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Next Generation Asia: How the region is innovating for success

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We see innovation on the horizon.While the West is struggling, Asia is pioneering. All the experts we’ve talked to agree – Asia is setting new standards for research and development. And our white paper shows Asia’s businesses are turning more and more ideas into successes. They’re starting to give the West a run for its money in the aftermath of financial crisis.This is Asia’s moment.What’s the story?We’ve rooted out the local stories. We’ve heard how the tsunami challenged the Japanese to reassess their ageing business models. How Malaysian entrepreneurs are finding ways to break the mould and help their country compete. How innovation in China isn’t just about novel products. And how we at BT are right in the middle of it all.Innovation is migrating East – to where the technological summer has begun.Where’s the story?To read what we found, download our white paper.

TRANSCRIPT

Page 1: Next Generation Asia

Next Generation Asia: How the region is innovating for success

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This is Asia’s Moment ������������������������������������������������������������������������������������������������������������������4

China: A New Kind of InnovationHow China is making its own way as research money pours in ���������������������������������������������������������7

Ready for Lift-OffBT China is investing in R&D and developing value-added services �����������������������������������������������11

Malaysia: The Only Way is InnovationThe country needs to harness ideas if it is to reach high-income status by 2020�����������������������������13

The Growth FactorIn the wake of the 2008 financial crisis, BT sees companies turning to Asia Pacific as never before ��16

Japan: Looking for New IdeasThe powerhouse of technological innovation faces stiff competition ���������������������������������������������18

Moving Forward in HarmonyBT Japan is thinking of the bigger picture ������������������������������������������������������������������������������������21

ConclusionLet the ideas take off �����������������������������������������������������������������������������������������������������������������23

Contents

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People are calling it a “window of opportunity”� It’s the moment when Asia can really become a source of innovation and start leading the world� Asian countries are producing huge numbers of engineering and science graduates, money is pouring into scientific research in China, India and South Korea, and academic papers and patent applications are soaring�

This is Asia’s moment

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A new emphasis on innovation

“It’s upbeat, it’s fast-paced, people are optimistic here,” says Andrew Young, a former high-tech projects manager who joined the Hong Kong Science and Technology Parks Corporation last year as VP for marketing and sales�

And while Asia, and in particular China, has been experiencing rapid growth for some time now, Young thinks that there is a new emphasis on innovation� “The foundation for science and technological development has been strong in Hong Kong over the past two to three decades but the government has never seen innovation as the key economic driver,” he says� “They only made that realisation after the financial crisis in 2008, and they have now started to provide more incentives and funding to support it�”

2008 was a watershed across the region as countries realised that they couldn’t rely on the West any more, and

that they needed to create their own opportunities� It’s also encouraged many Asians to look towards their home countries rather than the West�

And their home countries are also starting to define business trends� For example, eBay works in America, but Taobao is the kind of online shopping site that works in China� It’s an example of innovation for local markets, native brands taking on the Western brands, and that’s why we see companies such as General Electric and Siemens setting up innovation centres in China, to capture the market there� You can’t just take a product from the US or Europe and expect it to succeed in China�

So innovation isn’t just about high-tech breakthroughs any more, it covers new production processes, new business models, and new ideas� “There was a whole notion that innovation lived in a lab and was the job of R&D scientists,” says Scott D Anthony, author of The Little Black Book of Innovation and managing director of Innosight Asia Pacific� “Now companies are realising that it’s everybody’s job� My definition of innovation is something different, that has impact�”

In this white paper we want to capture some of this mood for innovation and some of the excitement about change in the Asia Pacific markets�

This is Asia’s moment

While others worry about the economic shift from West to East and the changing world order, people in Asia are busy making things happen�

Samsung, from South Korea, now sells more mobile phones than any other company, having just overtaken Nokia� It also rivals Apple for the smartphone market�

Haier from China is the world’s largest home appliance brand� And Japan has produced 15 Nobel laureates across chemistry, physics and medicine�

Innovation is the buzzword�

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But it’s not all sugarcoating� Every analyst agrees that Asia has a long way to go before it really rivals the US for innovation� The general view seems to be that it might get there, but it might not� And a lot of that doubt is because you need the right environment for innovation to take off – an idea has to be translated into something before it can have an impact�

“It’s a network,” says Dr Cong Cao, an expert in science and innovation in China, based at the School of Contemporary Chinese Studies at Nottingham University� “It’s about more than scientists and engineers, it’s also about professional services like venture capital, IP protection, accounting, headhunters�” Then you need to encourage people to think out of the box, and he adds, “it’s the attitude of challenging existing authority, challenging big companies�”

A snapshot of progress

So we’ve chosen three countries, at different stages of economic growth, and asked writers there to sum up the mood for innovation and look at how a couple of major companies are faring�

We start with China, which has increased its spending on R&D by 20 per cent a year for the past decade and is the country that will really determine whether this is “the Asian Century”� Then we go to Malaysia, a thriving country that sees innovation as its ticket to becoming a high-income developed nation� And finally to Japan, which along with Korea and Taiwan was a copycat in the 70s and 80s, before becoming a creative powerhouse, and then hitting an economic slowdown�

So the digital revolution is seeing a changing of the world order� And at BT Global Services our experts in Asia have seen the huge impact that the internet and improved communications have brought to the region� They’ve also been building the information networks that have connected Asia Pacific and the world� They will be sharing their insights with you in the next pages, safe in the knowledge that BT is in position to provide our services as Asia’s time comes�

This is Asia’s moment

Interestingly, the rise of Asia has come in tandem with the digital revolution� Some 200 years ago Asia produced 60 per cent of the world’s total output� Then the Western industrial revolution took hold and the region experienced economic decline� China’s economic resurgence started in 1978 and it caught the wave of the information age to really take off�

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Tom Spender is a Beijing-based freelance journalist who has worked in the UK, Middle East and Asia for a range of news organisations including China Daily, the UN news agency IRIN, and The National in UAE�

China is poised� Its economy has gone from strength to strength� The development of its infrastructure over the past 20 to 30 years is breathtaking� Its companies have become world leaders and are offering products that are as good as, and in some cases better than, those offered by their longer-established Western counterparts� But the world is still waiting to see whether China will take over the mantle of leading the world in innovation�

In many cases, Chinese companies have acquired both technical and management know-how through joint ventures with Western firms eager to tap the Chinese market or, more recently, by buying foreign firms� For example Chinese PC-maker Lenovo’s 2005 acquisition of IBM’s PC unit, described

by the Chinese press as “a snake eating an elephant”, or home appliance-maker Haier’s 2011 purchase of Sanyo’s Southeast Asia and Japan white goods operation from Panasonic�

But something else is happening too, albeit not as visibly as in Silicon Valley� The value of most Chinese innovation lies not in inventing completely new products, but instead in making small and incremental improvements to existing technologies, mostly in the electronics sector� So say researchers at The Georgia Institute of Technology who visited scores of Chinese companies for their book Run of the Red Queen, about Chinese innovation�

“We discovered that China is a wonderful example of how you don’t need to have novel product innovation to be innovative,” one of the book’s authors, Michael Murphree, told the website SmartPlanet� “If your goal is broad economic growth, then original product innovation is not the best means to achieve that�”

China: A New Kind of InnovationBy Tom Spender in Beijing

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China: A New Kind of Innovation

Second-generation innovation

One example of second-generation innovation is the power-supply box for Apple laptops, which has been improved with continuous research and development (R&D), entirely carried out in China by top-class engineers� They’ve made it smaller, more efficient, cooler, cheaper and less energy intensive, Murphree’s co-author, Dan Breznitz, told the New York Times�

Breznitz feels that the way China is organised politically and economically means it doesn’t produce many big new products, but that doesn’t matter, he told the newspaper, as it can focus on process and second-generation innovation� “China doesn’t need to crave novel innovation� For China’s stage of development, with the amount of people it has, the size of the labour force, and the skills developed by China’s education system, this is a vastly smarter utilisation of its muscle and brain power�”

And consumers are noticing the effects� When Kineta Hung, associate professor at Hong Kong Baptist University’s department of communications studies, has to give a presentation, she knows which laptop to take with her� “In terms of battery life the Lenovo just lasts so much longer� I know I can rely on it not to lose power� With others I’m not so sure,” she said�

The Chinese edge

For Hung, the extra battery life is a sign of the innovation happening in China today at companies such as Lenovo, which last year surpassed Dell to become the world’s second-biggest PC manufacturer after Hewlett Packard�

“A lot of multinationals are realising that there’s a tremendous edge in China� Chinese companies are finding new materials and using them in certain ways, or discovering new processes,” she said� “They don’t have as many resources to do things the US way, which they see as very wasteful, but the difficulties of the past are becoming China’s innovative edge because they have found new ways to do things economically�”

Chinese companies certainly claim to be innovative in their English-language literature, and it has become a buzzword� On its website, Lenovo says innovation is a ‘core value’� It runs 46 laboratories, including research centres in Yokohama, Japan; Beijing, Shanghai and Shenzhen, China; and Morrisville, North Carolina, US� The company’s strategy is to focus most development on ideas that can be brought to market within two years, as well as investing in longer-term research looking for ‘game-changing’ new ideas�

“China’s companies are extremely efficient at creating new versions, often simpler, cheaper and more efficient, of technologies and products shortly after they’re invented and marketed elsewhere in the world,” Breznitz told the paper� “For instance, I can’t think of any company in the world that can have over 200,000 people in one location producing a wide array of electronic gadgets for multiple companies other than Foxconn in China�”

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“Our R&D is quite good and, for example, the pre-loaded software you get on our laptops is pretty good as well as being cost-efficient,” said one Western manager working for Lenovo at its Beijing headquarters� “China has a lot of computer geeks and Chinese people are good at being engineers�”

“The R&D for the ThinkPad range is carried out in Japan but much of the rest happens in China,” he added� “People in the West only think about Lenovo as being the Think brand� What they don’t realise is that there’s another part to the company that is also doing really well, the Idea brand, that is a well-produced range of PCs for all budgets that the company can use as a portfolio to go off and sell in any market anywhere�”

Haier, the world’s number one fridge and freezer manufacturer, also points to its innovation and describes its company culture as “total innovation management”� Last year, the company trumpeted less energy-intensive cooling mechanisms for its freezers as well as MyZone, its flagship product for the year, described as “an innovative fridge freezer design with a fully independent middle drawer whose temperature can be adjusted from +5 degrees to –18 degrees Celsius in order to better suit the owner’s freezing and cooling requirements”� It also talked about a “unique and innovative” antibacterial treatment for washing machine seals and detergent drawers, developed in a Haier R&D centre in Germany� “Year after year, we find that Haier’s commitment to creating home solutions through our innovative tailor-made products is being recognised by more and more people,” said Zhang Tieyan, Haier’s global branding director�

Technology powerhouse

In fact, Lenovo, Haier and a few other companies such as the ICT firm Huawei, exemplify one of the Chinese government’s core strategies: to turn the Chinese economy into a technology powerhouse by 2020 and a global leader by 2050 – and the companies receive solid government backing as a result of their efforts� The country’s “National Medium- and Long-Term Plan for the Development of Science and Technology (2006-2020)” called for the “great renaissance of the Chinese nation” to be achieved via the development of science and technology�

“Despite the size of our economy, our country is not an economic power, primarily because of our weak innovative

capacity,” the plan’s preamble warned in 2006�

The plan focused on “enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies” – just what the Run of the Red Queen authors identified when they visited the country�

Since then, money has poured into R&D activity in China� Business expenditure on R&D as a proportion of GDP has increased at an annual rate of almost 19 per cent since 1995� New research centres have sprouted, and up to 30 per cent of private R&D spending in China is carried out by Western multinationals taking advantage of the lower salaries and large numbers of science graduates, according to OECD estimates�

At the same time there has been a rapid increase in educational attainment� In particular, there has been a proliferation of Chinese graduates, many of whom study subjects relevant for high tech research�

In 2010 China was the fourth largest filer of patent applications to the World Intellectual Property Organisation� Under a linear projection of current trends, China could be the world’s largest patent filer by 2015, according to a report last year by researchers from the UK Institute for Fiscal Studies (IFS)�

The IFS researchers also found that Chinese scientists are capable of innovating alongside the best US and European inventors� “China is increasingly operating at the technological frontier and has been successful in attracting the cutting-edge research of foreign firms,” wrote Rachel Griffith and Helen Miller�

China: A New Kind of Innovation

In 2007, 47 per cent of degrees attained in China were in science and engineering, putting the country at the top of the OECD ranking�

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China: A New Kind of Innovation

Challenges to overcome

Yet challenges remain� One reason that some big Chinese companies such as Haier set up R&D centres abroad, even as foreign firms are doing more R&D in China, is because of the country’s poor record on protecting intellectual property (IP)� Some of which is actually stolen from patent offices themselves, according to Alex Newman, associate professor in international business and entrepreneurship at the Nottingham University Business School’s Ningbo campus�

“Leakage from the patent office is quite high,” he said� “The IP rules are international standard but enforcement is the problem� Bringing an action against a Chinese company will take a year, by which time you’re already working on a new product� And the fines are low so companies just pay them and continue copying your products�”

The tradition of rote learning in China’s educational system will also take time to evolve, Newman said� “There is the legacy of the education system, the ‘tell me the answer’ kind of student,” he said� “We are trying to change this and students are starting to become independent learners, but it will be difficult because we are up against 2,000 years of history�”

Not everyone agrees – “You have to innovate just to get through daily life in China,” said Beijing-based entrepreneur and Digicha blogger Bill Bishop� China is trying to do things its own way, and there may already be lessons, particularly in terms of business strategy, that the West could learn from China�

A flexible mindset

“Westerners presume that Chinese companies are disorganised and chaotic and that’s true to some degree, but now we have assimilated the practices from IBM I find it’s actually not such a bad thing,” said the Western Lenovo manager� “It gives us real flexibility in what is a really fast-moving market�”

Haier has also focused on being reactive� The company’s chief executive and chairman Zhang Ruimin said in 2009 that Haier aimed to shed most of its production in order to cut costs and quicken the pace at which it could serve customers and react to market trends�

“Our strategy will be to outsource more and more,” he told the Financial Times� “I feel that unlike some other products, competition in the white goods sector is no longer driven by technological revolutions� So where will your competitiveness show then? In your business model�”

Far from just being copycats, China’s innovators are keen to find a new path� Many of these companies have started out in the age of the internet, so they can look at things from a fresher perspective than many Western companies� And they’re finding new ways of serving the international markets and their own vast domestic consumer base�

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When people ask me why China is becoming so big, I answer that China was always big; it was just taking a break� Two hundred years ago China was the leading country of the world in terms of economy, industry and trade� Then we had the slowdown of the Qing dynasty and for the last 100 years we have been quiet� We closed the door and took a break� Now the door is open again�

Growth and innovation

From every angle, this is Asia’s moment� China and India are experiencing fast growth� China has proved it is not happy with where it was 20 years ago or 10 years ago� It wants to keep improving, and the fast growth of the economic revolution has brought us to where we are today�

The government wants to maintain this momentum and there are a lot of new initiatives, particularly with respect to innovation� China’s success in the satellite and aerospace industries shows that the country can make it, even in very high-technology sectors�

Four of the world’s top 20 banks are now Chinese� We have top insurance companies and construction companies� Most of the equipment supporting the Chinese power network is made in China and has been designed as a ‘smart grid’ to deliver efficiency in electricity use�

Digital communications have been very important in bringing Chinese companies to the forefront� We now have the world’s largest mobile phone market, with over a billion users� This year China is expected to overtake the US as the world’s biggest smartphone market� Technology has changed people’s lifestyles and the way they think about communicating, especially the young�

Building partnerships

In China, BT has been investing in innovation too� We have our own research and development centre in Beijing, which has partnerships with three universities: Tsinghua, Shanghai Jiaotong and Beijing University of Post and Telecommunications� Through this research we have already

Ready for Lift-OffBy Eliza Kwok, Managing Director BT China

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brought to market a product that offers smart telemarketing insights for the banking industry�

We also have two innovation showcases in China, in Beijing and Shanghai, where we can demonstrate our latest products and services to our customers�

China’s telecommunications industry is still highly regulated, so we have formed partnerships with companies such as China Unicom and China Telecom to give us direct connections through 330 cities in China� We also have technology partnerships offering support and service for products from Avaya, Cisco, Huawei and Microsoft, for example�

So we have been busy increasing our capabilities in China to offer more than just network services� We now have a professional service team here that can deal with application performance optimisation, unified communication, CRM and contact centres, system management, data centre optimisation, virtual data centres, cloud services, security services and continuous monitoring and operation�

Today our customers in China can trust us not only with their network, but also with the value-added services that can benefit their business�

Our customers are both Chinese companies looking for global support and Western companies coming to China� It’s interesting to read about Haier in the country report, as they have been very successful in entering international markets� When they decided to operate abroad, they chose to work with us as a global partner from day one� We provided them with a global network and now we are introducing more of our services to help them meet the demands of rapid expansion�

Here in China, we are very positive about the market, and at BT we are now in position to give our customers the full benefits of IT and networks�

Ready for Lift-Off

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Maria Ankat is a correspondent based in Kuala Lumpur, Malaysia� She has covered the country for more than five years, writing extensively on politics and economics there and in the region�

Malaysia used to have the tallest buildings in the world – the Petronas Twin Towers – which were a symbol of the country’s dream of being a leader in Southeast Asia� The ultra-modern towers still dominate Malaysia’s capital, Kuala Lumpur, but they have been overtaken in the height stakes by new buildings in Taipei and Dubai, and Malaysia, likewise, is feeling the need to keep up�

With its population of 28 million people, Malaysia is struggling with numerous challenges: reversing a ‘brain drain’ of an estimated one million mostly highly-educated young people who have chosen to live abroad; dismantling affirmative action policies for majority Muslim Malays, which drive away potential competition; improving a

wanting education system; and a general lack of innovation from its workforce�

Ambitious plans

The prime minister, Najib Razak, who took office in 2009 after his long-ruling National Front coalition experienced its worst ever showing at the polls, has made it his goal to move Malaysia out of the “middle-income trap” to achieve “high-income developed nation” status by 2020� Under the plan, Najib aims to double per capita income to 48,000 ringgit ($15,000), which would need an annual growth rate of at least 6�0 per cent� But last year’s growth stood at 5�1 per cent, down from a 7�2 per cent expansion in 2010, and this year’s economic growth forecast lies between 4�0 and 5�0 per cent�

Well aware of the challenges, Najib has been pushing economic reforms and initiatives, such as Talent

Malaysia: The Only Way is InnovationBy Maria Ankat in Kuala Lumpur

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Malaysia: The Only Way is Innovation

Corporation, to stop the brain drain and develop a “diverse and competitive talent pool”� Talent Corporation’s Returning Expert Programme offers professionals who return from abroad benefits, including certain tax exemptions�

“The only way to a higher nation status is through innovation,” says Dr� Yeah Kim Leng, group chief economist of research firm RAM Holdings� “We have very limited options if we don’t do it – and don’t do it right� The key is still the human capital base ��� we need to increase the pool of scientists, technology experts and researchers�”

But Yeah is optimistic� “The enabling environment has improved, largely because there are many government incentives and initiatives ��� The downturn in the advanced economies and high unemployment there has created a window of opportunity for Asia, for Malaysia in particular, to try to attract the talents back�”

Yeah says the private sector also needs to chip in and cannot continue in its “business-as-usual mode”� “They have to enhance their competitive edge by investing in innovation and R&D,” he says�

Ahead of the curve

Malaysian palm oil giant Sime Darby has long been at the forefront of that� The world’s largest listed palm oil producer by acreage annually invests up to 2 per cent of the group’s turnover on research and development� “R&D is essential for Sime Darby to stay competitive,” says Dr� Harikrishna Kulaveerasingam, head of Sime Darby’s Quantum Leap research and development unit� He adds that research has helped the company develop better planting materials, leading to “dramatic improvements” in yield from an average of about 0�18 tonnes oil/hectare/year from wild materials used in the 1920s to over nine tonnes oil/hectare/year with the current commercial materials� The target is to eventually reach an estimated 17 tonnes oil /hectare/year�

Alongside the innovation of scientific breakthroughs is the innovation of the marketplace� Francis Yeoh, the managing director of YTL, another Malaysian global company, has earned a reputation as a figure who looks for new opportunities and new ways of doing things� He took over

his father’s construction company in 1988 and expanded into hotels, real estate, railways, and energy� In November 2010 the 10 billion dollar conglomerate announced a new venture – Malaysia’s first 4G network offering mobile internet with voice – under subsidiary YTL Communications�

Some say it is a gamble – the venture is still loss-making but Yeoh has a vision for it: “Everything we do in the beginning people always laugh a bit, ridicule it a bit, knock it a bit,” he told Bloomberg Television� “But I think this is very important� My grandchildren’s generation would curse us if we had an opportunity to do 4G and we didn’t�” The network currently covers 70 per cent of peninsula Malaysia and has earned praise from the country’s Minister for Information, Communications and Culture, Dr Rais Yatim, who said it was a great contribution to the government’s plans to transform Malaysia into a high-income nation�

Pioneering entrepreneurs

Also bucking the trend of innovation in Malaysia is AirAsia, one of the country’s great private enterprise success stories� It was taken over in 2001 by Tony Fernandes, a Malaysian former music executive for Time Warner Inc, and he has turned it from a struggling airline into Southeast Asia’s largest budget carrier� Fernandes, now 48, capitalised on the region’s growing middle class, and, with the slogan ‘Now everyone can fly’, promoted the no-frills concept where passengers can choose to forgo such comforts as a reserved seat, meals and more leg space for cheaper tickets�

His entrepreneurial approach stands out in a country where unprofitable but government-connected companies are often kept afloat with government money� Combined with aggressive marketing his approach has paid off: AirAsia’s route network now spans more than 20 countries, and its awards include the ‘world’s best low cost airline’ from UK-based airline research service Skytrax, which it has won for several years�

“We have revolutionised Malaysia’s aviation industry by introducing low cost travel,” says Kathleen Tan, AirAsia group commercial head� “Before AirAsia, flying was considered to be a luxury and only affordable by the rich�”

To meet the low-cost business model, the airline has had to keep its operations simple and efficient� Tan says AirAsia’s

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quick 25-minute turnaround time has increased aircraft utilisation and saved money� The company was quick to introduce internet booking, and to use social networking platforms to further establish the brand�

AirAsia, which allows its employees to wear jeans and T-shirts to work, is also looking to nurture young talent� “We allow our young talents to freely express themselves,” says Tan� “We encourage them to speak up and present ideas whenever and wherever� This will enable them to break away from their cocoons and be effective employees�”

Tan says the company encourages constant learning and upward mobility: “For instance, we have guest services staff who became executives, and even a ramp boy becoming a pilot� Our passion, dedication and innovative trait is the key in elevating the brand, setting us apart from the rest of the field�”

And the company’s calculations are working out – intra-regional traffic demand in Southeast Asia is forecast to grow at an average of 7�4 per cent a year until 2030, according to U�S� aircraft manufacturer Boeing, compared with 4�0 per cent in Europe and 2�3 per cent in North America�

The company also pioneered offering long-haul low-cost flights to as far away as Europe, through its unit AirAsia X, but amid high fuel prices and other prohibitive costs, it cut its Paris and London routes this year, as well as flights

to India and New Zealand� Fernandes remains upbeat, however, with the airline focused on Asia and its brand name exposed in Europe� Meanwhile, he has ventured into racing and football – two more useful marketing tools� He owns the Caterham Formula One team and English Premier League team Queens Park Rangers�

Reaching out

So there are home-grown success stories, but Malaysia knows it needs to do more� Last year, Premier Najib flew to New York to meet a panel of experts in science and economics, discuss Malaysia’s ambition of becoming a high-income nation and work with them to coordinate policies that can attract foreign investment� Ideas include further stepping up research in Malaysia’s key palm oil sector, encouraging more young people to study science, and improving healthcare�

Malaysians generally are quite confident about their economy� According to an online poll by the research group Nielsen, consumer confidence rebounded six points to an index of 107 in the first quarter of the year, ranking Malaysia, along with Thailand, seventh among 56 countries� But at the same time many Malaysians are sceptical about the government’s efforts to improve the country’s standing – ahead of its regional neighbours but still behind city-state Singapore, which draws their secret envy�

Malaysia: The Only Way is Innovation

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People have seen Asia Pacific as an important area for growth for the past 10 to 15 years, but the financial crisis in the US and Europe has now led many companies to see it as the primary area for growth� As a result we have seen a major change in the way companies are positioning themselves in the region�

For a start, these companies are increasingly willing to invest a lot more in Asia Pacific, helped by more open economies, improved infrastructure and an increase in skilled workers�

In addition, they are now looking to the region for customers, spurred on by the growth in the Asian middle class, which has provided an attractive market�

Regional innovation

Increasingly, decisions on policy and approach – which used to be made at headquarters – are being delegated to local managers� And managers here are being put in

charge of developing products and services for their own markets – markets they understand very well�

That’s good for innovation in Asia Pacific� And by this we mean not only giant technological breakthroughs, but also commercial and service innovation� In our Malaysia report, Air Asia provides a prime example of commercial innovation, honing its services for a niche market� In this context, being innovative is a byword for being more competitive and relevant, for doing things differently and trying to beat the competition�

There’s going to be innovation across Asia Pacific, but China is definitely taking a leading role� The government has put innovation at the centre of its growth strategy� The equivalent of two per cent of the country’s GDP is spent on research and development (R&D), which is 12 per cent of the global total� What’s more Western companies have opened some 1,500 R&D centres in the country�

The Growth FactorBy Tim Harris, Managing Director, South East Asia, BT Global Services and Charles Anderson, Head of Innovation, Asia Pacific, BT Global Services

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Advances in technology

Singapore has always been a centre for innovation and has recently focused its investment on building two giant research hubs next to each other – Fusionopolis for engineering and Biopolis for biomedical sciences�

The Singapore government is also investing in a Next Generation National Broadband Network (NGNBN), delivering internet speeds of up to 1Gbps to every home, office and school, which far outstretches many European countries� This is evidence of how the digital revolution is making it possible for countries to leapfrog the linear development of the West� If you were building a phone system in a country today, for example, you wouldn’t dig up the ground and lay cables, you would use mobile technologies to build a network�

Take the Phillippines, where more people have mobile phones than in many developed markets� While it wouldn’t be viable to build a system of physical bank branches across the country, internet and mobile banking has taken off, providing financial services to large numbers of people for the first time�

Companies are also seeing the benefits of new cloud technology� Where once the start-up costs of offices and telephony systems were prohibitive, now companies can buy everything in the cloud, which means less money up front� Small companies appreciate the flexibility of cloud technology and the way it helps them to control their costs, while large companies like it as they only pay for what they use�

These are all technologies that BT can help with in Asia Pacific� And we know what our customers are demanding – speed, effectiveness, flexibility and resilience� So if a retailer wants to open a branch in a Tier 3 city in China, they don’t want to wait months for a working phone line and computer system, they want it fast and they want it to be reliable� If our customers want to expand to new countries, we can manage the complex challenges of getting them up and running as efficiently as possible�

And Asia Pacific is at the forefront of our developments� At BT, we are investing in the region in the shape of skilled staff and services, as this is where we believe the growth is for our customers�

So Asia Pacific is both attracting innovation from outside, and increasingly generating it from inside� It’s an exciting time to be here�

The Growth Factor

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Japan: Looking for New Ideas

Gavin Blair has been based in Japan since 1997 and covers the country for the Christian Science Monitor, The Hollywood Reporter, France 24 TV and other media outlets in Asia and Europe� He also writes reports on Japanese business for The Economist Intelligence Unit�

Japan is used to leading the world in innovation, but it’s now facing stiff competition� Its giant manufacturers, which used to inspire awe and even fear in competitors, are grappling with the challenges of a rapidly changing global marketplace in which lower-cost and more nimble rivals are creating the kinds of groundbreaking products for which Japan was once famous� Korea, Taiwan and the United States are all posing a challenge� Nevertheless, as Japan’s economy shifts to a post-mass-manufacturing phase, it remains home to a wealth of research talent that it can call on to preserve its economic strength�

“If you define innovation in the very narrow terms of the number of inventions or patents registered, we think we’re still very good at it,” says Keita Nishiyama, executive managing director of the Innovation Network of Japan (INCJ)� “But the problem is translating these technological achievements into real business, and into money� Japan is not doing as well at that recently�”

“Innovation is not an end in itself, it can only provide economic benefits if it produces something that is valued by consumers,” points out Nishiyama�

The INCJ is a public-private partnership formed in 2009 with 102 billion yen ($1�28 billion) in government money and another 10 billion yen from 19 Japanese corporations� The partnership was established to foster innovation in Japan through various ideas such as linking industry and academia and funding overseas takeovers of strategically important technology companies�

Japan: Looking for New IdeasBy Gavin Blair in Tokyo

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Translating ideas into success

The INCJ is now trying to encourage corporations to recognise the fact that their patents may be brought to market more efficiently by another company, even if it happens to be one of their rivals – that’s bound to come as a shock for Japanese giants, such as Hitachi, Sony and Toshiba, who are used to developing products based on their own patents� The INCJ has also established an intellectual property fund in the area of life sciences, through which it is buying patents held by different academic institutions and bundling them together to sell to companies which can turn them into commercial opportunities�

According to William H Saito, founder of international consulting firm Intercur, and a venture capitalist and adviser to the Japanese government, the problem runs deeper than a lack of sharing of ideas�

R&D is the key

“Japan doesn’t have good R&D; it has the R part down, but not the D part� Innovation in Japan is done by scientists and engineers, whereas in places like Silicon Valley you also have a nice mix of liberal arts and humanities in there, designers and such,” says Saito� “You rarely see non-scientists working on product development in Japanese companies�”

Japan is still good at incremental innovation – the gradual improvement of existing technologies, believes Saito, but not disruptive innovation – and the creation of game-changing concepts and products�

The INCJ’s Nishiyama thinks that the traditional strength of Japan’s electronics giants is hampering the development of smaller, nimbler firms from where new technologies often emerge�

“We’re not short of innovation as a whole, in terms of business and services, but Japan has been known as an innovator of electronic products� This is an area where the established companies are very dominant, and this makes it difficult for start-ups,” says Nishiyama�

One of those established electronics giants, NEC, has been working to meet the challenges of increasing competition in fields such as telecommunications equipment and computers, where the company has traditionally been strong� It formed a joint venture with China’s Lenovo last year, and in a move counter to the current trend of Japanese corporations moving production overseas, the Chinese company announced this month it was looking into building computers at one of NEC’s factories in Japan�

New approaches

NEC also announced this month that it is refocusing R&D efforts, and 95% of its 20 billion yen ($252 million) research budget, into cloud computing and green innovation, two areas with promising potential for substantial growth� In addition, NEC laid out plans for streamlining its 180 business divisions, and established a smart-energy section last month�

As Japanese firms adapt to the realities of a shrinking domestic market, a strong yen and increasingly competitive Asian rivals, it is not only in technology that innovation is required� One sector that has repeatedly reinvented its business over the years is that of Japan’s trading houses or sogo shosha�

In a bid to encourage technological innovation elsewhere, NEC has teamed up with Sumitomo Mitsui Banking Corp and the Organization for Small & Medium Enterprises and Regional Innovation, Japan, to seed an investment fund aimed at start-ups� Meanwhile, NEC itself recently developed motion-sensor technology that will allow control of TVs and computers through simple hand gestures�

Japan: Looking for New Ideas

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Mitsui & Co�, one of the ‘big five’ trading houses, has benefited from both the commodities boom and diversifying into investing with deals such as its recent private equity move into India�

Developments in investment

“As the traditional trading business model dried up, Mitsui and the other firms turned to the investment business,” explains Penn Bowers, analyst with CLSA Securities in Tokyo, who covers Mitsui & Co� “Using their global connections, they transformed themselves into investment vehicles�”

“They are now investing heavily in areas such as commodities, which is a very cyclical business� Mitsui is also partnering with other Japanese companies on IPP [independent power producer] projects globally,” says Bowers�

Mitsui, along with the rest of the ‘big five’ houses, are set to earn almost half their profits this year from businesses other than natural resources, their traditionally strongest segment, as they continue to adapt to an ever-changing economic environment�

Japan’s companies are facing new global challenges, and that comes on top of a shift away from the commanding heights of the economy being controlled by an alliance of Japan’s once all-powerful bureaucrats, industry and academia�

“Post-war, MITI [Ministry of Trade and Industry, now the Ministry of Economy, Trade and Industry] did a good job of taking the leadership role in corralling Japan Inc,” suggests Saito, who also lecturers on innovation at four leading Tokyo universities�

“With limited resources and people, they focused on a few industries like automotive and semi-conductors, and laid the groundwork so that companies could work in harmony� This works when you have very strong leadership and it was very effective in a much simpler world� Now, in a much more interconnected and complex world, those companies have to fend for themselves, which is tough�”

Demographic challenges

The single biggest threat to Japan’s economy and standard of living is its skewed demographics� And yet this too may yet be a source of innovation�

“The most important innovation that needs to come about really soon is how to address the demographics of an ageing and shrinking population, because that is the end point of a maturing economy,” says Saito� “What this means is, this is no longer just a Japan problem, it will soon be a German problem, a Korean problem and a problem of all these other countries� So Japan has a 20-year head start in finding solutions to this, and whoever works out the answers to this, and it’s going to be through innovation, will do very, very well because it’s something that will be exportable to many different places very soon�”

Japan: Looking for New Ideas

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Here in Japan we feel that we have been through it all – economic highs and lows; growth and slowdown; good times and bad� And as one of Japan’s longest-established foreign telecommunications companies, BT Japan has been there throughout�

Japan is the wise gentleman for Asia Pacific’s current boom times, and BT is the wise gentleman of telecoms�

Here in Japan we could see China or South Korea as threats, but as long as we are all growing, there is space for everyone� And that’s why innovation is the buzzword� Innovation creates business�

Reassessing priorities

Japanese companies used to be so aggressive in everything they did and they didn’t think enough about what was going on in the outside world� It’s said that Apple overtook Sony because the Japanese company had become too vertical, too divided into silos – they had a division that created game software, one that worked on music, another for cameras and so on� Then Apple came along with products that were inclusive, that broke down those silos� Everything is on the iPhone and iPad: music, games, photos – the lot� So Sony is in the middle of a reorganisation to revitalise its DNA�

Moving Forward in HarmonyHaruno Yoshida PresidentBT Japan Corporation

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Moving Forward in Harmony

Sony had its watershed moment, its wake up call, and sadly so did Japan in the shape of the terrible earthquake and tsunami that hit the country in 2011� We call it March 11, the day the earthquake first hit�

The tsunami washed away our houses and our people, but it also made us re-examine our ways of thinking of the past century – the old concepts and the business models� We were so close to the market and so self-sufficient that for a long time we didn’t need to look outside� Then along came March 11 and we were suddenly very vulnerable� Mother Nature damaged us so easily� After March 11 we realised how dependent we are on global resources� We realised that we are part of the global eco-system and that we need to look again at our place in the global economy�

And that’s where BT comes in as a global network provider in Japan� We know the country, we know the market and we work in partnership with companies to enhance their services�

One of our clients sells information systems for financial trading in Japan� With our unified trading system we can make sure those systems also work outside Japan, so that they can be used by subsidiaries in the US and the UK, for example�

BT has always been very conscious of the ecosystem of Japanese business� We partnered with Japanese companies at a very early stage, and so our approach is to work with the country’s very large and very successful companies, to ensure we make their businesses prosperous; we don’t try to push them out of the market or compete with them on price� We provide additional technology and additional solutions to the marketplace�

Pan-Asian cooperation

I agree that this is ‘Asia’s moment’� Asia is a growth market, there are a lot of things happening here, and, from an IT perspective, I hope our countries will approach the world market in a more integrated way� At the moment Asian countries have different IT regulations and different technology, and they are not talking� So it’s up to China, Korea and Japan to lead the way with a kind of Asian Alliance, and in partnership, we can create a strong Asia Pacific market�

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For this white paper we’ve talked to experts from across Asia Pacific, from Hong Kong to Japan, from Singapore to China, along with a few wise heads from the West as well�

And they pretty much concur that this is Asia’s moment�

The financial crisis of 2008 has thrown the region into the spotlight as an area of outstanding economic growth and potential�

Now there are customers to court�

Markets to expand�

And new products and services to develop�

Our experts also agree that for innovation to take off, you need the right environment� And there’s no doubt that Asia Pacific countries are building that� Sure, there is a sliding scale of how countries are doing on this, but the momentum is there, backed in many cases by government initiatives�

Against that backdrop there is no doubt that this is Asia’s decade�

It’s what happens next that will determine whether this is also Asia’s century�

Conclusion

Here at BT we’ve seen this coming, and we’ve been getting in position to provide the IT and network services that will help companies, and the region, to prosper� We’ve focused time and effort investing in our people, recruiting hundreds of skilled staff who can deliver the high-level, professional services we demand� We’re in position in cities across the region, forming partnerships, setting up R&D centres, and investing in Asia Pacific�

And our work has been noticed, not just by our customers, but also by external observers� The Telecom Asia Awards awarded BT the title of Asia’s Best Managed Services Provider for the third year running, while the research firm Gartner identified BT as a leader in its Magic Quadrant of Network Services Providers in Asia-Pacific�

We’re ready� The scene is set� Now it’s time for the ideas to take off�

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