The Era of Evolution

The second chronologically identified phase was the era of evolution. This phase represents how the current innovation development phase in China is seen by western informants. During this phase, China has taken an even more pragmatic and determined approach to its innovation performance development. This phase emphasises both brain gain and reverse brain drain. During this phase, Chinese companies and products have come to be seen as trend setters and challengers to the western market leaders. Examples include Lenovo, Xiaomi, and OnePlus in the consumer electronics business segment, or internet-based service providers such as Baidu and Alibaba. Such strategies involve also attracting Western executives and specialists to contribute to success of local organisations. For example Hugo Barra, a former product spokesman of Google’s Android division joined Xiaomi in 2013. This hire has been referred as one of the most significant moves for the current success of Xiaomi. Since the release of its first smart phone in 2011, Xiaomi has become one of the largest smart phone manufacturers. There is more and more western talent, both SIEs and OEs hired by the local organisations, which seek knowledge transfer, technological advancement, and means for entering international markets.

I used to be in charge of this specific product line, that’s what I had done for the past 15 years. They hired me because of that knowledge, and that’s what they got. (Repatriated western self-initiated expatriate employed by a local Chinese organisation)

However, the current innovations and pipeline products are still based on existing (western) technology platforms.

They (the Chinese) are very good at launching products based on western innovations into markets. Their products also compete very well, but are much more cost efficient than the western ones. Sometimes the quality of their products may not exceed or totally achieve the level of western alternatives, but who cares, in pricing they are invincible. That quality versus efficiency is difficult to compete against. They have also become very nationalistic in the product choices. Western products are no longer their first choice. They can make products that better suit their local needs and taste. (A current Western government technology officer placed to China)

This quote illustrated the efficiency of approaches where China takes advantage of the outcomes of brain gain received from the west. As a result, adaptation of existing western technologies has become a new standard and highly lucrative practice. At the same time, reverse brain drain

stemming from returning western-educated Chinese is increasing as a result of improving living standards and career opportunities in China. This new talent pool provides human capital, which is needed both by the Chinese and western MNCs alike. For example, the strategic focus of western MNCs on rapidly changing local Chinese markets requires local competencies and market understanding, which western expatriates typically lack. Individuals with both Chinese and western understanding can thus be assets contributing to meeting that need.

Nowadays it is easier to find competent locals. There are Hai Gui’s (returning Chinese) coming back from the States and Europe with western business experience. As a result, the number of expatriates in China (in MNCs) is dramatically decreasing. It is also due to changing consumer behaviour of the locals. MNCs must also have locals in the management, who understand how the local market works. (A current operative manager of western


Reverse brain drain, which is expected to contribute to China developing a competitive edge, is not only based on the self-directed repatriation of Chinese immigrants. The Chinese government is actively encouraging reverse brain drain in the form of incentivising the returning Chinese, and brain gain in the form of encouraging foreign talent to live and work in China. As an example, the Chinese government has allocated substantial funds both for Chinese and foreign talent, both professional and academics, willing to live and work in China. This talent pool is expected to contribute to the innovation performance of China, leverage the competitive advantage of Chinese universities and organisations, and to smooth access for Chinese companies to western markets.

Despite their competitive edge, Chinese organisations still need Westerners—for the sake of internationalisation. They do realise it’s worth buying the competencies they need. One good example is the 1000talent programme, which is not only focused on attracting the Chinese, but also the Westerners. They get very good benefits if they get accepted to the programme. (A Western freelance HR professional operating in China)

It is not brain gain and reverse brain drain alone that have contributed to the current innovation performance level of China. According to the findings, China has efficiently taken advantage of its huge internal market potential and volumes, but is still in urgent need of more advanced technology. The country still has very practical needs in the fields of clean technology, energy, and transportation for instance, and that those needs are recognised by the Chinese state is evident in the drive for efficient knowledge and technology exploitation encapsulated in the government’s current five-year plan.

The Chinese are very pragmatic nowadays and their need for technology transfer is defined in their five-year plan, after which the plan is efficiently executed. There is a clear change in that. Only a few years ago their (Chinese government technology officers’) doors were always open (for all national representatives and organisations), but today they make us compete harshly against each other and they’d choose carefully only the partners who will bring the most benefit. Often they do not need us anymore, but we do need them. (A current governmental technology officer placed to China)

In the above referenced phase of evolution, China’s institutional structure and growing internal market as pull factors means China has been able to exploit the economies of scale inherent in the country and benefit from the brain gain spurred by the employment opportunities offered by both local organisations and western MNCs to achieve a certain level of innovation capability. However, there seems to be increasing amounts of push factors alike, which seem to be connected to China’s interest to regulate the type and amount of foreign talent, but also control the business activities of foreign MNCs operating in China. The findings also offer evidence of China’s systematic attempts to transform its traditional brain drain into reverse brain drain, and China has certainly succeeded in upgrading its innovative status and progress towards the next crucial innovation development phase, the era of revolution.

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