Imitation Innovation inChina: ACaseStudyoftheSoftware Industry

The software industry inChinaislagged behind thatofthedeveloped countries, thusthedirect competition in R&D investment withthesoftware leaders intheworldis believed notwise.Inthispaper,itisadvised thatChina's software industry takethestrategic choice tobeafollower, by makinguseoftechnology spillover andadopting imitation innovation withless investment andrisk. A Chinese case, thatis, QQ'simitation ofICQ,isusedtoanalyze howaninnovation follower canbecomesuccessful. Thispaperendsup with suggestions asforhowtheChinese software industry canimitate anddevelop its software industry. I.INTRODUCTION Intoday's information age, itisundoubted that software industry isofgreat importance totheall-round development ofacountry's economic andsocial progress. Since mid-1980s, software industry inChinahasbeendeveloping tobean important industry, whichhasbecomethemainforce of China's highandnewtechindustry. In2003, thesales value ofChina's software industry reached RMB 160billion yuan (equivalent to16billion euro). Thesales value from2000to 2002hasbeenRMB 59.3billion yuan,RMB 79.6billion yuan,andRMB 110billion yuanrespectively, withan average increase rateofmorethan30percent annually. In termsofsoftware export, itreached 2billion dollar in2003, 0.4billion, 0.72billion and1.5billion dollar separately from year2000to2002, averaging anannual increase ofmorethan 30percent. Inaddition totheincrease ofnumbers, the management levelandengineering levelof software enterprises havealsobeenimproving continuously. According totheChinaSoftware Industry Association, more than110companies past CMM2,amongwhich50companies havepastCMM3,andeven5 ofthempastCMM4 (2). However, theperformance ofthesoftware industry inChina asawholeisstill notsatisfactory. Mostofthesoftware companies arefully domestic-oriented, andtheir products can onlybesoldinthedomestic market. Veryfewofthemare exporting their products toforeign countries. Inasense, there arealmost noworldfamousChinese software companies. Evenifinthedomestic market, theproducts produced bythe Chinese companies arenotcompetitive either. Intheaspect of system software, there ishardly anyhome-made software withindependent intellectual property right because ofthe lack ofcoretechnology. Intheaspect ofapplication software, mostChinese firms areless competitive small oneswithnot muchregistered capital andnotmanyskilled software developers. Besides, thepersonal isgenerally youngwith little experience andcompetence, making thecomprehensive quality ofthecompany aswellasthequality oftheproducts relatively low. Theevidence inthepast fewyears hasshown thatChina's software products enjoy noadvantage inthe competition withthat oftheforeign country. Thispaperstarts withthesuccessful imitation caseof Chinese internet messenger OICQ,orQQ.Basedonthe "Smiling Curve"model, we develop theprocess and added-value curvemodelfortheChinese software industry. Inthediscussion andconclusion section, suggestions are given asforhowChinacanimitate anddevelop itssoftware industry. II. A SUCCESSFULMARKET FOLLOWER:QQ VERSUS ICQ Itisessential fora company, either high-tech or traditional, toinvest onR&D formoreindependent core technologies. However, comparing totheforeign software giants, theweakfoundation ofChina's software industry makesitimpossible toinput large amount ofcapital onR&D. Ontheother hand, R&D isusually accompanied withhigh risks, whichisunfavorable tothesteady accumulation of resources. Therefore, foradeveloping country like China, it wouldbewiser toexert theadvantages asafollower and makeuseofthespillover ofsoftware technology. Infact, manyChinese enterprises havemadesomeattempts in imitating foreign successful software products, andone successful example isshownbelow. Inthesummerof1996, three Israeli, YairGoldfinger (26, Chief Technology Officer), ArikVardi (27, Chief Executive Officer) andSefiVigiser (25,President) ofMirabilis Company, found that thee-mails arealways filled withjunk information, while theimportant onesarealways flooded in theinformation ocean. Inconsideration ofthis, they decided todevelop akindofsoftware, whichcanmakefull useofthe character ofinternet forinstant communication soasto realize quickanddirect communication amongpeople. Following this idea, thedesign ofICQsoftware cameinto being. Upto1998, theICQusers ofMirabilis havereached 12million, withamonthly growth of1million users. Inthe end,Mirabilis soldtheir ICQsoftware together withtheir users toAmerican OnLine (AOL), obtaining theprofit ashigh as287million US dollars. Till then, afield withthefastest developing speedintheInternet world, thatis,Instant Messenger (IM)hasbeenopened up.Thesuccess ofICQ attracted theattention ofsoftware providers all overtheworld, andmanypeople puttheir focus ontheInstant Messenger field. In China, amongthemanyimitators, themost successful follower isTencent Company (1). Intheendof1998,within a fewmonths' timeMa Huateng, incooperation withZhangZhidong, developed the