Zhao Jian: Chinese-style evolution theory of “specialization and innovation” — the driving role of industry leading enterprises

Author: Zhao Jian, founding president of Xijing Research Institute, member of the Chief Economist Forum, and member of the 50-member Forum on New Supply Economics. This article is the 633 original article published by Xijing Research Institute and the 591 original article published by Dr. Zhao Jian.
China’s economy and society have entered a new stage of development. The factor-intensive model of heavy assets and high energy consumption in the past has been difficult to maintain. High-quality development needs to speed up industrial upgrading to reshape China’s important position as the “factory of the world”. The role transition from an industrial power to an industrial power needs to be replaced by more and more “specialized and new” enterprises at the micro level.
According to industrial economics theory, industrial upgrading can be either an endogenous process of spontaneous evolution of the “invisible hand” of the market economy, or an exogenous process of construction and promotion by the “visible hand” of policy. For a developing economy, it should follow the general process from the exogenous promotion of government industrial policies to the continuous evolution of market endogenous forces. The transformation from “all coarse old” to “specialized and special new” requires a “handshake” between the visible hand and the invisible hand. China’s socialist market economy, if well developed, has such institutional advantages.
However, the cultivation of specialization and innovation is different from the logic of traditional manufacturing industrial policy. Because the process of innovation is “emergent”, not “constructive”. In fact, so far, whether it’s Apple and Tesla in the United States, Huawei and Tencent in China, or the emerging industry unicorns in the world, are not the result of industrial policy construction, but “emerging” in uncertainty. When they grow into industry leaders (or unicorns), further innovation diffusion and resource spillover will occur, which can lead to more specialization and innovation.
At present, China’s specialized and special new enterprise groups have begun to take shape. The exogenous industrial policies need to be transformed into the endogenous market spontaneous order to achieve healthy and sustainable development. In this transformation process, industry leaders will play a crucial role. Through the whole industry chain (Lenovo Group), platform economy (Tencent), and ecosystem (Huawei) and other “industry+market” models, they have led to the emergence of a number of “specialized and innovative”, realizing the “handshake” from the visible hand of the government and the invisible hand of the market.
For example, Tencent has developed a variety of digital technology tools and security tools that can be applied to the transformation of small and medium-sized enterprises through its long-term experience in the field of Internet technology. Among them, the number of active WeChat users has reached 180 million. Lenovo Group has grown from a small and medium-sized enterprise to a high-tech leading manufacturing enterprise, and has accumulated a lot of technology, operation and management experience. It has provided support for the growth of more than 27000 small and medium-sized enterprise channel partners, including specialized, specialized and innovative.
In this sense, these industry leaders are important “social wealth” accumulated since China’s reform and opening up. They have shown “positive externalities” in the process of fostering “specialization and innovation” in the relay of the government’s industrial policies. After growing into powerful “head geese”, they are leading and caring for the “little geese” to grow until they form a new “geese group”. This is a wonderful industrial force from China’s post-industrialization process. The story of Lenovo Group driving the precision of Lucent and achieving mutual success is a typical case of the evolution of “specialization and innovation” in Chinese style.
1、 Post-industrialization stage and new emergence of specialization: wild lilies blooming on the wilderness of free soul
Clark, an American historian, said that only one major event has occurred in human history, that is, the industrial revolution. From this perspective, only one major event has occurred in China’s history, that is, China’s industrialization.
Since the Opium War, China has tried to ignite its own industrial revolution with all kinds of efforts to follow the general trend of the world, but most of them ended up with premature death and depression. Only after the reform and opening up, did China successfully ignite the spark of industrialization with the power of marketization. Today, China has become the “world factory” with the most complete industrial categories and the most complete industrial chain supply chain.
It is not easy to ignite the industrialization process originating from the West in an ancient agricultural civilization country, but once ignited, it will be overwhelming. From light industry to heavy industry, from energy-intensive enterprises to high-tech enterprises, township enterprises to large private enterprises, and from foreign-funded enterprises to modern state-owned enterprises, this vast process of industrialization has been carried out vigorously in China, supplemented by globalization and urbanization, and has become the core driving force for the rejuvenation of the Chinese nation.
Compared with the long, spontaneous evolution of the Western industrialization process accompanied by war disasters, China’s industrialization is a latecomer process of peaceful rise, and an accelerated process of “the government sets the stage, and enterprises play the stage”. This process has two characteristics that deserve attention:
One is the emergence of a number of internationally competitive “evergreen trees” of private enterprises, such as Huawei, Lenovo, Tencent, Alibaba, Haier and Midea, which have become “towering trees” in more than 40 years of experience. “One family always has one treasure”. They are playing an important role in the process of a round of industrialization. At the same time, they are spreading the influence of Chinese industry around the world and showing the modern temperament of Chinese enterprises.
The second is that the industrialization wave is characterized by stages and times, with one wave higher than the other. From the current proportion of China’s manufacturing output value in the world and the internal and external environment, China’s industrialization has entered a new stage, which can be called the “post-industrialization era”. At this stage, China’s manufacturing industry needs to use digital technology to upgrade from high energy consumption and heavy assets to high technology and light assets. At the same time, at the micro level, the enterprise form should be changed from “all coarse and old” to “specialized and special new”.
As a technology intensive innovative enterprise, the specialized, refined, and innovative enterprise has low energy consumption, light assets, intelligence, and innovation. It has strong international competitiveness, can effectively cope with the current aging of China’s population, increasing environmental pollution, high debt density, large but not strong enterprises and other deep-seated problems, and comply with the basic requirements of high-quality development and Chinese path to modernization.
The most basic micro-characteristic of China’s post-industrialization is the emergence of a number of specialized and specialized new enterprises, which constitute a new force in China’s industry, and gradually replace the backward manufacturing capacity, complete the industrial upgrading of the whole industry, and promote China’s eventual industrialization and move towards a mature and civilized modern country.
However, the post-industrial era is also a stage in which contradictions have accumulated to a certain extent, complex problems in all aspects are intertwined and risks abound. It is not only accompanied by the disappearance of factor dividend, but also the weakness of institutional change, that is, the “hard bone of reform” is becoming more and more difficult to chew, resulting in two major problems:
First, in China, the introduction of various policies seems to be “in a dilemma”, such as the real estate problem, such as the debt problem.
Second, in the international arena, the great power game has entered the era of “stormy waves”, and the relationship with countries and other civilizations in the world needs to be profoundly reconstructed. The theme of peace and development is undergoing profound changes. The industrial chain transfer and the “bottleneck” of core technology cannot be alleviated in the short term, and the traditional industrial development model has been difficult to maintain.
In this context, the time window for promoting the upgrading of the whole industry and cultivating specialized and special new products is extremely limited. At the same time, the expanding financial pressure has made the traditional industrial policy based on subsidies “spreading money” unable to maintain for a long time. All kinds of facts have proved that in the cutting-edge fields of science and technology, such as chips and semiconductors, the national advantage of concentrating on major events is not all-powerful. Original basic innovation also needs to respect the power of evolution, so specialized and innovative enterprises can not be built entirely by industrial policy. They are “wild lilies blooming on the wilderness of free soul”.
Fortunately, China’s infrastructure has been basically built and improved, and a broad stage has been built. It is time to watch the market economy and private enterprises “sing”. From relying on policies in the past to letting go of the market, from relying on the government in the past to relying on the “leading” role of leading enterprises in the industry, this transformation has become urgent and urgent.
2、 Specializing in the new “adult gift”: the role of industry leaders in industry evolution
China’s industrialization process has a typical constructive color at the beginning, in which the government’s infrastructure investment and industrial policy have played an important role. However, we should realize that the core force to promote the industrialization process is marketization.
In the early stage of industrialization, it is necessary for the government to build infrastructure, formulate various industrial policies and development plans, and build basic conditions and reserve potential energy for industrial upgrading. As the structural conditions of industrial agglomeration are complete, and enterprises have “self-care ability” in the market, the leading role of the government should be weakened, so that the market can play a decisive role. This is a complete process of industrial upgrading.
At present, with the support of various industrial policies, more than 60000 provincial-level specialized and special new small and medium-sized enterprises have been identified nationwide, including nearly 9000 specialized and special new “small giant” enterprises and about 1200 single champion enterprises in the manufacturing industry. This shows that the policy has been effective and the basic conditions for industrial upgrading have been met, but there are still many problems to fully realize the “specialization and innovation” of the manufacturing industry.
The biggest problem is how to get rid of the excessive dependence on industrial policies and realize the endogenous, spontaneous and cluster-type growth of specialized new enterprises. Many specialized and special new enterprises have become accustomed to the days of policy subsidies, and lack of market competitiveness and industrial integration. They mainly focus on industrial policy rather than market demand, distorting the original intention of the policy. Such enterprises are only identifying that the form of the standard is specialized and special, but not in essence.
How to solve this problem? It is necessary to understand the general law of industrial evolution, comply with the direction of the dynamic structure change driving industrial upgrading, define the leading role of “policy-market-industry-cluster-ecology” and other factors at different stages, and play the constructive role of policy, the incentive role of market, the leverage effect of industrial chain, the agglomeration effect of cluster and the spontaneous function of ecology, Finally, we will make specialization and innovation become the main species of China’s industry, gradually replace traditional enterprises in the survival of the fittest, and complete the transformation of new and old drivers.
Therefore, for cultivating specialized and special new enterprises, how to realize the “handshake” and “handover” between the visible hand and the invisible hand from policy support to independent integration into the industry and market is the key in the whole evolution process of enterprises. Only after experiencing the “adult ceremony” can the specialized and special new enterprises truly become independent market subjects and play their advantages in the fierce market competition.
The traditional theory only divides the government and the market, and there is no one form between them: industrial cluster or industrial ecology. Between the government and the market, we should also see the power of industrial chain, supply chain, ecological chain and value chain. In industrial clusters, various types of enterprises compete with each other and depend on each other, forming a complex ecological relationship, gradually forming agglomeration effect, spillover effect, ecological effect, etc., and creating “externalities” between each other, entering an unknown process of self evolution. A large number of specialized and new enterprises have “emerged” in this ecological environment.
Among them, industry leaders play an extremely important role. Just like the big trees in a forest, the leading enterprises in the industry are the chain owners in the industrial chain, the core enterprises in the supply chain, the center in the value chain, the host in the ecological chain, and the “spring” in the innovation chain. “Under the big tree, we can enjoy the cool”. The leading enterprises in the industry have the same positive externalities as public goods to some extent, and play a variety of “spillover effects”, effectively reducing the transaction costs in the process of industrial circulation. It mainly includes:
1. Demand overflow. In an industrial cluster, there is always a large enterprise that acts as a ballast to create and stabilize demand, and becomes the source of orders for many small and medium-sized enterprises. The reason why it has spillover effect is that many large enterprises will not recruit and purchase strictly in the way of profit maximization in order to stabilize the industry and industrial ecosystem. They have the will and conditions for long-term development planning.
2. Technology spillover. The product technology and management mode of the leading enterprises in the industry will be imitated by the surrounding small and medium-sized enterprises, reducing the original cost. Large enterprises are also cultivating talents. A survey found that people with work experience in large enterprises have a higher probability of success in entrepreneurship, because TAs have experienced standard technology and management edification in large enterprises.
3. Innovation spillover. Compared with small and medium-sized enterprises that lack capital to invest in research and development, industry leaders can have more resources to invest in research and development, because innovation will be imitated by small and medium-sized enterprises. In the general principle of innovation formation, the whole process of innovation is often recognized from large enterprises, and then realized through diffusion into small and medium-sized enterprises with more flexible systems.
4. Standard overflow. Industry leading enterprises play an important role in formulating industry standards. They rely on rich resources and experience, take the initiative to assume this responsibility, organize industry associations and lead the industry to standardization, and effectively reduce transaction costs by improving the degree of standardization.
5. Cultural spillover. The leading enterprises in the industry often have a relatively influential corporate culture, which plays a crucial role in leading the correct management development concept in the whole industry.
The China Center for International Economic Exchanges recently released a heavyweight report entitled “Research on Industry Leading Enterprises Promoting the High-quality Development of Specialization, Specialization and Innovation”, which divided the role of industry leading enterprises in the cultivation of specialization, specialization and innovation into the whole industry chain enabling type (Lenovo Group), platform type (Tencent), ecotype (Huawei) and other types.
The essence of these four types of functions is also the play of various spillover effects. For example, Lenovo Group has built a digital platform around the industry CSV international certification (drug full-link compliance) standard to solve all digital problems in the whole process of biopharmaceutical companies from clinical trials to commercial production; Alibaba has created a “one strategy, one plan and three platforms” precise support system for specialized and special new enterprises, including “1688 strategy”, “Chunlei plan”, Alibaba Cloud, and Nail, to help specialized and special new enterprises develop with high quality.
Fortunately, China’s reform and opening up over the past 40 years has cultivated a large number of such industry leaders, which are mainly private enterprises and have strong market capabilities. In the process of cultivating specialized and special new enterprises, they are “sharing worries and solving difficulties” for the government, becoming a key link in the transition from policy to market.
3、 The perfect combination of industry leader and specialization: the story of Lucent Precision
In fact, industry leading enterprises and specialized and special new enterprises are not only one-way value output, but also a relationship of ecological attachment and mutual achievement in many cases. Although the leading enterprises in the industry have been established for a long time and have strong strength, they often have the problems of institutional solidification, lack of sensitivity to innovation, or difficult to deal with interest relations, large resistance to transformation, and high organizational costs of trial and error.
And the specialized and special new features of small quick and flexible can just effectively deal with these problems, which is a useful supplement to the industry leaders. For example, Haier Group noticed this a few years ago, and put forward the decentralized management reform of “activating shock fish” and “turning big fish into fish”, breaking down some business units into small combat units, and strengthening cooperation with specialized new companies upstream and downstream of the industrial chain to effectively cope with the impact of networking and digitalization.
Therefore, on the one hand, industry leading enterprises can drive the growth and expansion of specialized and specialized new products through the status of industry chain owner, platform organizer, ecological leader, etc. On the other hand, the development and expansion of specialized and specialized new products also plays an important role in complementing the deficiencies of industry leading enterprises in management, innovation and other aspects. Through close cooperation between industry chain and innovation chain, some industry leading enterprises are engaged in innovation trial and error work that is difficult to carry out