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Economy

Low-tech innovation moving up market share ladder

HONG KONG -- In Japan, the word innovation is usually translated as "gijutsu kakushin," an expression that implies technological novelty. However, in the rest of the world, the word is usually used in a broader sense, one conveying a new and original idea that brings about a change in society, because innovation is not limited to cutting-edge technology.  

Yoshimitsu Kobayashi, chairman of the Japan Association of Corporate Executives, or Keizai Doyukai, who recently visited China as head of a group of member companies on an inspection tour of Chinese companies, summed up the country's overall innovation capabilities.

Chinese companies "have little ability to create something new from scratch, but they have the ability to combine existing technologies to create something interesting," said Kobayashi, who is also chairman of Mitsubishi Chemical Holdings.

Consumer focus

The association's mission visited Huawei Technologies' Beijing Research Center. Last year, the major Chinese telecommunications equipment-maker filed more patent applications than any other company in the world, winning the title for the second consecutive year.

Kobayashi's group had the opportunity to see the company's smart refrigerator. The appliance recognizes when anything runs out and automatically orders new stock via the internet. 

Developing the fridge did not require any new, advanced technology. Nevertheless, it represents an innovation that saves time.

Even low-tech innovations can power a company's growth and boost its stock if they lead to products that prove popular with consumers. The success of a product depends on whether it meets society's needs. 

In India, where vegetarians make up about 40% of the population, Samsung Electronics noticed that many people do not freeze vegetables for storage and use little ice in the winter, meaning the average Indian's freezer is empty during that time. 

The South Korean electronics giant developed a refrigerator that allows users to turn the freezer section into a refrigerated compartment with the flick of a switch. It now accounts for nearly 30% of sales of two-door refrigerators in India, according to local industry's estimates. 

Although no game changer, Samsung's product won the hearts of Indian consumers because it is tailored to their needs. 

Patent battle

In March 2013, a strategist at Bank of America Merrill Lynch released a report entitled "Is American innovation dead?" In the report, the strategist, Savita Subramanian, claimed America's status as the world leader in innovation remained unshaken.

In 2012, China overtook the U.S. in the number of patent applications filed, becoming the world's most prolific applicant. But the U.S. maintained its lead over China in terms of the number of patents granted. The Bank of America strategist pointed to the lower ratio of successful patent applications as China's weakness.

China has continued filing huge numbers of patent applications and has been gradually narrowing the gap with the U.S. in the number of patent registrations as the government has increased the number of staffs examining patent applications.

Despite the proliferation of copyright infringements and other problems that point to an unfavorable environment for innovation in China, it is risky to underestimate the country's ability to innovate.

Investors will take note of Chinese companies striving hard to develop new and popular products, even if they represent low-tech innovations, than in cash-rich U.S. and Japanese companies that are less enthusiastic about research and development investment. 

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