A friend shared an interesting article from The Economist with me. It is entitled Shenzhen is a hothouse of innovation.

What really allowed Shenzhen to become so economically successful? Because of the open policy that started there? Because it is close to Hong Kong? Yes but also for other reasons.

The official story attributes Shenzhen’s success to brave party leaders and far-sighted policies. Deng Xiaoping is lauded for liberalising the region’s economy. Later political leaders receive praise for investments in infrastructure that enabled rapid growth. That is an incomplete version of history.

An incisive new book, “Learning from Shenzhen”, edited by Mary Ann O’Donnell, Winnie Wong and Jonathan Bach, reveals that many of the advances seen since the city was opened up in 1980 came disruptively from below. For example, early reformers pushed ahead with unauthorised investment deals with non-mainland companies and retroactively developed the legal framework needed to protect foreign firms. Time and again, grassroots innovators hit on better ways of doing things, even though strictly speaking they were not permitted. When their risk-taking proved successful, communist leaders typically took the credit. So the best way to study innovation in Shenzhen is to examine it through the eyes of its entrepreneurial firms.

The article does a good job of citing a few examples of private-sector companies:

• Foxconn (a Taiwanese group with a huge presence in Shenzhen) and its highly valuable patents
• BGI (originally in Beijing and then relocated South) and its vast number of genome-sequencing machines
• Mindray and its approach to having American and Chinese researchers work together and learn from each other
• Huawei and its R&D investments higher than Apple’s
• DJI and their 1,500 people working on new drone technologies

So, are Shenzhen manufacturers all innovators?

Of course not!! Many of them add very little design, engineering, or marketing value.

And some of them do add some value but in a ‘reactive’ mode (customer says “we need to develop this”, manufacturer says “OK let’s work on this”). It does help a lot — that’s why I believe Shenzhen is the best place to manufacture complex products.

Actually the situation is a bit more complex. The article suggests that many companies start as copycats, acquire skills along the way, and end up developing their own original R&D:

Many factories in the city started by making clever imitations of Western goods, which led foreigners to dismiss the locals as mere copycats. That was a mistake. David Li of Shenzhen’s Open Innovation Lab argues that the copycats have since morphed into a powerful ecosystem of collaborative, fast-learning suppliers and factories. “Anybody can come to Shenzhen with an idea and get it prototyped, tested, made and put on the market at a decent price,” he says.

Very true. Shenzhen attracts the most ambitious and hard-working people from all over China. They start small and crappy, but many of them have big dreams. And they work toward those dreams.

Toyota’s first car was a knock-off of the VW’s Beetle. Now they are the most admired company in that industry. It took decades. In the Shenzhen electronics industry it seems to take less than a decade!