Davos Will Be Different

Innovation is the new byword, and India has grabbed top billing from China

By Bruce Nussbaum

The traditional format -- plenaries and sessions, dinners and parties -- will continue at the 2006 World Economic Forum, but the conversation is changing dramatically. Sure, the gathering, which opens in Davos, Switzerland, on Jan. 25, is still the über-klatch for high-profile economic and political elites. Bill Gates will talk about philanthropy again.

Google's troika of Eric Schmidt, Sergey Brin, and Larry Page will throw its usual Friday night bash at the Kirschner Museum. Members of the Bush Administration's Cabinet and a parade of congressional Republicans will show up to talk about free trade and terrorism. Bill Clinton will probably preside over one of his late-night gabfests. And a series of private dinners, parties, and secret meetings among politicos and CEOs at the four-day event will reach a climax at the wild Saturday night soirée in the Conference Center and adjoining pool building.

Yet the content of the 2006 meeting will be a far cry from that of recent Davos gatherings. Previously, discussion at the World Economic Forum revolved around two main economic themes: outsourcing and China. This year innovation replaces outsourcing and India replaces China in the dialogue. These changes are significant because they signal a new stage in global economic development. CEOs are starting to move beyond their obsession with cutting costs by outsourcing their supply chains. In fact, that process is nearly completed at many Western European and most big U.S. and Japanese companies. China, the main beneficiary of outsourcing, has gotten top billing at Davos conferences for the past half decade.

Not so in 2006. This year there are an unprecedented 22 sessions under the theme of "Innovation, Creativity, and Design Strategy." There is a special series of six workshops just for CEOs. They include "Building a Culture of Innovation," "What Creativity Can Do For You," "A World Without Intellectual Property," and "Making Innovation Real." And there are larger sessions on such topics as "Prepping for the Creative Economy." Tellingly, the main discussion on outsourcing will come in a panel examining the outsourcing of innovation.

This shift in agenda reflects the fact that CEOs and the corporations they run can no longer generate value by competing solely on cost and quality, so they are turning to innovation. When everyone has outsourced, all competitors are equal. So Six Sigma, TQM, CRM, and other cost- and reliability-based business methodologies are being replaced by new design-based, consumer-centric management methodologies. One of the central topics of discussion at Davos in 2006 is how to best implement innovation.

Enter India, which is throwing the Saturday night bash this year as it launches its own global brand, "India Everywhere." Western companies are outsourcing knowledge-economy production to India, and that increasingly means outsourcing innovation as much as basic software writing. Indeed, many top managers equate India with outsourcing innovation in the same way they equate China with outsourcing manufacturing.

No question, it is easy to overstate this shift. Motorola Inc. (MOT ) is doing some of its best cell-phone innovation in Shanghai and Beijing labs, while Chinese PC maker Lenovo Group (LNVGY ) is designing startling new ways of interacting with computers. Baidu.com (BIDU ) and SINA (SINA ).com, the Google and Yahoo! (YHOO ) of China, have devised original user interfaces for their Web sites. And Chinese universities are graduating an army of engineers and designers who may make Chinese products more innovative in the future.

But not yet. China remains largely Wal-Mart's (WMT ) supplier, while India has a huge, sophisticated, English-speaking creative class that supplies brainpower to the world economy. Most U.S. corporations, management consultants, design firms, venture-capital outfits, and Silicon Valley companies have Indians in top positions. U.S. and other foreign companies are establishing research and development labs and design centers in Bombay and elsewhere, fueling a resurgent economy. The likes of GE Healthcare (GE ), General Motors, (GM ) and Intel (INTC ) are in India to innovate.

It may be that China morphs from commodity producer to innovator. But at this moment, as the fulcrum of the global economy moves from outsourcing to innovation, from cost-cutting to creating, Davos will celebrate India.

Assistant Managing Editor Bruce Nussbaum oversees BusinessWeek Online's Innovation & Design channel

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