The Internationalization of Innovation

Gary North - December 23, 2014

China has a great press. Everyone says China is the future.

India will emerge triumphant in this competition. India is the 800-lb gorilla in Asia.

China will begin a demographic crisis in a decade.

As of now, China's fertility level may have been below replacement for a decade-and-a-half; the consensus among demographic specialists today is that China's current birth levels may be 25% below the replacement level today, although some argue the true level may be even lower. Thanks to relatively low mortality and very low fertility, China's population structure is going to age very dramatically over the next two decades. Indeed, the country's population is slated to age at an almost unprecedented historical pace.

The only country in history to have aged as fast in the past as China stands to age in the future is Japan. But in the case of Japan, the Japanese society got rich before it got old. China, on the other hand, will do just the opposite, and this promises to be a very much less pleasant arrangement.

Over the next two decades, China will face a veritable old-age tsunami. By 2025, there may be 200 million or more senior citizens in China, people past their 65th birthday. That would be nearly two and a half times as many Chinese 65 years of age or older as today.

The circumstances of senior citizens in China today are not terribly good--they are disadvantaged by comparison with the rest of the population. [SEE SLIDE 7] China's seniors do not have as much education as the rest of society, and seniors are in likely to live in rural areas. Old people in China who have to work by and large have to support themselves with their muscles, since they have enjoyed much less in the way of human capital investment than subsequent cohorts.

India does not face anything like this.

Hundreds of millions of Indians speak English. It has a Western legal system. It has huge numbers of young people.

India has cell phones.

In 2013, 40 million smart phones were sold in India. In the first three quarters of 2014, over 70 million were sold.

Next year, it will be well over 100 million.

This is just the beginning. Google has released the new Android system to the world. It is working in India to get this new platform into Indian smart phones.

Google has kicked off an expansion of the rollout of Android One, with the aim of taking the stock Android devices to most emerging markets across the Asia Pacific region.

Following its launch in India this September, the Android One program will now move to Bangladesh, Nepal, and Sri Lanka, adding another 200 million potential Android One users to the billion-plus in India.

Android One is Google's attempt to improve the Android experience on sub-$100 smartphones, the handsets that some analysts believe will define the future of mobility.

We can see what is coming. These units are going to be in the families of half a billion people in the Indian subcontinent.

Every family will be able to plug into the Khan Academy for free education. Every family will be able to plug into free college courses at America's major universities, including MIT. All they need is a way to learn English.

In about five years, there will be automatic translation software. This software will get better.

What about innovation? India is already a major source of innovation. Wait until 250 million Indian families can get a free education for their children. Then 300 million. Then 400 million. How many of these will be in the top 5% in technology? When it's 5% of a country this large, the number is staggering.

Then add China.

This will amaze you. India is now eating away at the lower rungs of American digital firms' hierarchies. IBM is one of them.

"Innovation is novelty in how value is created and distributed."

Here is the transcript to the above talk.  
And here is some bio background the speaker, Nirmalya Kumar.
Invisible innovation. First invisible innovation is for international customers, called international innovation. 

I.  Innovation for business customers.

II. Outsourcing innovation.

III. Process Innovation.

IV. Management Innovation.

What happens when you put 100 million intelligent kids to work in call centers?  They get bored and start innovating and begin to tell the boss how to do the job better. Out of process innovations come product innovations.  

What are the implications for this? 
1.  Injection of Intelligence.
2.  Sinking Skills Ladder.
3.  Browning of the TMT (Top Management Teams)
4.  Mirage of Mighty Labor Pools.

What happens if you outsource the least sophisticated jobs to India?  When you outsource the bottom rung of jobs to India for innovation and R&D work, at some stage you will confront a problem.  Top Management Leadership will come out of India and China, because that's where the product leadership is and that's where the important market leadership is.  Largest growth markets are India and China.

India has the youngest growing  population in the world.  India institutes a system incapable to keep this innovation engine going.  

Check out that IBM Dilemma chart at the 14:06 mark.  India is absorbing all of the U.S. tech market expertise.