National innovation profiles
Every country has characteristics that help determine its success in different types of innovation.This innovation profile is shaped by attributes，decisions by business leaders and policy makers，and cultural traditions.
Germany is famous for its technical and engineering prowess and performs well in science-and engineering-based industries.The educational system turns out highly qualified（and wellpaid）scientists and engineers as well as middle-skill technical workers trained in apprenticeship programs.Another characteristic of the German economy that helps drive innovation is the presence of strong small and mid-sized companies，many of which are family-owned and known for making long-term investments.
Republic of Korea became a successful innovator in consumer-focused and efficiency-driven industries，starting as a“fast follower”then through intensive efforts to match advanced economies.The“chaebol”conglomerates played a leading role，building massive production capacity at home，acquiring and accumulating knowledge to innovate，then competing globally in businesses such as consumer electronics，steel，and automobiles.Between 1999 and 2006，the top 20companies accounted for more than half of business R＆D and employed 30 percent of researchers.
The United States has long been a leader in science-and engineering-based innovation and is also strong in customerfocused innovation.Underpinning its success are factors such as its commitment to basic research，as well as a tradition of letting markets develop with minimum intervention.The United States also has a strong entrepreneurial culture that encourages risktaking，access to venture funding，and ties between business and academia that have led to the formation of thousands of companies.The United States has a strong talent pool that includes immigrants from around the world，and it is home to 83 of the world's top 100 universities.
With 1.3billion consumers，China is uniquely positioned to excel at customer-focused innovation.This large and dynamic consumer market gives innovators a huge supply of problems to solve and needs to fill，as well as a means of commercializing new ideas rapidly.Another advantage：Chinese consumers are willing participants in market testing and commercialization—happy to accept new products that are not completely refined and eager to share feedback to make them better.This is making China a hotbed of innovation for an expanding universe of Internet services and products ranging from air conditioners to smartphones.
Many of China's greatest innovation successes have come in consumer-facing industries：Chinese suppliers now account for 36percent of global revenue in appliances and have 15 percent of revenue in Internet software，and 14 percent in Internet retailing-grabbing more than their GDP-based share in three out of seven customer-focused industries we analyze.Innovators are succeeding by addressing the diverse needs of China's rapidly evolving markets.Chinese innovators are moving from the“good enough”offerings that fit the needs of newly urbanized consumers to more sophisticated products that match the quality and features of global brands.A rising cadre of entrepreneurs has built Internet-based businesses to fill unmet needs in retailing and other services.As these Chinese innovators have addressed a range of customer needs，they have created distinctively Chinese business models.In the coming decade，customer-focused innovation can play an important part in raising Chinese productivity and supporting GDP growth by expanding the service sector and improving its performance.We estimate that growth and productivity improvements in service industries could generate＄550billion to＄1.4trillion of value per year to the Chinese economy in 2025.We also identify two additional opportunities for customer-focused innovation：Chinese companies can apply the skills they developed in serving China's consumersidentifying local needs and preferences and quickly introducing new products at competitive prices-to serve consumers in emerging markets.And in some consumer categories，Chinese companies can also become strong brand players that can compete with global brands.
To realize the full potential for customer-focused innovation，Chinese companies will need to invest in new capabilities and work harder to keep up with the rising demands of consumers in the next decade.While consumer-facing companies have built strong momentum in the past 20 years，they have done so under extremely favorable circumstances.First-time consumers were hungry for all kinds of products and services.In many industries，Chinese players have had little exposure to global competition at home-top global players in some Internet businesses are largely absent from China，for example.In only a few industries，such as appliances，have Chinese companies yet ventured abroad.At the same time，the growing sophistication of Chinese consumers is starting to strain existing capabilities，putting increasing pressure on both local companies and multinationals to improve the way they innovate for the China market.