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Life in China How Technology and Globalisation are Driving China in the 21st Century
Life in China How Technology and Globalisation are Driving China in the 21st Century | How Technology and Globalisation are Driving China in the 21st Century |
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| China | |
| Wednesday, 18 July 2007 | |
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(Abridged version of a Keynote Speech given at the AGM of the China-Britain Technology and Trade Association on 11 June, 2006) Whenever I talk about China, I can seldom resist repeating my favourite story about my American stock-broker friend. He said he did not have to deal with China because he is fully engaged with Wall Street. I referred to China's impact on commodity prices, the US bond market and through it, US and global interest rates and indeed property prices. Not to mention the 'China Price' driving businesses out of existence. These are no doubt affecting Wall Street. He was speechless. So, the China effect has become globalised. And it means more than buying and selling across the oceans. China has already overtaken the UK as the world's 4th largest economy. But say, how much money is China making out of a proprietary DVD player? Well, if it sells for US$32 in a Wal-Mart store, it should cost about $13 to produce. The lion's share, $18, goes to the brand owner. This leaves the princely profit of $1 for the Chinese manufacturer. I may be exaggerating a bit but I would not be far wrong. Then, how does Wal-Mart compete as the 'China Price' is not its monopoly? Wal-Mart buys the equivalent of Switzerland's GDP from China every year. It thus can drive a very hard bargain as a buyer. Wal-Mart is also a ruthlessly efficient synthesizer of a seamless global supply chain. As Thomas Friedman says, 'The World is Flat'. And Wal-Mart is a master of flatness. I recently experienced a lot of this flatness myself. I ordered a bathroom radiator from an internet retailer. The radiator originates from Italy and it got delivered to me by a UK logistics firm. I called AOL for technical support and the voice on the other side was from Bangalore. I did some consulting through a series of conference calls with New York without having met any of my contacts face-to-face. You may like to quote your own examples. Not only has the world become 'flattened', interconnected and interdependent but the global market place has dramatically enlarged and grown much more business-dynamic. China, India, and the former Soviet Union have created 'Three Billion New Capitalists' as these countries are transformed into full-blooded market economies, according to Clyde Prestowitz. Progressive world trade liberalisation and China's entry into the WTO are adding fuels to all this dynamism. It's no wonder that in barely over a decade, eBay has quickly evolved into an international community with 105 million registered users in 190 countries and a turnover of $35 billion. At any time around the clock, 2% of the world's GDP is in transit in UPS's worldwide fleet of 240 aircraft. All these global operations are driven by technology, connectivity, and creativity. Not only are goods and services traded across the globe, there is a breathless 'value migration' across national boundaries. Companies are competing by locating any part of their value chain any place where the value is best created. For example, Rolls Royce itself doesn't manufacture cars anymore. Its business is technology. 75% of its component supply and 60% of R & D are outsourced. Half of its revenue comes from outside the UK. Nowhere else is the phenomenon more pronounced than in the IT industry. Hewlett-Packard has 142,000 employees in 178 countries. Lenovo has bought IBM's computer arm and is busy building up its own brand worldwide under a Chinese Chairman, an American CEO, an American COO, and a Chinese CFO. As recently as last month (30 May), Microsoft is investing 250 million Yuan in partnership with Beijing's Ministry of Information Industry to help drive innovation, training and support. But this pales in comparison with Microsoft's robust presence in India with 4,000 local engineers. This is expected to increase to 7,000 with an additional investment of $1.7 billion over the next four years. The out-sourcing spectrum is gravitating towards the higher end, from power-point presentations to Wall Street data analysis, and clinical data-mining and early trials. Perhaps at this point it would be useful to ask (a) why India and (b) what has become the new Holy Grail of international competitiveness. As for the first question, history and language have helped many Indian engineers establish their US roots. Moreover, India's IT manpower profile is relatively strong, with some 800,000 IT professionals, 2 million university graduates a year, and a young population of 555 million under 25 years of age. The Indian Institute of Technology is said to trump Harvard, Princeton or MIT in IT excellence. Indian engineers account for 20% of Microsoft and 25% of Cisco staff in the US. But with a commoditised world, a $1 profit DVD player is fast becoming a norm. Making better widgets quicker is beginning to see margins cannibalised by fierce global competition. It is also facing growing protectionism or frictions in both advanced and developing economies where jobs and traditional industries are being threatened. Moreover, energy and mineral intensive inputs are likely to come up against increasing supply, cost, environmental and geopolitical challenges in coming decades. It is evident that continuous cutting-edge innovation as well as speed and efficiency in global leverage are winning the day. Microsoft, Google, Wal-Mart, Goldman Sachs, Virgin, Samsung are just a few of the examples that come to mind. Their strategic advantage is not so much making things, but making innovative ideas and global leverage happen. To win in the global market, you have to be the best in the world, and stay that way. Some Asian examples of innovation may be interesting. Canon President Hajime Mitarai says, 'We should do something when people say is crazy. Crazy is praise for us. If people say something is good, it means someone else is doing it.' As part of its global learning initiative, Samsung has a 5-year programme funding 400 managers each year on a 12-month sabbatical in an individually chosen foreign country. On return, they are expected to debrief their colleagues on their ideas to penetrate the relevant overseas market. These examples show that it is not enough for a company just to have innovative ideas. It is more important to nurture an internal innovative culture. This is because in the New Economy, the individual has become more empowered. I have devoted a good part of my speech to the new global environment because I feel that in a dramatically globalised world, it is vitally important not to look from inside a well, even if the well is as huge as China. So, is China in the very forefront of the New Economy, riding high in the Third Industrial Revolution? China plans to nurture 20 of the world's 500 largest companies by 2010. A handful of these are already emerging. According to US Petroleum Intelligence Weekly, CNPC ranks tenth of the world's top 50 oil conglomerates. China Mobile has perhaps the world's largest captive customer base. Huawei Technologies beat all the world's top suppliers to build a third-generation wireless telephone network for the United Arab Emirates. Haier has surpassed GE to become the world's fourth largest white-goods maker. China's 'Big Four' banks are among the largest in the world. But the main competitive edge of most of these champions is either on account of their size thanks to their relatively monopolistic position in China, or they deliver superior cost-quality ratio for a known product. None are leading the world in innovative technologies, let alone brand recognition, corporate management, strategic insight and international savvy. President Hu Jintao and Premier Wen Jiabao spoke on a 3-day national conference on science and technology opening on 9 January this year. Both outlined ambitious plans to promote innovation in realizing China's goals of coordinated, balanced and sustainable economic and social development by 2020. Priority will be given to technologies in energy and water resources and environmental protection. Emphasis is placed on proprietary technologies in equipment manufacturing and information industries. Also targeted are technologies for live sciences, aeronautics, ocean sciences, as well as both 'foundation' and 'leading-edge' scientific research and training. According to Premier Wen, spending on science and technology during the 11th Five Year Plan (2006 -10) will be higher than the expected increase in national revenue. Banks and financial institutions are required to support innovative activities and local authorities encouraged to develop high-tech zones. It is no coincidence why innovation was given such serious treatment. China has earned the international reputation of being the Factory of the World. Nevertheless, it is still largely OEM (Original Equipment Manufacturer) on behalf of foreign brands. It has yet to achieve major breakthrough in higher value-added and profit margins as I have illustrated with the example of $1 profit for a DVD player. So it is wise to push for a more efficient and sustainable course for China's competitiveness through home-grown innovation and creativity. But how good is China's creativity, especially in science and technology? While I was in Sun Yat-sen University in Guangzhou for my Visiting Professorship, I was watching one evening China's successful launch (Shenzhou VI) of its second manned space flight. The televised five-day orbit was most impressive. Moreover, any visitor would not cease to be amazed with the glittering Zhongguancun Life Science Park in Beijing and the Zhangjiang High-Tech Industrial Park in Shanghai. There are many more science parks around the country, with different degrees of sophistication and specialisation. There are plenty of examples of leading strengths in biotechnology, including genomics, stem cell research and gene therapy. China has one of the largest agricultural science programmes in the world, particularly in genetically-modified crops. As Premier Wen is reported to have said, China's magic big numbers never fails to amaze. China has over 4 million graduates a year. Over 600,000 past students have had an overseas education. In the US, Chinese students account for some 40% of post-doctorate degrees earned by overseas students. 90% of 160,000 returnees hold Master or Doctorate degrees. China has perhaps the world's largest pool of scientists and technologists, estimated at some 32 million at various levels. It has the world's fifth largest number of published scientific papers. Yet, there have been no 'home-grown' Nobel Prize winners in science and technology. And the real money in China's manufacture is still being made by foreign proprietary technologies and brands. In an interview on 8 January with Xinhua Online reporters, Wang Yuan and Mu Rong Ping, two national science and technology experts on development and policy respectively, identified the following nine major challenges: (1) Investment in science and technology as % of GDP stood at 1.23% in 2004, below the target of 1.5%. This compares with 2.59% in the US. And is well below the historical height of 2.32 % in 1960; (2) China's external technology reliance rate remains high at 50%, compared with 5% for US and Japan; (3) Home brands fail to command their fair share of the market. There is the saying 'Foreign goods, however expensive, are worth it. National brands, however attractive, are given second thoughts'; (4) World-class talent remains extremely rare. Representation in the 158 world-class organisations amounts to 2.26% with only one chairmanship; (5) There is still too much emphasis on research quantity rather than quality. The international quotation rate of scientific papers remains very low amongst the top 100. (6) There is too much gravitation towards short-term functionality and profits, and knowledge absorption rather than creativity. (7) Only 3% of enterprises possess core proprietary technologies. (8) There is too much duplication and variegation of resources. The utilization rate of large-scale scientific installations remains low, at 25%. (9) The ability of science and technology in helping to break through energy and other development bottlenecks to create an all-rounded well-off society remains uncertain. Recently, we are also seeing more robust enforcement of intellectual property violations. Cases involving Starbucks, Toto, and Ferrero Rocher come to mind. Credible intellectual property protection is a vital pre-condition for nurturing creative talent and proprietary brands. The likes of Lenovo, Haier, TCL, and even Mengnui (fresh milk) are all trying hard to build up global recognition. Current product advertisements in China are much more branding conscious. China does not lack technological innovation potential. China's TV champions such as Chanhong, Konka, TCL, Haier, Hisense and Skyworth and IT champions such as Lenovo and Great Wall are actively developing an industry-wide protocol for the emerging '3C' industry (Computer, Communications, Consumer electronics, all linked together interactively). China approved an Intelligent Grouping and Resources Sharing Standard in June 2005. This was the first of such standards for this promising new industry. Over the next five years, Chinese IPTV (Internet Protocol Television) users may double from 300,000 to become one of the largest markets for 3C products. Another example at the 'fun' level is the Colouring Ring-back Tone Service (CRBT). It has become something of a rage among China's 200 million 15-24 year-olds. 'Cool is out and Cute is in.' 'Don't be surprised if a mock Bart Simpson voice cautions you to be nice to the handset holder as he or she has had a bad day!' These fun-loving, web-surfing and more imaginative youngsters are largely the product of China's 'One Child Policy.' They represent a whole new generation of much more individualistic consumers and workers, its worrying longer-term demographic consequences notwithstanding. They are likely to supply the human resources and the market demand for more creativity. But with globalisation, branding is influenced by the branding of a nation. Think about how much more difficult it would be for countries like Afghanistan, Iraq, Iran, North Korea, Myanmar etc to market their own home-grown brands even if they have the best product and hire the best PR firm in the world. China in recent years has enjoyed a much more favourable national branding compared with the past. According to the PEW Global Attitudes Report dated 23 June 2005, 11 out of 16 countries surveyed view China favourably Two-thirds of the British have a favourable view of China, more so than Americans. However, international concerns with such issues as intellectual property infringements, environmental degradation, corruption and non-transparency, need for more human rights and democracy, and indeed the view of a Rising China threat, are increasingly being used against China. These concerns are often politicised and have already foiled two commercial attempts by China's champions to lock into the US market: CNOOC's bid for UNOCAL and Hailer's bid for Maytag. A flat world of such inter-connectivity and inter-dependency has flagged up a number of major global contradictions which underline much of the world's imbalances and instability. The conflict between the Rich and the Poor; between the gaining of jobs in one country and the loss in another; between Growth or Energy and Environment or Climate Change; between Saving or Export and Consumption or Internal Demand; between Currency Stability and International Parity. The list goes on. One man's meat is often another man's poison. China's recent national emphasis on 'Building a Harmonious Society' has obvious international applications. Technology and globalisation will be playing a crucial role in addressing some of the global issues. IT is already helping to bridge the urban-rural digital divide, as I have mentioned. This is likely to have a significant impact on poverty relief and rural development, including the access of healthcare. Apart from waste treatment, technology will be the key to a host of energy and environmental issues ranging from clean coal and mining safety, energy efficiency and saving, renewable or mixed energies, carbon emissions, and the harnessing and conservation of water resources. The world's first sizeable Eco-city now being built at Dongtan near Shanghai is a good example. Technology will also promote education and empowerment and the development of a more open and civil society. Above all, it will serve to reduce international conflict over energy concerns and enhance international understanding. I have no doubt that in the process, not only will a great number of innovative products and businesses be created and prone to flourish, but the world will have a chance to be a much better place, a place with more Hope, Peace, and Harmony. Andrew K P Leung, SBS, FRSA http://www.andrewleunginternationalconsultants.com/ |
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