Gary Locke, the U.S. Ambassador to the People's Republic of China, speaks about why China must enact financial reforms and hopes that changes will be announced by China's new leadership during the Third Plenary Session of the 18th Communist Party Central Committee in November 2013.
Sidney Lu, Chairman and CEO of Foxconn Interconnect Technologies—a subsidiary of Foxconn Technology Group, and Michael Marks, former Chairman and CEO of Flextronics and Founding Partner of Riverwood Capital, came together at the 4th annual China 2.0 conference for a conversation about the role of innovation in manufacturing and supply chain management.
Stanford Graduate School of Business Professor Hau Lee, who moderated the panel, kicked off the debate by asking how innovation happens in China, and how it fits in the global network.
Lu shared that “innovation in supply chains is extremely critical.” For a business like Foxconn, which operates with margins as low as 5%, a dollar saved through cost management can be equivalent to 20 dollars earned via sales. In order to achieve these savings, Foxconn, like other manufacturers, is always looking to develop new materials, processes, and business models. The “lone-innovator” model of one company designing something in isolation and sending it to China for manufacture has given way to a model in which designers and manufacturers work very closely with each other.
“Truly innovative companies…take advantage of the logistics management, the suppliers, the material guys and all that, and incorporate that into the products that they are developing,” Marks argued. In fact, Marks noted that many innovative products such as the Motorola RAZR were built on the back of breakthroughs made at places like Foxconn and Flextronics.
Lee, also Founder and Co-Faculty Director of the Stanford Global Supply Chain Management Forum at Stanford Graduate School of Business, quipped: “...[B]ehind every successful man, there is a woman; and behind every successful product there is a supply chain.”
What is innovation?
Discussing the role of innovation in manufacturing, the question of how exactly to define innovation was naturally raised. On this point, Lu and Marks had divergent views, exemplified by the example of shanzhai cellphones that have proliferated in China (shanzhai phones are very close copies of common phone models, often with small changes—some functional, some not—made to the hardware and software). Lu argued that something innovative must be “new and unique” and also “serve a purpose.” Many products or developments billed as innovative only satisfy one of these requirements—a shanzhai phone with six speakers might be new, but it isn’t innovative. On the other hand, Marks championed the Chinese model of incremental innovation, arguing that almost all new products are a refinement of existing ones, and that the Chinese practice of adapting popular products and ideas to fit local needs and culture is, in fact, “a perfectly valuable approach to innovation.”
While the position of Asian manufacturers appears unassailable, rising energy costs and shifting demographics mean that China is getting more expensive. Foxconn, once the hegemon of the consumer-electronics manufacturing world, is vulnerable: the business model has been replicated, and clients are diversifying supply chains. Manufacturers are starting to form new ventures that will allow them to find and invest in promising hardware startups early on. Flextronics recently launched an accelerator program, and designers looking for a manufacturing partner can often find price-competitive services without going to Asia.
Innovation in the supply chain has been driven by increased competition and the need to be as efficient as possible. Two challenges China faces in the global innovation network, accordingly to Marks, are flexibility and communication. Although internet has led to improvements in both areas, such as making orders fasters and being able to share information in real time, there are still some gaps for China to bridge to be able to maintain its position in the global innovation network.
Charles Chao, CEO and Chairman of the Board of SINA Corporation, discusses censorship in China with insights into how it affects the media as well as individuals. Chao was a keynote speaker at the fourth annual China 2.0 conference hosted by Stanford Graduate School of Business on October 3, 2013.
You are cordially invited to a special event to celebrate the tenth year that the Beijing International Committee for Chinese Orphans (BICCO) has brought distinguished pediatric orthopedic surgeons from the U.S. to perform pro bono surgeries for orphans and poor children in China.
Each year the medical mission includes pro bono surgeries for orphans, free medical consultations and exchanges of medical knowledge with Chinese doctors at professional symposia. In prior years at hospitals in Tianjin, Beijing, Yantai, Linyi, Ningbo, Chongqing, Lanzhou and Dunhuang the doctors have given nearly 2,300 free consultations and lectured to over 1,200 Chinese doctors and have performed over 450 surgeries and procedures, including complicated surgeries for scoliosis and, for the first time in China, surgeries to treat a rare and crippling condition called osteogenesis imperfecta, also known as brittle bone disease. The doctors coming to China this year are Dr. James Gamble, Dr. Lawrence Rinsky, Dr. Jaime Lopez, and Dr. Ivan Cheng from the Lucile Packard Children’s Hospital at the Stanford University Medical Center. During their stay in Yantai the doctors will collaborate with the Yantai Hospital to perform surgeries for 30 – 40 orphans and other children suffering from scoliosis and other orthopedic conditions.
This reception is being kindly supported with a donation from the Stanford Hospitals and Clinics.
This talk is presented by the Greater China Business Club (GCBC) of Stanford Graduate School of Business and the Association of Chinese Students and Scholars at Stanford (ACSSS).
In July 2013, a Ted Talk “A tale of two political systems” was posted, and was instantly viewed millions of times around the world. In the talk, Mr. Eric X. Li, a venture capitalist and a political scientist argued that the universality claim of Western democratic systems was going to be "morally challenged" by China.
Do you agree? What do you think? Now you have the opportunity to discuss with Mr. Li face to face!
On Nov.6, Mr. Li will come to Stanford and talk with Professor Thomas Fingar on China’s Political System, its status, development, competitiveness and so on. Watch the Ted Talk and come to the event. We look forward to seeing you there!
Mr. Li is a native of Shanghai. He received his B.A. in Economics from University of California, Berkeley, M.B.A. from Stanford Business School, and PhD from Fudan University’s School of International Relations and Public Affairs.
Thomas Fingar is the inaugural Oksenberg-Rohlen Distinguished Fellow in the Freeman Spogli Institute for International Studies at Stanford University. He was the Payne Distinguished Lecturer at Stanford during January to December 2009.
From May 2005 through December 2008, he served as the first deputy director of national intelligence for analysis and, concurrently, as chairman of the National Intelligence Council. He served previously as assistant secretary of the State Department’s Bureau of Intelligence and Research (2004–2005), principal deputy assistant secretary (2001–2003), deputy assistant secretary for analysis (1994–2000), director of the Office of Analysis for East Asia and the Pacific (1989–1994), and chief of the China Division (1986–1989). Between 1975 and 1986 he held a number of positions at Stanford University, including senior research associate in the Center for International Security and Arms Control.
Fingar is a graduate of Cornell University (AB in government and history, 1968), and Stanford University (MA, 1969 and PhD, 1977 both in political science). His most recent book is Reducing Uncertainty: Intelligence Analysis and National Security (Stanford University Press, 2011).
Room 380W, Building 380, Main Quad
Stanford University
Eric X. Li
Founding and Managing Partner
Speaker
Chengwei Capital
Freeman Spogli Institute for International Studies
Stanford University
Encina Hall, C-327
Stanford, CA 94305-6055
(650) 723-9149
(650) 723-6530
0
tfingar@stanford.edu
Shorenstein APARC Fellow
Affiliated Scholar at the Stanford Center on China's Economy and Institutions
tom_fingar_vert.jpg
PhD
Thomas Fingar is a Shorenstein APARC Fellow in the Freeman Spogli Institute for International Studies at Stanford University. He was the inaugural Oksenberg-Rohlen Distinguished Fellow from 2010 through 2015 and the Payne Distinguished Lecturer at Stanford in 2009.
From 2005 through 2008, he served as the first deputy director of national intelligence for analysis and, concurrently, as chairman of the National Intelligence Council. Fingar served previously as assistant secretary of the State Department’s Bureau of Intelligence and Research (2000-01 and 2004-05), principal deputy assistant secretary (2001-03), deputy assistant secretary for analysis (1994-2000), director of the Office of Analysis for East Asia and the Pacific (1989-94), and chief of the China Division (1986-89). Between 1975 and 1986 he held a number of positions at Stanford University, including senior research associate in the Center for International Security and Arms Control.
Fingar is a graduate of Cornell University (A.B. in Government and History, 1968), and Stanford University (M.A., 1969 and Ph.D., 1977 both in political science). His most recent books are From Mandate to Blueprint: Lessons from Intelligence Reform (Stanford University Press, 2021), Reducing Uncertainty: Intelligence Analysis and National Security (Stanford University Press, 2011), The New Great Game: China and South and Central Asia in the Era of Reform, editor (Stanford University Press, 2016), Uneasy Partnerships: China and Japan, the Koreas, and Russia in the Era of Reform (Stanford, 2017), and Fateful Decisions: Choices that will Shape China’s Future, co-edited with Jean Oi (Stanford, 2020). His most recent article is, "The Role of Intelligence in Countering Illicit Nuclear-Related Procurement,” in Matthew Bunn, Martin B. Malin, William C. Potter, and Leonard S Spector, eds., Preventing Black Market Trade in Nuclear Technology (Cambridge, 2018)."
Martin Lau, President of Tencent, opened the conference with a keynote discussing Tencent's business model, international partnership strategies, and the social impact of internet on Chinese society.
In the second keynote address by Gary Locke, the U.S. Ambassador to the People's Republic of China, he shared his insights into China's recent advances in the technology sector, the Chinese government’s approach to managing the internet, and the risks and opportunities U.S. companies should consider before entering the Chinese market.
Charles Chao, CEO and Chairman of the Board of SINA, closed the conference with a keynote on how Weibo, one of SINA's most popular services, has made an unprecedented impact on Chinese society.
Growth and Innovation in Firms
Tencent started out in 1998 when China had four million internet users. Since then the market has grown 150 times to today’s 600 million users. Tencent’s equity market capitalization recently surpassed the $100 billion mark, and the company generates significantly more revenues than its higher-valued peer Facebook. In his speech, Lau modestly described the company’s “secret sauce number one” as “luck.”
We support the companies to make them successful, and in that process, we try to benefit from the know-how, we try to benefit from the growth, and we also contribute our know-how to these companies.
Martin Lau President, Tencent
Lau also elaborated how Tencent has created a supportive environment for startups to grow and develop. “…[O]ur approach is actually to back the founders, to say the founders will be the driving force of the company, so unlike Jack [Ma], who said ‘Yahoo is in my pocket,’ we don’t put any company in our pocket. We support the companies to make them successful, and in that process, we try to benefit from the know-how, we try to benefit from the growth, and we also contribute our know-how to these companies.”
In partnership with Innovation Works, Tencent invested another $1 million in August 2013 in a San Francisco startup Kamcord, which allows users to record and share mobile gameplays. While Tencent has been investing in startups in Silicon Valley, Chao gave an example of SINA Weibo’s recent experimental collaboration with a local home appliance manufacturer in China, Hisense. Weibo users can link their accounts to the Hisense air-conditioner, which can then be switched on and off remotely.
Charles Chao, CEO of SINA, talked to participants at the China 2.0 conference.
“We also send a lot of our devices to our users so each will measure the temperature outside their house constantly, and send it back to Weibo every hour so we will accurately predict or calculate the exact temperature of this location through this kind of collaboration,” Chao noted. “...[E]verybody’s talking about the Internet of Things ..... but nobody knows how to do it. So we are doing a lot of experiments to see whether by collecting data and by connecting people to objects, by connecting objects to objects, whether we can create data, and create opportunities in these areas,” he added.
Charles predicted that internet companies will continue to disrupt other areas, including finance (with micro-loans) and commerce. SINA’s valuation was boosted earlier in 2013 by Alibaba’s acquisition of an 18% stake in SINA Weibo. Today SINA is valued at over $6 billion.
Social Impact of Internet
It [Weibo] basically serves as a check and balance in society and makes Chinese society much better.
Charles Chao CEO, SINA
SINA Weibo, launched in 2009, has over 500 million registered users, and over 56 million unique daily active users. It continues to dominate the market as China’s leading micro-blogging platform. It would be no exaggeration to say that Weibo has transformed social interaction in China by bringing the public square to everyone’s smartphone. “[Weibo] allows every user in China to report, to publish, to share the content, the information directly, and also not only create content but also distribute content themselves through social relations and through the follower relationship… It basically serves as a check and balance in society and makes Chinese society much better,” Chao argued.
The message was echoed by Lau in his keynote. “...[A]ll these internet companies, a lot of them are making an impact on society in an incredible way, bringing people closer together, changing businesses, and also making society more transparent… I think together we are really making a lot of changes and impact on Chinese society and I think we are ready to make more,” Lau said.
Ambassador Locke also emphasized the importance of a free and open internet to China’s economy and society in his address. “Attempts to unleash the economic power of the internet while controlling the political and cultural content are ultimately counterproductive, and indeed at odds with each other,” commented Locke. “Restrictions on communications that limit the free flow of ideas, whether political, economic, or personal, will only serve to prevent countries from moving forward. Frankly speaking, the United States and China’s government have different views on these issues but we are constantly, consistently, and candidly discussing them.”
Sino-U.S. Links
During a recent meeting between U.S. Vice President Joe Biden and Chinese Foreign Minister Wang Yi at the White House, Biden said that he believed China’s development was not only in the interest of the United States, but for the rest of the world as well.
Ambassador Locke also highlighted the importance of how the two countries handle global issues. “Whether it’s finding a cure to some of the most dreaded diseases of the world, or ending the proliferation of nuclear weapons, whether in North Korea or Iran and elsewhere, China and the United States have to be involved together. Indeed, the world is looking for leadership from both the United States and China to solve some of the toughest challenges and problems facing the universe.”
Expecting the Chinese system to work on American terms is a recipe for failure.
Gary Locke U.S. Ambassador to China
Despite finding agreement on some issues, China and United States still hold many differing views. The intellectual property (IP) challenge is one of them. "Expecting the Chinese system to work on American terms is a recipe for failure.” Locke added that some companies conclude that “the best way to avoid being ripped off in China it is to stay out of China—but besides missing a tremendous opportunity, companies that never set foot in China are not immune from having their IP infringed upon in China, and may later find infringing products making their way back to the United States or to third-world markets.”
Martin Lau, President of Tencent, and Marguerite Gong Hancock, director of China 2.0 at the China 2.0 conference.
Lau illustrated another example of difference between the countries in terms of the internet business sector. In China, online gaming is generating over $6 million in revenue. “To put it in perspective, that is actually more than display ads and search ads added together in China. Of course over time this will change, but it also tells you the kind of business mix in China, the opportunities and challenges that companies face in China, are actually very different from that in the US,” noted Lau.
The annual China 2.0 conference, now in its fourth year, attracted over 600 Stanford students and faculty along with current and rising leaders from China and Silicon Valley's tech, entrepreneur, and investor communities.
The panel and interactive discussions were focused on topics including Big Data, venture capital’s outlook on internet and digital media, China’s role in the global innovation network, cross-border venture finance, and Chinese mobile firms going global. These sessions brought together 20 founders, senior executives and leaders from: Asia Society, Baidu, Bertelsmann, DCM, Foursquare, Foxconn Interconnect Technology, FunPlus Game, GGV Capital, GSR Ventures, LinkedIn, Queen's Road Capital, Riverwood Capital, Silicon Valley Bank, Stanford Graduate School of Business, and WestSummit Capital.
The Chinese government developed over 100 high-tech industrial development zones and over 80 university science parks since the mid-1980s, aimed to support fundraising and growth for innovation. How do they contribute to innovation in China? Are places like Zhongguangcun helping Chinese firms like the Silicon Valley? Professor Eesley will discuss his research on Science Parks as innovation policy in China and the channels through which ventures acquire financial and political support in China.
Professor Eesley is an SCPKU Faculty Fellow, the recipient of the National Natural Science Foundation of China (NSFC) 2012 Research Fund for International Young Scientists, and 2010 Best Dissertation Award in the Business Policy and Strategy Division of the Academy of Management. He has a doctorate from the MIT Sloan School of Management, and had been an entrepreneur in medical equipment innovation. His research focuses on how formal and informal institutions, and industry environment influence entrepreneurship.
Gary Locke, U.S. Ambassador to the People's Republic of China, discusses how foreign businesses can be successful in China. He was a keynote speaker at the fourth annual China 2.0 conference hosted by Stanford Graduate School of Business on October 3, 2013. Learn more about the fourth annual China 2.0 conference.
The U.S. Ambassador to China, Gary Locke, was surrounded by attendees at the China 2.0 conference.
Charles Chao, CEO of SINA, talked to participants at the China 2.0 conference.
Martin Lau, President of Tencent, and Marguerite Gong Hancock, director of China 2.0 at the China 2.0 conference.