Two innovation models to learn from

The three nations that, one way or another, lead the global economy at the moment are the United States, Germany and China. For the US, it is innovation driven by a can-do spirit and an appetite for risk, with established corporations and startups introducing some of the world's most important and game-changing technologies. In Germany, a commitment to product quality and engineering excellence has been key to the success of both its multinationals and small- and medium-sized enterprises.

Worker inspects spinning quality at a Central Textiles subsidiary in Zhanjiang, Guangdong province.

China's economic strength has been built on its cost competitiveness and the adoption of foreign-developed technologies and innovations since its opening-up, and its global impact has been due mainly to its massive scale. The global financial crisis, however, has ushered in a new phase in China's economic development, as it can no longer rely predominantly on foreign consumption as an engine for growth. It has to develop domestic consumer markets and orient its production towards them. Furthermore, rising wage costs make it highly unlikely that China will be able to continue to grow by being the factory for many of the world's simpler products.

To move forward and move up the value chain, China needs to begin developing a management system and, more importantly a culture, for technological and product innovation.

To catch up in innovation, China needs to learn from Germany and the US, which offer the two main - and quite contrasting - models for future success.

The US business community benefits from the long tradition of newcomers taking risks on entirely new product categories and technologies and leapfrogging companies that have lost their competitive edge. One need only look at Apple for a basic idea of how this plays out. Another trait of US firms is that decisions are usually made in a top-down fashion, requiring only one or at most a few people's approval, which allows for rapid adaptation and changes in direction.

The advantages of the US approach to managing innovation are quicker market penetration of new products, broad brand recognition in new markets, and attention to customer feedback, which can be used to improve future generations of products. The weakness, one could argue, is that product quality may suffer, leaving the door open for other companies (possibly from other nations) to step in.

German corporations have historically been big innovators in terms of technology and product quality. However, because of a cultural resistance to risk and a widespread preference for stability, larger German corporations of late have not been able to capitalize on new ideas to the same degree as US companies. Management in German firms is also more horizontally organized. If a decision is to be made, it must be approved in a time-consuming process by multiple individuals or groups. Even after it's been decided at the top, the process may be slowed by levels below. However, these traits are less pronounced with Germany's more nimble SMEs.