What do Chinese consumer tech companies need to do to be innovative enough to compete in developed markets like the U.S.?

As the saying goes, "necessity in the mother of invention." Innovation doesn't happen in the vacuum. Once the market demands it, it will happen and in fact it's happening in Shanzhai! Look at how most of the world's consumer brands actually innovate: they hire design houses like Frog and IDEO to do the thinking for them. And look at what Frog and IDEO are saying about Shanzhai. http://www.wired.co.uk/magazine/archive/2011/01/features/shanzai?page=all and http://patterns.ideo.com/issue/shanzhai/ Richard Kelly, IDEO's Asian director is talking at TEDxTaipei about Shanzhai: It's not just copying; it's the emerging markets seeking for market positions. The innovation in China's consumer electronics will not happen as a top down planned directive. Planned economy doesn't work. Why should planned innovation? It will happen as bottom up emergent by tens of thousands of small manufacturers trying out everything. The process will be messy and brutal but the result will be "Let a hundred flowers bloom." Top down drive to innovation doesn't work most of the time. Apple is a outlier; an exception to the rule. There can be only one Steve Jobs. Just look at the mobile space. Everyone is particularly copying Apple. In another word, the big global consumers brands are not doing things too different from Shanzhai.

Just give it some more time. China's primary comparative advantage over the last three decades has been an inexpensive and increasingly productive labor force.  So it is not at all surprising that Chinese entrepreneurs have focused on the labor-intensive component of the value chain in almost every industry sector today.  It was the logical thing to do and there is still more to go. As Chinese society becomes increasingly wealthy, and consumers begin to create large pools of demand, you are seeing pockets of innovation emerge, particularly for products that meet needs that are relatively unique. For example, Chinese and South Korean online gaming companies pioneered and massively scaled business models built around selling virtual goods.  Today, these companies have the highest operating margins in the industry (30-40%+) while US video game companies have struggled to breakeven and are just beginning to adopt these models.  This model originated in Asia because of characteristics unique to the region - the prevalence of Internet cafes, lack of console gaming retail distribution and home systems, among others. In another example, Chinese telecom equipment companies Huawei and ZTE are the fastest-growing and most profitable telecom companies in the world today.  In particular, they are taking disproportionate market share in developing regions such as Africa and Southeast Asia.  The reason is not only cost related,  but unique products as well.  For example, Huawei pioneered the first solar-powered cellular base station.  Why Huawei and not Ericsson or Nokia-Siemens?  Again, due to circumstances relatively unique to China - villages that are not connected to the power grid demanded cell phone service.  So Huawei designed a solar-powered base station that consumes little power that could serve their needs.  Since the developing world looks more like those villages in China than the suburbs of the US, it was not surprising that Huawei is taking the lead in those regions. There are more examples, but my point is that consumer innovation will come when Chinese consumers create pools of relatively unique demand that force Chinese companies to find creative solutions for their needs.  And it will be sustained when consumers in other countries realize that they too want those new products.  At first, Chinese innovation is more likely to "trickle down" to the less developed countries (e.g. solar-powered base station), but as time goes by, I would expect to see more examples of Chinese products and business models migrating to developed countries (e.g. virtual goods).

They already are. Companies like Huawei, ZTE & Haier are major players on the world stage and are highly innovative. Perhaps those innovations are not targetted at US consumers (which maybe why the other answers assume they do not exist) but are instead focussed on developing and middle-income markets: Chinas itself, India, Africa etc. But because a product isn't aimed at you doesn't mean it doesn't exist, or that the developers are not innovating. In high-tech, to take a simple metric, Huawei & ZTE both own a similar number of patents for essential IPR on LTE (ie the critical, sophisticated & innovative algorithms for 4G wireless) to Qualcomm or Ericsson. Other posters commented on Shanzai. Often, yes, those are simple 'clone'  phones (much like  Dell or HP in the computer space), but often there are neat innovations:  eg a handset designed for two SIMs (which was taken up by Nokia last year), or devices designed with extra-long battery life or extra-long range for rural markets. I remember people saying 'of course the Japanese cannoty innovate, they only copy' (remember the sneers in the 70s about Japanese HiFi or cars?). Then people said 'unlike the Japanese, the Koreans cannot innovate, they only copy' - but look at Samsung, LG. Now people are say 'unlike the Japanese the Chinese cannot innovate' - they are equally wrong: companies like Huwei, ZTE & Haier are indeed innovating very succesfully on a global scale. Perhaps you are not the target customer. But if you compete against them, you really ought to be prepared, not complacent.

Decide that it's worth competing in the United States and other developed markets..... I can't figure out what possible reason there is for Chinese tech companies to even bother expanding in the developed world.  The domestic economy is growing massively.  Beyond China, you have the developing world in India, Africa, and Latin America.  In the United States you are competing against established brands.  In China, Chinese companies have the home turf advantage, and in India, Africa, and Latin America, you have rapidly growing economies inn which Chinese companies have several advantages over the United States. If you are interested in making money, I can't see any possible benefit for Chinese tech companies to look at US markets.

Interestingly, I was talking to a Japanese friend at dinner just now how Japanese parents and Chinese parents are different in their ways to raise their kids.  Chinese parents tend to give their kids toys they want.  Japanese  parents give the kids tools for them to build the toys they want.  Chinese parents goes into the swimming pool, explain and demo to their kids the right ways to swim.  Japanese parents just throw their kids into the water, and watch their kids struggling in the water, and only go to their rescue when they see real danger.  Therefore Chinese kids become used to/good at doing what they are taught to, directly or indirectly.  Japanese people also learn from other people's products, but they try to re-create the products instead of just copying. Apart from the cultural difference, the following 2 things also contribute to the Chinese tech companies inclination of cloning, or shanzhaiing: 1. Lack of IP protection laws or such laws being loosely executed. 2.Company management's mindset to make quick, easy, and fast "small" money, without being afraid of bearing any legal or psychological guilty feeling.

Currently, china company is begin to be creative, and in future more and more chinese company will be creative and create gobal brand. I think it is not fair to judge china as shanzhai, clone. In past, japanese also shanzhai and clone. Furthermore, united states also shanzhan and clone. Less develop country will learn from developed country, so shanzhai and clone is unevitable. As chinese company earn more money, they will create innovative product to fulfill increasing demanding chinese customer and promote these wonderful product to whole world.  Actually, it is happening. Such wechat's shake function, Huawei and ZTE's telecom equipment, Lenevo X1 thinkpad product.

I think there is a distinct lack of ambition from Chinese companies. From my experience many Chinese companies just want to be the lowest common denominator: the oem manufacturer. They say we can give the lowest price and give the customer good quality. What happens when there are 10-20 companies saying this? All you get is samey boring products. I agree completely with Paul Denlinger about looking further for talent. Talent is everywhere, here and abroad. What also needs to be done is investment. Companies must be willing to invest in design. Instead of designing 3 products that all look the same design 20 that cover the entire spectrum of what is possible and maybe a few that is impossible. Designers are a mix of artist and engineer. Let their creative side shine and mix that with a clear and brave vision from the top. Jobs is not the one designing. He is the one with the vision. He lets his talented design team to do that. I have no doubt that China can make innovative products eventually but a lot needs to change.