly growing economies, China and India are a long way from attaining technological parity with developed countries like the US. Take China, which is ahead of Brazil, India, and Russia on both parameters. In 2010, China overtook Japan to become the world’s second largest R&D spender (in purchasing power parity terms) after the U.S. Further, the growing number of patent applications fild with China’s State Intellectual Property Office suggests that the country will become the world’s largest patents-holder by 2011.
According to experts, though, many of these applications don’t amount to much. An analysis of data on patents granted by the U.S. Patent & Trademark Office and the European Patent Office provides a more realistic comparison. In 2009, the U.S. and Europe together granted 2,006 patents to inventions originating from China and 803 to those from India compared to 93,734 from the US, 51,351 from Europe, 44,931 from Japan, and 9,856 from South Korea. Besides, more than half the patents granted to inventions originating from China and India went to subsidiaries of multinational corporations in those two countries.
Chinese and Indian companies are moving up the technology food chain — and some such as Huawei and Tata Consultancy Services — are high up, but they’re still a long way from achieving parity, let alone superiority, with the West. Last year, at the World Economic Forum’s annual meeting in China, we spoke with one of the country’s most celebrated scientists, entrepreneurs, and venture capitalists. “Most technology ventures in China are of the C2C variety, i.e., Copy-To-China. It’ll take at least a couple of decades before we see an Apple or a Google emerge here,” he told us.
Another CEO of a fast-growing biotechnology venture, a Chinese-American entrepreneur, added that he wanted his company to be perceived as American rather than as Chinese. That’s critical to earning credibility from those in the know not just in the US, but also in China, he pointed out.
Contrary to popular perception, the structural transformation under way in the world economy will not bring about the substitution of a unipolar world dominated by the US by a world led by China, India, or Asia. Instead, we are witnessing the rise of a multipolar economy, in which countries and regions boast different strengths — such as resources, technologies, frugal innovations, and so on. Only companies that can leverage multiple advantages by keeping their eyes on all the world’s regions and operate globally are likely to win.
Anil K. Gupta is a professor at the Smith School of Business, The University of Maryland, and a visiting professor at INSEAD. Haiyan Wang is the managing partner of the China India Institute. They are the authors of Getting China and India Right (Wiley, 2009).
