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Center of innovation shifting to Asia's emerging economies

State capitalism is driving customer-centric evolution in Singapore and China

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  © Reuters

SINGAPORE -- Where is innovation coming from today?

In the old days, one common scenario went like this: A group of people work diligently on a new technology in the back area of a factory, invisible to the outside. Their efforts result in a new product, and it takes the market by storm.

Such a scenario, in which innovation was born upstream of the supply side, was plausible when manufacturing was at the center of industry.

But the picture has changed since profits began to be generated by services and information systems over the internet. And as I look around at the world from Singapore, the center of Southeast Asia, I am reminded that Japan is losing its sheen as a manufacturing power. It now seems that the dynamic center, where new values are born, is shifting to Asia's emerging economies.

Chief innovation officer

Take DBS Bank, for example. Singapore's largest bank has an executive-level position known as chief innovation officer. The person in this position not only pursues the leading edge of fintech in such areas as artificial intelligence and blockchain technologies, but also drives the bank's organization, which tends to be rigid, toward change from the inside.

Neal Cross, Chief Innovation Officer of DBS Bank

Neal Cross, who has served in this position since 2014, began his career in areas unrelated to banking or high tech. The 45-year-old quit high school in the U.K. at age 16 to work in game design, and later made a living designing aquariums and websites into his 30s.

He established connections with the financial industry after he joined Microsoft as a sales representative, which eventually led to him being eagerly recruited by DBS, where he was put charge of changing the institutionalized way its employees saw its services.

DBS's simplified mobile transaction system and website operations are some of the achievements resulting from the innovation activity led by Cross.

Banks and payment companies in Asia are competing to provide better services in terms of customer convenience, and this has resulted in a stress-free user experience in online services, such as payment settlements and foreign remittances. They do not even flash the "be-sure-to-read-this-carefully" type of warnings that users often see.

Cross explained that the pursuit of customer convenience was naturally born out of consideration for customers, who are the bank's most important asset -- a truism, but it sounds novel when it comes from Cross. It may have been a veiled criticism of Japanese megabanks that are not doing the same.

Singapore's economy is built on state capitalism, where the nation as a whole acts like a company. Under the system, the scope of the government's role includes not just oversight on compliance with the law, but also checking whether businesses are making efforts to improve the competitiveness of their services.

In DBS's case, Temasek Holdings, Singapore's state investment arm, keeps an eye on the company's behavior as the top shareholder.

China success

The global success of Chinese internet giants Alibaba Group Holding and Tencent Holdings may also have something to do with their country's political system.

Beijing set up an online version of the Great Wall of China on the fringes of its domain in cyberspace, blocking foreign companies from entering the market of 1.4 billion people. Inside this wall, Chinese companies were able to conduct experiments and gather know-how in gaining customers. The level of service at many Chinese internet-related companies is relatively high from a consumer perspective. That was no doubt honed through rough-and-tumble interactions between companies and consumers in the closed-off "theater" that is China.

Thinking of innovation in the technological sense alone, one may overlook other important aspects of competition. The key to creating new value in services is not only in technologies born in factories. Business models evolve not on the supply side but on the demand side.

An interesting question to ask is this: Which provides a better stage for innovation in the digital revolution -- advanced economies that lead in established institutions and industrial structures, or economies under state capitalism in the emerging part of the world where governments lead businesses close to consumers, both implicitly and explicitly?

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