Post a Comment
Expert advice: How to manage a strategy for China's fluid business environment
US electronics executives are learning that as the business climate in China changes, they also need to change their strategies for doing business there. Here is some expert advice on what to consider as you alter your business strategy for China.
By David Dan, D Square Transformation Consulting Inc. -- Electronic Business, 7/31/2007
The business environment in China is constantly in flux, and business executives need to manage these significant changes and respond to them.
The challenge is in knowing how to deal with the fluid business environment.
First, bear in mind that China has received more than $50 billion in foreign direct investment (FDI) every year since 2000, and this level of investment is going to last another three to five years per consensus. This was a strategy of "exchanging market with technology," but it has ended up with a few major negative side effects, including that 37% of GDP growth in 2006 was contributed from exports.
China has decided to downplay the following factors as growth indicators in 2007:
- GDP growth rate
- Foreign investment amounts in China, particularly for labor or capital-intensive investments
- Labor-intensive, export-oriented manufacturing
In other words, the "exchanging market with technology" strategy will be modified, significantly moving from labor and capital intensive industries to "innovation" and "growing the nation economy by balancing between inner and coastal regions" as new strategies in 2007.
What do these changes mean to electronics executives in the United States? China is not the lowest-cost place to do manufacturing. These labor-intensive factories are moving to inner regions of China or even Vietnam now. You should define your compelling reasons and strategies for you to go to China beyond "cost down."
You should consider the following when deciding how to alter your business strategy for China:
- Saving money should not be the only consideration for your company when you are considering investing or outsourcing a project in China.
- If you have committed to invest in China, then you need to learn how to build up your team in the US and China. Remember that building a team in China has its own unique requirements, as I explained in "How to develop, manage and lead a talent team in China."
- Engage to China's three major industrial clusters: Pearl Delta Cluster, Yangze River Delta Cluster, and Beijing-Tienjin Cluster. China has developed very successful and effective operating models in these clusters based on industry specific requirements, including ecosystem, logistics, supply-chain, and world-class logistics operating processes. For example, more than 70% of the notebook PCs made worldwide are built in Yangze River Delta industrial cluster (Shanghai is the core city of this cluster). These clusters are industry specific, so you need to know which industry is aligned with the specific cluster and then select the right and best place to invest. Your decision should not be based on cost alone—this is a TCO (total cost of ownership) and effectiveness of operation decision.
- Use China as a gateway to Russia and the Middle East markets. The advantages and connections China has to these regions may surprise to you.
David Dan is president and founder of D Square Transformation Consulting in San Diego. A computing industry veteran, he started up the Taiwan office for Intel and led Intel China in its startup stage in 1994.
