[May 17, 2019]

Suzhou - How Getting the Environment Right Boosts Innovation

When executives at Chinese pharmaceuticals firm Innovent were looking for a base, the eastern city of Suzhou seemed like a natural fit.

"Suzhou is near Shanghai but it's not really Shanghai," said Zhou Qinwei, Innovent's Chief Operating Officer, hinting at the advantages of proximity while also avoiding downsides such as very high costs.

But the decision wasn't just based on looking at a map - Suzhou's strong pro-business culture and a focus on creating a clean and livable environment also played their part.

"Here we can attract the best talent to join our company. The fit is clear - Suzhou is an environmentally friendly place and our business is too. Unlike oil or tobacco manufacturers, whose products are harmful, we are in the business of saving people's lives. Top talent buy into this," said Dr Zhou.

A city with about 4.5m people in its urban area and another 6m in the wider area, Suzhou was already a hub for trade and culture more than 1,000 years ago thanks to its position on the country's Grand Canal.

Now it has the seventh biggest GDP of any city in China - behind only Shanghai, Beijing, Guangzhou, Shenzhen, Chongqing and Tianjin (it is also one of the 17 Chinese cities to have GDPs of more than $145bn) - and is repositioning itself as a center for hi-tech manufacturing and business innovation.

Local Champions

Innovent is one of the firms leading the way. Founded in the Suzhou Industrial Park (SIP) in 2011 and now worth about $4bn - it makes large molecule medicines, an area where China is playing catch-up to manufacturers abroad. But increased competition from domestic firms has more than halved prices, which Dr Zhou says is essential for Chinese patients.

Innovent has partnered with the US firm Eli Lilly to get one product to market. It has submitted two more products for approval and a further 14 are in clinical trials.

Dr Zhou says the biggest bottleneck his firm faces is getting hold of the best equipment and production processes - he hopes those industries will also develop in Suzhou, and says he needs more help from city officials in getting Innovent's products onto China's national drugs list.

However the city is counting on encouraging many more firms to follow in Innovent's footsteps. It aims to develop China's most complete supporting industrial chain for biopharmaceuticals, which, it is hoped will by 2025 be producing 500,00 liters of products, making it China's largest biologics manufacturing hub.

It also has ambitions to develop industrial clusters of cell therapy firms, precision medicine companies and medical devices.

Meanwhile in the area of artificial intelligence (AI), Suzhou is focusing on natural language processing, machine vision and intelligent voice and is developing firms in the fields of industrial internet, smart healthcare, smart education, intelligent security, intelligent finance, intelligent driving and drones.

By 2025 Suzhou aims to build a world-class AI innovation cradle, industrial agglomeration and application demonstraton zone, and establish an ecosystem boasting deep integration between AI and the real economy.

The Ali Touch

Suzhou is also home to a thriving internet start-up scene. Some of the contenders can be found at the Alibaba Cloud Innovation Center in the city's Suzhou New District (SND), one of 50 around the world run by the Chinese e-commerce giant. Other innovation centers in Suzhou are run by multinationals such as Microsoft and Siemens (News - Alert).

Alibaba's has about 50 firms under development, including OVO Park which provides software services to about 500 retailers and a firm making video software to capitalize on China's latest craze for short self-published videos on Tencent's Douyin, known as TikTok abroad.

Innovation center General Manager Xue Feng says there's more to Suzhou than just being better value than Shanghai - after all, even cheaper locations in Vietnam and Cambodia are also available, he says.

Mr Xue says that within China, B2C firms tend to gravitate towards Beijing, Shanghai or Guangzhou, while B2B firms tend to opt for Suzhou.

This is because of the city's history of foreign direct investment (FDI), he says.

"Two decades ago Suzhou was very FDI-focused. And the best legacy of that era is sophisticated supply chains. That sticks, it doesn't fade away even if the FDI drifts away to lower-cost places," he said.

Firms that have stayed in Suzhou since that time have gone through what Mr Xue, a former Suzhou city official, calls a "quiet transformation", upgrading their industrial processes and focusing more on the knowledge economy.

Panasonic (News - Alert), for example, used to have several home appliance manufacturing plants in Suzhou; now there is just one Panasonic plant in Suzhou and it is focused on x-ray technology.

A Lean Approach

OVO Park founder Jayson Chow says domestic demand is fuelling his software services company's growth, but he faces fierce competition.

"Retailing in China is undergoing drastic transformation, with every day seeing some traditional players disappear. But this is exactly, in my view, the opportunity for innovative solution-providers like us," he said.

However the days of gaining success merely by securing big investment are over, he says. Now a lean management approach is needed, making sure every dollar spent is cost-effective, combined with deep customer insight.

"That way, you keep the cost under great control on one hand, and get the best profit prospects out of your customer pool on the other," he says.

OVO Park helps retailers compile data about their customers and their habits, as well as calculating optimum staffing levels and shelf layouts. And Mr Chow says that if they can get it right, bricks-&-mortar retailers have some advantages over online-only sellers - "Once the experience is good, the shoppers will come back again and again," he says.

"You can see now that there are a lot more value-chain partners including producers, warehouse and logistics partners who are all using AI, robotics and automation. Those retailers who embrace all of this have a bright future," he adds.

Mr Xue says that this shows how retail trends in China have flipped - in the past selling online was seen as a way for bricks-&-mortar retailers to gain an edge, but now having a real life operation is seen as a way for online sellers to gain an advantage.

"You just cannot assume to be successful by focusing on the e-part alone," he says.

Looking Outward

Mr Xue says a global approach is built into the Alibaba Cloud Innovation Centers, some of which are located abroad.

He says business plan competitions have already thrown up some interesting synergies between teams of entrepreneurs in China and Japan - including one prospective tie-up between Japanese entrepreneurs and Chinese smart-devices maker Xiaomi.

Meanwhile Innovent's Dr Zhou says his firm - now competing with multinationals in China - is itself preparing to go global.

"A global strategy is always a part of a pharmaceutical company's growth strategy," he says.

Xi'an Jiaotong Liverpool University (XJTLU) - a Suzhou-based venture between Xi'an Jiaotong University and the UK's University of Liverpool that launched in 2006 - has 12,000 students, more than 1,000 of whom come from abroad. Most of the teaching staff are also foreign.

In its AI lab, students work on cognitive computing, AI chips, virtual reality and smart robotics.

XJTLU President Xi Youmin says the University aims to operate an open campus that engages with society and shares facilities with other universities and the outside world.

It is among 29 international universities - the others including Oxford University, the University of California Los Angeles, Monash University, the University of Dayton, National University of Singapore, a Sino-French Institute at a Renmin University campus, SKEMA Business School and HKU Space Global College - that have set up campuses or research institutions in Suzhou's Dushu Lake area, along with 13 leading Chinese universities.

Dushu Deputy Director Shen Yan says these institutions have together already supplied 2,300 skilled and qualified people to work in innovative Suzhou firms.

The city has also developed services to help firms register intellectual property and settle disputes - the Jiangsu International Intellectual Property Exchange, located in Suzhou New District.

There are also about 80 firms offering other IP-related consultancy services.

Having brought its business culture up to international standard, Suzhou's future as an innovation hub seems assured.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190517005079/en/

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