In the Shadow of the Dragon
The Global Expansion of Chinese Companies--and How It Will Change Business Forever
Authors: Winter Nie, William Dowell
Pub Date: May 2012
Print Edition: $27.95
Print ISBN: 9780814431702
Page Count: 304
e-Book ISBN: 9780814431726
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Knowing others is intelligence; knowing oneself is true wisdom. Mastering others is
strength; mastering oneself is true power. —Lao Tsu
Napoleon Bonaparte’s famous prophecy that “When China awakens,
the world will tremble” has not fully come to pass yet, but it is
clearly on the horizon. The Economist recently noted that although
China is now the world’s second economy, its share in global business
investment is still only around 6 percent, and most of that is in
wealthy countries, and to a large extent in the United States. In contrast,
Great Britain accounted for more than 50 percent of overseas
investment in 1914, and the United States accounted for a larger
share than that in 1967. Whether or not it eventually surpasses the
United States as the world’s next leading power, China is already
having an important impact in the international world on everything
from business to employment.
Anyone who doubts China’s importance only has to look at the
figures. China’s population is more than four times the size of the
population of the United States, and China has already absorbed a
large share of the world’s low-cost manufacturing, ranging from
consumer electronics to textiles, plastics, shoes, clothing, and bicycles.
The affordable prices of the goods that flood into the Walmarts,
Costcos, and Best Buys of the world are made possible by
the continuing willingness of Chinese workers to put in long hours
at low pay. China’s low-cost–high-productivity approach helped
fuel a worldwide boom in consumerism without creating runaway
inflation. The downside has been the loss of thousands of low-end
manufacturing jobs in the United States and Europe. They are not
likely to return.
Other countries have also provided cheap labor for routine
manufacturing, but several important factors make China different.
The enormous size of China’s internal market and the density
of the population in its cities make it possible for new business to
obtain a critical mass much more quickly than in other countries.
They also create fierce competition. Those companies that make it
through the Darwinian struggle that is now taking place in China’s
private sector have streamlined themselves for maximum efficiency,
and even more important, they’ve learned to respond to
changing market conditions with impressive speed. The lesson
emerging from China’s turbulent marketplace is that profit margins
are razor thin, competition is ruthless, and only the best and
quickest can survive.
Cornering the lion’s share of the world’s basic manufacturing
has given China an advantage when it comes to systems and infrastructure
that makes it even harder for other countries to compete.
Chinese ports can ship goods faster, cheaper, and more efficiently
than any other emerging economy and more conveniently than
many advanced economies. China’s high-speed rail links and
improvements in transportation and power generation mean that
start-up companies can get support in China at a level that other
countries have difficult matching.
The enormous scale of China as a manufacturing powerhouse
has also given it considerable leverage when it comes to attaining
access to new technologies developed by the leading industrialized
countries. In early 2009, when the Chinese government put out bids
to build its high-speed rail system, it forced foreign companies to
enter into joint partnerships with Chinese companies. The foreign
companies could have only a 49 percent equity stake and had to offer
their latest designs. At least 70 percent of each system had to be made
locally. Today, foreign multinationals still supply some of the most
highly sophisticated equipment to China, but for rail transport, they
account for only 15 to 20 percent of the market. Chinese companies
have already mastered many of the core technologies.
The business relationships that China has created around the
world make it easier for Chinese start-up companies to put together
efficient supply chains and obtain needed resources, giving the
Chinese advantages that competitors in other emerging economies
simply don’t have. While China still has a pressing need for highly
qualified managers, it has been sending thousands of students to
the world’s best business schools for advanced training, and it is
catching up fast.
Within China, the country’s amazing growth rate is likely to be
prolonged by the rapidly rising level of skill and education of its
population and the readiness of recent graduates to work long hours
to get ahead. It’s possible to hire a college graduate in China for as
little as $300 a month, and there are more and more of them. The
United States, for example, currently graduates around 40,000 engineers
a year. In contrast, China graduates 280,000—more than the
rest of the world combined. And all of this is happening in a remarkably
short period of time. In 1998, China had around 830,000 students
studying in colleges. Today, it has more than 6 million, and the
quality of the education being produced by these colleges is very
good. It is no secret that China is rapidly moving in the direction of
becoming a first-rate power in science and high technology, and
some of its leading corporations, such as Huawei, are already there.
In areas like clean energy, China is already taking the lead.
President Barack Obama had intended to make solar and wind
power a major focus of U.S. investment in technology, but shortly
after China began focusing on the market, most of the production
had shifted to China.
China’s vision of its place in the world is also evolving fast.
Chinese companies that conquered China’s domestic market a
few years ago are now determined to go global and to compete
internationally with established Western multinationals. These
companies do not really have much choice. Pressure from price
wars and intense competition inside China, as well as from the
multinationals that gained access to China’s internal market when
China joined the World Trade Organization in 2001, is forcing
China’s major companies to expand internationally in order to
Western companies that find themselves increasingly challenged
by this new situation have the choice of competing head-on
or of forming new alliances with Chinese partners. A growing number
of these Western companies are being bought outright by
Chinese investors. Understanding China’s internal frame of reference,
what the Chinese are trying to do and why, is increasingly critical
to corporate survival.
While a flood of books have described the China phenomenon
from a Western point of view, hardly any have been written from
the perspective of how China sees the world and how this vision
relates to what is actually happening on the ground inside China.
This book examines several of China’s top companies that are now
beginning to create a presence outside China. Each of these companies
is a dominant leader in a different segment of China’s economy,
whether it happens to be energy, electronics, low-cost
production, financial services, sophisticated industrial equipment,
or household appliances.
It is important for Western businesses to understand how and
why these companies function the way they do. China’s new
entrepreneurs—particularly the ones that have grown up in the
private sector following the Open Door Policy initiated by Deng
Xiaoping in the late 1970s—are playing by rules that are radically
different from the ones that Western corporations and multinationals
are used to.
While strategies in the West tend to resemble a chess game, in
which powerful pieces attack their target from various directions,
the strategy adopted by many of China’s new companies more
closely resembles the oriental game of Go. In Go, the target is surrounded
by pieces that have little strength as individuals but that
eventually work together to envelop and lethally submerge the target.
In Go, positioning and timing is everything. Mao Zedong used
a similar strategy to defeat the Nationalists in China’s civil war in
the 1940s. He referred to it as “occupy the countryside and surround
How the West responds to China’s emergence as an economic
power will have a crucial impact on both international business and
the current trend toward globalization. There is a natural tendency
in the United States to see Western purchases abroad as investments.
Yet when the Chinese try to secure reliable energy reserves or
to buy up foreign companies in order to get access to technology, it
is often treated as an invasion or a grab for power. But China today
is not a monolith, and it is very different from the communist
China of the 1950s and 1960s. The Chinese companies that are
emerging today as the most competitive are those that have managed
to survive in a harsh, free market environment, with little government
support to help them get started. Many Chinese admit
themselves that they still have a long way to go in terms of development,
but they are learning fast.
What makes these companies unique is their extreme readiness
to adapt to unforeseen situations, and in many cases to gamble
the entire company on a single strategic decision. While major
Western corporations have a tendency to diffuse responsibility by
turning to committees to set strategies and make crucial decisions,
the new Chinese entrepreneurs often act on instinct. The result is
that they often close the deal before an unsuspecting multinational
competitor can react. Few Western companies would be allowed to
take the kind of risks that many of China’s best entrepreneurs have
engaged in, yet to survive, many Western multinationals may need
to learn how to do just that in the future. This book explains why.
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