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profits from China; hightech, travel, outsourcing, auto, retail, politics, jobs, strategy

by China travel, trade, education, politics Friday, Dec. 21, 2007 at 10:44 AM

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.

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