Customer-focused Innovation in China
Over the past three decades，Chinese companies have learned to adapt products from around the world to the needs of a rapidly urbanizing nation.They have learned to be very agile—moving goods into production quickly，then tweaking designs afterward to better address consumer needs.The first wave of Chinese innovators to address the unique needs of Chinese consumers were makers of goods such as home appliances，television sets，mobile phones，and personal computers.Innovation meant creating designs that were“good enough”—very low cost，with adequate functionality.Now innovators are addressing the rising expectations of an increasingly affluent Chinese population.Another group of innovators，including Alibaba，has focused on unmet needs in Chinese retailing，where a highly fragmented brick and mortar retail sector offered limited choices in all but the largest cities.
For many Chinese consumers today，the“good enough”products that were designed for consumers buying their first appliances or consumer electronics gear are no longer good enough.Companies such as Midea and Haier used the“good enough”formula in China and then took it to export markets（Brazil，India，Indonesia，and Vietnam are among the largest），raising their combined share of global appliance sales from 5 percent in 2005 to 20 percent today，according to Euromonitor.In China，“good enough”products still work for lower-income consumers，but a growing segment of more affluent Chinese consumers demand products that are“cheaper and better”.
The market share gains of Chinese players in the domestic smartphone market are evidence of the appeal of“cheaper and better”innovation.Xiaomi，for example，now sells smartphones that are priced for the Chinese market but include hardware features that are intended to meet or exceed the quality of components used in phones sold by some foreign companies.As a result，in just four years，Xiaomi has become the largest smartphone player in China with more than a 12percent share.It is now entering foreign markets.A critical part of Xiaomi's innovation process is keeping in close touch with consumers on social media and through direct online polling to determine what innovations they would like.With this input，the company has released new versions of its operating system weekly since 2010.Xiaomi became one of the world's most valuable startups when it raised more than＄1 billion in December 2014，giving it a valuation of＄46billion.In order to build a long-term customer base，Xiaomi promoted its products on a wide range of online forums and eventually amassed more than ten million active“Mi fans”on Weibo，a microblogging platform.Since 2012 the Mi fans have attended more than 60 promotional events in over 30 cities and areas based on the fan platform named“Mipop”.
Lenovo，the largest PC maker in the world，is another example of how Chinese innovators are moving from“good enough”to“cheaper and better”.Lenovo's Yoga line combines tablet and PC functionality in a laptop design.The Yoga PC，an ultralight laptop，is one of Lenovo's early forays into the midhigh-end segment.In 2014，Lenovo shipped 1.9 million hybrid ultralight laptops globally，capturing 25percent of the market，up from 11percent in 2013.In 2015，PC Magazine rated the ThinkPad Yoga 12 highest in its category for its price to performance ratio for business users.Lenovo，which acquired IBM's PC division in 2005and has retained IBM researchers，spends an estimated＄1.2billion per year on R＆D and employs 5，000product developers globally.
Alibaba has grown into the world's largest online marketplace.Alibaba's innovations include Alipay，an escrowbased payment system.Alipay was initially promoted as the payment platform for the Taobao shopping site，allowing customers to keep their money in Alipay until confirming the receipt of goods from sellers and guaranteeing refunds to customers who lost money in insecure transactions.Today，Alipay has 500 million users.An entire body of innovation in China's consumer-facing industries has involved the creation of uniquely Chinese business models，including ways to monetize online businesses such as social media and games.
Tencent has developed a wide range of revenue streams to monetize traffic to its sites.It developed these different streams in part because advertising is a much smaller industry in China than in places such as the United States，so depending heavily on ads，as US companies such as Facebook and Google do，was not a viable option.Tencent generates 90 percent of its revenue from non-advertising sources such as sales of virtual items to gamers on social platforms，e-commerce，and online payments.Facebook，by contrast，derives 93 percent of revenue from advertising；its revenue per user was＄9in 2014，compared with＄16per user for Tencent.Similarly，YY.com，a video based Chinese social communication platform，also has several revenue streams，including a virtual currency.In 2014，YY generated 57 percent of its revenue through sales of virtual goods that viewers on entertainment and music sites purchase to give to performers they like.Top performers on YY can earn more than 20，000 RMB（＄3，300）a month，seven times what the average factory worker earns.
In many areas，Chinese online services have become leaders in business model innovation.WeChat，a social media platform，has added e-commerce，allowing users to shop for everything from stickers and games to groceries.WeChat members can also book taxis and flights.WeChat added mobile payments in 2013.Facebook announced plans for an online payments system in March 2015.We Chat allowed subscribers to set up online stores in 2014；in July 2015，Facebook announced a test of a new feature to allow retailers to sell from their Facebook pages.24 Chinese taxi hailing apps were established in 2012 and appeared on social platforms in 2014；Kakao Talk，a South Korean messaging platform，introduced Kakao Taxi on its platform in March 2015.