The effect on global innovation

Based on the recent performance of Chinese industries，the investments made to build innovative capacity，and the opportunities for greater innovation success we outline above，we believe that China can not only meet its innovation imperative，but can also emerge as a dominant force in innovation globally.We estimate that progress in service-and manufacturing-sector innovation can contribute＄1.0trillion to＄2.2trillion per year in value to the Chinese economy by 2025.Additional value can arise from innovations in science-and engineering-based innovations，which we do not estimate.Equally important，we would expect to see a“China effect”on innovation globally，which could disrupt markets and industries.China can become a platform for accelerated innovation，not just for Chinese companies，but also for foreign multinationals that want to take advantage of Chinese cost and speed to produce innovations for China，emerging markets，and the world.Moreover，the Chinese model for rapid，low-cost，and nimble innovation can be adapted for use around the world.The overall effect could be accelerated innovation globally，challenges to market leaders from new innovators，and new，lower-cost products and services that fill unmet needs of emerging-market consumers and keep up with the shifting demands of consumers in advanced economies.

Companies can start by making a larger commitment to innovation in China.For foreign companies，this could mean locating more R＆D activity in China，as Microsoft has done with the 3，000 scientists and engineers in its Asia-Pacific Research and Development Group in Beijing，which does global research.Or，as Phillips and GE have done，companies might relocate global headquarters of entire business units to China to take advantage of low-cost R＆D talent and get closer to Chinese customers.Similarly，Chinese companies can strengthen innovation capabilities by adding R＆D facilities in other markets or using overseas R＆D joint ventures.Lenovo executives credit having dual headquarters in Beijing and North Carolina with helping the company achieve global leadership in PC sales.

Both domestic and foreign companies in China can adopt the rapid development and commercialization processes.“China speed”has helped China's innovation leaders.Chinese companies can speed up innovation by flattening hierarchical organizations and empowering all workers to suggest ideas for products or process improvements.Organizational changes to accelerate decision making and innovation processes in China can also benefit global companies.All companies operating in China can discover new ideas and commercialize them faster by tapping into China's emerging open innovation ecosystem.Some are already crowdsourcing ideas internally and externally through competitions and incentives.

For Chinese policy makers to support and accelerate innovation，it will be important to continue to craft coordinated，coherent policies that set the conditions for innovation by market competitors.Government can raise the bar for innovation by being a demanding purchaser and as an educator for end consumers.Market creation in high-speed rail and wind-turbine industries certainly helped local innovation，but“guaranteed”markets for local players can impede innovation in the future.Government can raise the bar for innovation by requesting challenging tasks.At the same time，the government can educate the public to speed the acceptance of innovation.Fuel-economy and energy labeling standards have helped drive innovations in motor vehicles and appliances in advanced economies.

Continuing market reforms that open up more areas of the economy to competition will lead to more innovation，too.And reforms to the initial public offering process and stronger intellectual property enforcement can ensure that innovators enjoy the rewards of their labors-and encourage more Chinese to pursue their creative ideas.Finally，in addition to providing enabling infrastructure，government can help make China's innovation clusters more attractive to top talent.The success of an innovation cluster depends heavily on the quality of talent it can attract.