Designs of the future

Updated: 2012-04-20 08:43

By Peng Yali and Cao Yue (China Daily)

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Changing growth paradigms open up new windows of opportunity for foreign firms

The importance of industrial design is clearly demonstrated in the huge success of the iPod, iPad and iPhone. These popular electronic devices from Apple do not necessarily bring significant technical or engineering breakthroughs. Nor do they offer new functions that competitors' products do not offer.

Consumers embrace them with enthusiasm because the way they look, feel and work is designed to create satisfaction for the user. In other words, what makes them distinctive is the innovation in design, not just innovation in technology.

Industrial design began to receive attention in the 1980s in China as its economic reform was under way. From almost nothing, it has grown rapidly since.

However, the industry is still at an embryonic stage. The scale is small; of the top 500 service companies in China in 2011, there was only one industrial design company. And the overall capability is rather limited. Very few Chinese-origin products have been recognized by the market as the result of high-quality industrial design.

There are a number of factors behind the current state.

First, as China is a latecomer in industrialization. it simply does not have as strong a tradition in industrial design as developed nations. Universities and professional schools do not train enough professional designers; government support is insufficient; industry associations do not exist; and industry standards are lacking.

Second, China has heavily relied on large-scale, low-cost manufacturing as its competitive advantage, paying less attention to developing capabilities in high-end design.

Third, a large number of manufacturers have been engaged in the OEM business. While their processing and manufacturing capabilities are strong, they never had a chance to develop abilities in product development, design, branding, marketing and distribution.

Fourth, many Chinese companies, when they started, had a weak industrial design foundation. They depended on foreign design, as seen in many key sectors such as automotive, machinery, computer and home appliances.

Finally, the lack of a strong intellectual property rights environment has retarded efforts in industrial design development.

It is an opportune time for foreign industrial design firms to consider (or re-consider) their China strategy. The demand is there with the continuing transformation of the economy, while the timing is good with new favorable government policies. There are few established players, and the size of the market is substantial.

There are also several additional drivers that foreign industrial design firms should consider with regard to China.

First, Chinese companies are more serious than ever about moving up the value chain. They either want to develop design capabilities in-house, or work with a local firm so that they can respond to the domestic market more quickly. Industrial design is no longer something they want to buy; it is something they want to create or own.

Second, as local design firms grow and develop their capabilities, firms outside the market may find it more and more difficult to stay relevant. At the same time, the tastes and preferences of Chinese consumers are becoming more sophisticated and diverse.

Rather than blindly embracing anything Western or foreign, they value a balance between tradition and modernity, Western spirit and Chinese cultural elements.

Last, by coming to China, foreign design companies can serve not only Chinese clients, but also multinational corporations operating in China.

The majority of foreign industrial design firms are small- and medium-sized enterprises (SMEs). For these SMEs to enter the Chinese market, one option is to take advantage of the various industrial parks or incubators set up by local governments. These parks offer favorable infrastructure, tax incentives, networks and business services.

The other option is to team up with local Chinese partners, as firms in the architectural design area are apt to do. Foreign SMEs often do not have resources to support large upfront investments. To work with a local partner, though not without challenges, can reduce risk and generate returns quickly, and hence sustain their business in China.

SMEs are flexible, cost efficient, close to their clients, and are quick to adjust their strategies when necessary. In comparison to large firms, these features may make them more suitable to the fluid Chinese market.

Peng Yali is the head of research of Global China Practice at KPMG. Cao Yue is a researcher in Global China Practice at KPMG.