Imitate or die

CHINA makes computers, but imports most of its chips. India makes drugs, but copies almost all of the compounds; it writes software, but rarely owns the result. The bolder claims made for all three industries thus have a similar, hollow ring. They have flourished, but mostly on the back of other countries' technology. “We are not at the stage of Intel Inside,” admits Arvind Atignal of Clinigene, a clinical-research firm, drawing his own analogy between desktops and drugs. “We are the keyboard, screens and peripherals.”

How much does this matter? Joseph Xie of SMIC, the Chinese chipmaker, spent seven years working inside Intel. Its strategy, he says, was simple: “get there first; make most of the money; let the second guy get the change.” That is certainly one way to run a technology firm. But competing in that race is expensive and exhausting. Few of Intel's rivals still try to keep up with it, nanometre by nanometre.

Countries of China's and India's heft and ambition cherish the idea of pushing back the limits of technology. But that push is risky, costly, frustrating work. A country shouldn't do it unless it has to. Although China and India could devote their considerable intellectual resources to solving the problems faced by economies on the technological frontier, why cross that bridge until you reach it? Seen in this light, India's generic drugmakers are models not laggards. They invest in just enough know-how to exploit the rest of the world's discoveries. Thanks to them, Indians enjoy some of the world's cheapest medicines.

Under the WTO's Trade-Related Intellectual Property Rights agreement (TRIPS), India has ceded the right to free-ride on foreign advances (see article). It now grants 20 years of patent protection to inventions hatched after 1995. In return, it hopes tighter laws will inspire Indians to new exploits in innovation, and reassure foreigners wary of inventing or making original products in the country.

The tougher laws may yet succeed. A recent study by Bruce Abramson of the World Bank expresses high hopes. A “patent chic” is already detectable in the country, he reports. He has even heard of Indian farmers calling lawyers in the hope of patenting their prize vegetables.

But, as yet, the new regime has not proved its worth. Over 17,000 patent applications were filed in India in 2004-05, almost 40% more than the year before. But only 3,500 were by Indians. Of the 49 most prolific filers in the past decade, 44 are either foreign companies or subsidiaries. Of the five Indian firms, all are either government-sponsored institutes or generic-drug companies, which did fine before TRIPS.

The new regime will be costly to run, if India takes it seriously. But the larger cost lies in the opportunities for unabashed imitation that India has now forgone. These lost opportunities might be quite big. Had Indian firms been prevented from copying fluoroquinolones, for example, the Indian public would have been worse off by the equivalent of $255m a year, reckons a study of the antibiotics market by Shubham Chaudhuri of the World Bank, Pinelopi Goldberg of Yale and Panle Jia of the Massachusetts Institute of Technology.

Drawing in the tail

India could resolve not to invent another thing, and still prosper mightily. It does not even have to catch up with the world; as noted earlier, it has much to gain merely by catching up with itself. A report by the World Bank (“Unleashing India's Innovation”) cast its eye over thousands of Indian enterprises—makers of drugs, foods, car parts and textiles, as well as metal-bashers and garment-weavers. In each industry, it found a thick clump of unproductive companies operating far behind the industry's vanguard. In garment-making, for example, the bank found a few highly productive companies, in which the value-added per worker was over 600,000 rupees in 2004. But in over 60% of the industry, that figure was less than 100,000 rupees. Even ignoring the very best firms, the bank still found a leading group in each industry that was about five times as productive as the average firm. It calculates that India's national output could be 4.8 times bigger than it is if only enterprises were “to absorb and use the knowledge that already exists in the economy.”

Learning new tricks is not the only way to thrive. China may have stopped inventing things (clocks, compasses, gunpowder and so on) after the 15th century. But it did not stop growing. The empire found fresh farmland to till, using the same old techniques, and new markets to exploit, selling the same old goods. Likewise today's China still enjoys a lot of scope for “extensive” growth—doing more with more—as well as “intensive” growth—doing more with less. “China is very much a top-line country,” says Max von Zedtwitz of Tsinghua University in Beijing. Although outlays on R&D are increasing, many people still appreciate size over sophistication. In the scramble to grow, a company that sets aside precious resources for research can be at a disadvantage. By the time its investment pays off, the firm's rivals might be twice as big. “They will acquire you,” says Mr von Zedtwitz.

Technological pursuits have opportunity costs. Other, perhaps more lucrative, uses can always be found for the resources so expended. That is why no firm in China is betting billions on a risky search for the next blockbuster drug. “If I had even a hundredth of that kind of money,” says Hai Mi of WuXi PharmaTech, a pharmaceutical firm in Shanghai, “I'd rather open a restaurant.”