2009-06-04

Several China Articles from Knowledge@Wharton

New Challenges for "Made in China"
China's Growing Talent for Innovation
Chinese companies have been good at the "D" (development) part, Andrew says. "You could grow very large very quickly by playing in existing markets if you developed new products that were just a little better than everybody else's. But with increased competition everywhere, it takes products and services that are more innovative and targeted to needs that are not already being met." One recent example is a soybean blender that produces a popular soy milk drink. Joyoung Co. in Jinan, China's Shandong province, manufactures the blender, which has become "a big hit product." The blender has no fancy technology -- just a plastic body with an electric motor, but its "fundamental concept is what local consumers want," he says.

More dramatically, according to Michael, Taiwanese computer manufacturer Asus used its development capabilities to "single-handedly invent the netbook segment of the PC market." Producing computers stripped down in functionality and priced at $300 each, Asus "has completely disrupted the global PC market."

As existing markets become saturated, however, China must invest more in the "R" part of R&D to compete differently or to expand into fundamentally new markets, Andrew says. And while piracy has eroded profit opportunities in China's traditional gaming software industry, Michael points out that it has not similarly affected online games. "People are paying for the experience of playing games with each other, and that turns out to be profitable despite some piracy."
One question I ask myself about piracy is whether it is more a reality than a legal issue. Perhaps the American companies hiding behind patent and copyright protection are like companies hiding behind tariffs. Their competitors find ways to compete in the new environment, but they persist in outmoded methods and products.

Raising the Bar: Can China Meet the Quality Challenge?
Chinese companies, such as white-goods giant Haier and telecommunications equipment-maker Huawei, have shown "demonstrable success" in ensuring quality control, Pinney says. Companies that have years of experience in procuring from China are also "on top of this quality issue," says Michael.

Chinese suppliers, meanwhile, watch and learn from their foreign customers, Sirkin says. "In the 'old days' of globalization ... while the multinationals were outsourcing their production to the developing countries, something unexpected happened," he noted in a blog post after the release last year of a book he co-authored, Globality: Competing with Everyone from Everywhere for Everything. "Their suppliers and vendors, little companies in China and India and Brazil and elsewhere, watched carefully and learned well."

But not all Chinese companies have learned the right lessons, especially those behind the recent quality scandals, and a reorientation appears to be in order.
Chinese Manufacturing in an Age of Resource Price Volatility
The Dragon Turns Green: China's Manufacturers Adapt to a New Era
Rising Giants: Industrial Clusters Are Changing the Face of Chinese Manufacturing
In some areas, such as the Zhejiang sub-province of Ningbo, where the old tailoring center of Cixi is located, policymakers looked to their roots to find that special advantage. Ningbo decided, literally, to stick to its knitting. It began by converting factories that had made military uniforms into factories for more fashionable garments, at the same time allowing smaller entrepreneurs to form more specialized companies. Today, the sub-province has more than 2,000 apparel companies, which together produce about 5% of the nation's textile output.

Other examples, unconnected to some past industrial glory, include the many factories in the city of Dongguan on the Pearl River delta, which manufacture nearly a third of the world's magnetic recording heads so integral to computer hard drives, and some 16% of all computer keyboards. Additional notable centers include the Nanhai district's Dali township, which produces some 40% of the nation's aluminum products; Zhejiang province's Zhili township, which specializes in children's' clothing; and Datang in Sichuan province, with thousands of manufacturers turning out some six billion pairs of socks each year. All told, more than 1,000 clusters are devoted to exports.

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