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Companies should ask: Innovation for whom?

The strength and weakness of Chinese companies can be illustrated no better than with the rise and fall of the country's photovoltaic industry, according to Steven White, associate professor in the Department of Innovation, Entrepreneurship and Strategy at Beijing's Tsinghua University.

It's easy to appreciate the Chinese entrepreneurs' "can do" spirit when looking back at how they built their photovoltaic industry virtually from scratch.

They got started much later than their counterparts in Germany and Japan but ended up overtaking them to become the world's largest PV products exporter.

"The Chinese were able to jump into the new market," White said.

"They had gained enough technical capability and captured the sudden new demand, whereas big German and Japanese companies grew very slowly. Without much venture capital backing, they couldn't grow as quickly as the Chinese did," said White.

Chinese entrepreneurs are "really quick to respond to opportunities. They work hard and get things done very quickly, which is an asset," he said.

Interestingly, at first it was not really about government support, he noted. Support, including subsidies and credit, actually arrived shortly before the PV industry's precipitous fall, at a time White said "couldn't be worse" because it kept the market from rationalizing.

But the strength of Chinese companies - their speed - may well turn out to be their downfall: They work too quickly to pay attention to how their products and service are differentiated from others'.

"Everyone thinks that if they can just make more, then the others will leave. If everyone thinks the same way, and they only compete on price, then everyone will lose." White said.

"It's a type of decision-making logic that is very dangerous: When the market grows faster than capacity, it is OK. But once capacity overtakes demand, the thing crashes. And you have overcapacity when too many people are making the same thing," White said.

In Germany and Japan, White said, it is hard for entrepreneurs who do not have core competitiveness to get money from investors, whereas in China, it is "too easy" to get money, he said.

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