How do over a half million international companies make profits in China? How do Airbus, Dell, Wal-Mart, Citibank, Morgan Stanley, Microsoft, Cisco, GM, Unilever perform there? What is really inside Chinese society, banking, management, outsourcing, education, politics, individual life? How to do investing, travel, trade inside China? Get on-ground investigations from provocative journalist George Zhibin Gu.
timely and provocative business guide book: China’s Global Reach
Borderless Business, National Competition, Politics, and Globalization (book excerpts)
by George Zhibin Gu
Afterword
China, United States and Global Development
by Andre Gunder Frank
Chapter 6. All International Business Players are important
Today China is the biggest new frontier for international companies. In many ways, the Chinese market has more an international flavor than many other markets around the globe. Many unique characteristics have evolved along the way.
For now, China has already become one biggest theater for international businessmen to display their cultures and traditions as well as ambitions. They are singing their favorite songs and doing their traditional dances—all in one theater. So far, some have danced better than others.
Competing International Players
Up to now, the “Overseas Chinese Inc.” has been the biggest investor in mainland China. The United States is in second position, followed by Japan, numerous European nations, South Korea, Canada, and Australia.
Businesses from Hong Kong had an early start. Most if not all of the factories in Hong Kong have moved over the border. Today, about 240,000 Hong Kong residents work and live in Mainland China.1 Their employers are mostly small and midsize companies. They mostly focus on low-end consumer products. Their strengths are best shown in their vast numbers.
Similar things can be said about the business players from Taiwan and Macau, except that Taiwan’s semiconductor business has a sharp edge, which is increasingly established in Mainland China as well.
But the most influential players are global multinationals. China’s expanding market has created tremendous opportunities for the global giants, especially in capital-intensive and high-tech sectors. These giants have made a huge difference in connecting China to the global markets. But so far, different national players have had very different performance inside China.
Overall, on a global basis, the U.S. companies as a group are the biggest. The power of the United States is the most influential in many markets. In China as of now, U.S. players are just one among many foreign business groups. True, they are already very influential, but they can become even more influential if more US players join in.
Relatively speaking, the South Koreans are more active today than the Americans. To the Koreans, coming to China is a necessity, for their home market is small. They aim to use China as a new engine for growth. But the U.S. companies have a huge market at home. Most of them are less willing to venture out. Except for a few large players and high-tech companies, most sizable US companies have only 10% or less international business today. This is quite different from the situation for many leading companies in Europe, Japan, and South Korea. They may have much bigger international sales than their U.S. counterparts.
In China, many Korean companies have been latecomers in relation to Japanese and Western companies. But they have made great strides. Several are already household names, especially LG, Hyundai, and Samsung. Today, there are over 250,000 South Koreans living in China. In addition, some 4 million Korean workers engage in China-related business inside South Korea.
LG has been a star performer. By 2003, LG had invested .4 billion in China. The company has become a leader in the consumer electronics and home appliances sector. Its China business reached billion in 2003 and billion in 2004.2 LG is still expanding its investment programs and hoping to make China its second home.
Samsung is another success story. Its product lines—semiconductors, mobile phones, consumer electronics, and home appliances—fit China’s needs.3 By now Samsung has transferred most of its personal computer manufacturing to China. Its latest project is a new plant of making handsets. By now, it is already a top five player in China’s handsets market.
It seems that the Korean giant Samsung has found jade in China. Samsung intends to make China its biggest market, hoping to reach billion in sales by 2008. To this end, the company has been adding new programs. This has already made Samsung a leader in China. The Korean giant will become even more powerful, for it has found a big space in China.
What is behind the success of Korea Inc. is a combination of good timing and the right products. Above all, the Koreans are committed to China for the long term. The Korean success has inspired envy among international competitors.
In fact, Korean companies now treat China as their own production center as well as a big market. The average monthly salary for a manufacturing job is ,524 in South Korea, but only 5 in China.4 In addition, China is a huge market, much bigger than Korea—something the Korean companies cannot ignore. They intend to move most of their production from Korea to China, increasing the efficiency and profitability of expanding around the globe.5
Auto Market
In the auto market, all the American players are in China today. As is true internationally, GM and Ford are only two players among many in China. The largest player so far is Volkswagen. Volkswagen has been operating in China since 1985. But GM set up its Shanghai joint venture only in 1996. Volkswagen has kept its leadership role by expanding its programs and adding joint ventures.
But Volkswagen also faces huge challenges. All other players are catching up at its expense partly. In particular, GM has been doing better especially lately and moved up to the number one position as of 2005, which makes the German company try harder only. In Volkswagen’s global sales, China now takes about 20%. The German company is adding billion and wishes to make China a bigger center of its global business.6
At this time, both Volkswagen and GM confront numerous competing players in their price range. Honda and Toyota are two of these. Korea’s Hyundai landed in China in 2000. It hopes to make China its biggest market and is now in a hurry to achieve this goal. So far, progress has been huge. In 2004, Hyundai sold 150,000 cars in China, making it one of the top four car makers here.
Another U.S. giant, Ford, does not want to be left behind. Its most recent project was to build an auto factory in Nanjing in partnership with Japan’s Mazda and a Chinese company. At the present time, all global auto players are busy. They expect China’s auto market to reach 10 million by 2010, from 5.92 million in 2005.
All in all, China has become a new arena for global business. All multinationals have taken their unique roles. They are all important for now, and they all want to become even more important. In order to do so they must fight hard with one another, as well as China Inc.
International Banks
In the banking sector, there have been numerous restrictions for foreign banks up to now. Even so, many international players are eager to establish a foothold. Since 2004, because of the WTO accord, lifting of these restrictions has begun.
There are numerous international banks active today. Both Citibank and HSBC are aggressive players. They are competing with each other head-on. Nobody wants to be behind. Both banks are trying to bring their entire business lines over. Their eagerness and ambition are matched only by the degree of surprise on the part of the Chinese banks. Both players are household names already.
CONTENTS
Introduction
Three New Lessons
Growing Up in China
Going International
Returning Home
This Small Book
The Big Picture
Acknowledgments
Part I China as a New Global Theater
1. Ambitions of Foreign Multinationals in China
Today’s Versions of Columbus and Magellan
International Rush
Why Are They Here?
Why China?
One Big Factory-Market
More Sectors, More Players
2. The Business of China Is Business!
“Empty Talk Destroys Prosperity!”
Foreign Bankers
Spouses and Children
Welcome!
3. Creation of a Global Manufacturing Center
Unexpected Contributors
Arrival of Indian Companies
A Crowded Market
Galanz: the Manufacturer of the World
Convenient Settings
Future Trends
4. The Ultimate Driving Force: Explosive Consumption
Unexpected Development
Impressive Outcome
Continued Consumption Surge
5. Sharp Rise of Private Sector
One U.S. Banker’s Discovery
40 Million New Businesspeople
Rural and Urban Entrepreneurs
Buttons Create a New Industrial Town
Jinjiang, Fujian: Biggest Exporting Center for Sport Shoes
Low-End Players
6. All Players Are Important
Competing International Players
Auto Market
International Banks
International Listings
Consumer Views
Part II Global Interactions, Business Dealings, and Job Transfers
7. Learning - A Big Industry
Demand for Education
A Top School
International Involvement
8. The Officials’ Global Reach
Officials Lead the Way
Guangdong versus Inland
Abolishing Bureaucratic Tricks
International First
New York versus Beijing
9. “Capital Is Not Enough”
No Shortcuts
Two Lessons to Remember
Volkswagen versus Beijing Jeep
“Capital Is Not Enough”
Ericsson’s Seven Mistakes
Bashing Carrefour
10. Global Job Transfers
One International Question
Hiring by Foreign Multinationals
New Era of Global Job Transfers
Job Worries around the World
Hiring by Chinese Players
Global Job Transfers: China versus India
Part III China’s New International Experiences
11. Price, Price, Price
A Chinese Edge
GE in China
Japan’s Global Efforts
Cisco versus Huawei
Microsoft in China
Global Price Reductions
12. When Can Chinese Companies Become Global?
Weakness at Home
Foreign Observations
Low Benefits for China
State Banks: “The Troublemakers”
A Long Way to Go
13. Chinese Multinationals
Some Sizable Chinese Companies
Buying Into International Markets
Overseas Operations
Creating More Partnerships
14. Bringing Foreigners In
Trade Fairs
Industrial Parks
Foreign Acquisitions
Part IV China’s Reform at Home: The Unfinished Task
15. Problems Outpacing Solutions
The Ownership Issue
State Assets and Death on the Nile
“Two Pockets of the Same Jacket”
Lack of Weapons and True Owners
16. How Can a Man Still Wear Baby Clothes?
Credit Crisis and Banking Problems
The Richest Man in Shanghai
Corruptive Partnerships
17. Crises of State Sector
Rapid Changes in the Managerial Class
Hiring Foreign Managers
Long Live Competition!
Reform Difficulties
Painful Layoffs
Government Trimming
18. When Can China Achieve Meaningful Restructuring?
A Saturated Market
Difficulties for a Rational Order
The CEO in China and Elsewhere
Who Is Responsible for Wealth Creation?
Buying Parties Ready?
Need for Greater Determination
19. Employment Traps
Resident Permits
Lives of the Migrants
Employment Difficulties for Other Groups
Death of a College Graduate
20. Bureaucratic Tails
Tails Everywhere
Lucky International Players
“The Red Building”
Part V Globalization in Light of History
21. An Unbroken Circle?
The British Isles as a Global Center
China’s Missed Opportunities
The U.S. Way: Dumping Losers
Expansion and Wealth Creation, Past and Present
22. Universal Companies and Global Expansion
Bigger and Bigger Multinationals
First Strategy: A Strong Home Base
Second Strategy: Creating a New Form of Dominance
Third Strategy: A True Global Reach
China’s Participation in the World Economy
23. More on the Circle
Who Has Affected Globalization the Most?
First Factor: Japan’s Global Reach and Retreat
What Is Going On in Tokyo?
South Korea: Glories and Bubbles
Second Factor: Asia’s Financial Crisis
Third Factor: The World Trade Organization
Unexpected Developments
Global Development Orbit
24. How Does China Achieve Sustained Growth?
A Great Paradox
Effective Government, Different Role
The Big Picture
A New Model
Getting Out of the Box
A New World Order
Afterword: China, United States and Global Development
by Andre Gunder Frank
Notes
ABOUT THE AUTHOR
George Zhibin Gu is a journalist/consultant based in Guangdong, China. A native of Xian, he obtained education at Nanjing University in China and Vanderbilt University and the University of Michigan in the United States. He holds two MS degrees and a Ph.D. from the University of Michigan.
For the past two decades, he has been an investment banker and business consultant with a focus on China. His work focuses on helping international businesses to invest in China and the Chinese companies to expand overseas. He has worked for Prudential Securities, Lazard, and State Street Bank, among others. He generally covers mergers and acquisitions, joint ventures, venture capital, business expansion, and restructuring.
Also, he is a journalist focusing on China in relation to global development. His articles or columns have appeared in Asia Times, Beijing Review, The Seoul Times, Financial Sense, Gurus Online, Money Week, Online Opinion, Asia Venture Capital Journal, and Sinomania, among others.
He is the author of three additional books, China Beyond Deng: Reforms in the PRC (McFarland, 1991),
China and New World Order: How Entrepreneurship, Globalization, and Borderless Business Reshape China and World (Fultus, 2006), and Made in China: Players and Challengers in the 21st Century (English edition forthcoming; Portuguese edition, Centro Atlantico, 2005). He is a member of World Association of International Studies hosted by Stanford University.
Original: profits from China; hightech, travel, outsourcing, auto, retail, politics, jobs, strategy