By: Oded Shenkar. Upper Saddle River, NJ: Wharton School Publishing , 2005 , 191+xiv pages Review by: Preston G. Smith
According to Birgit Zinzius, “China's economic growth will within a few years make it the second largest economy in the world, just behind the United States” (Chinese Century [CC], p. 22). Oded Shenkar goes further: “It would be no exaggeration to say that China's rise is a watershed event that will change the global landscape and that it is on par with the ascent of the United States of America as a global economic, political, and military power a century earlier” (Doing Business [DB], p. 161). These statements have some serious implications for product developers. First, China offers a large and growing market for consumer and industrial goods. For example, Buick, which has been a stagnant brand in the United States for decades, is now providing General Motors with a huge growth opportunity in China. Zinzius states, “… On the basis of purchasing power parity, about 400 million consumers [in China] enjoy purchasing power similar to people in the United States, Japan, and Europe” (CC, pp. 164–5).
Second, although we regard China mainly as a provider of inexpensive, low-quality products today, both the cost and the quality of Chinese goods are rising dramatically. For instance, almost every computer made now includes parts made in the People's Republic of China. We have seen Japan and the Asian Tigers (i.e., Taiwan, Hong Kong, South Korea, Singapore) move from cheap, low-quality goods to more advanced ones, but China has the ability to serve both markets at once—more advanced products from its eastern provinces and low-cost ones from its western hinterlands.
Third—and most importantly for product developers—the Chinese are no longer content to manufacture products from drawings supplied by companies in the West, what they call original equipment manufacture, or OEM. Many mainland Chinese firms are now creating their own drawings from general guidelines provided by their Western customers—what they call original design manufacture, or ODM—and some are moving beyond this to original brand manufacture, or OBM, of products entirely under their own control for both domestic and export markets.
Both The Chinese Century and Doing Business in the New China offer valuable information for the product developer. Although Zinzius aims squarely at the reader who wants to start a business in China, she provides cultural information that is important for the product developer. She describes the fundamental role of Confucian philosophy that still pervades this communist economy. For example, the topic of names, titles, and forms of address she covers in chapter 1 is critical because in Confucian philosophy a strict social hierarchy creates discord when violated. In a discussion of contracts and negotiation, Zinzius observes that in China, in contrast with the West, the context and the relationship dominate the details of both the contract and the negotiation leading up to it. Thus, it is essential to build a relationship before getting into substantive matters. Further, once the contract is established, parties are much more likely to work things out rather than to rush to court to uphold the letter of the contract.
Zinzius covers the key topic of guanxi, roughly translated as relationships and networking, briefly in chapter 3. Guanxi is so critical to understanding the Chinese that it should have received fuller treatment earlier in the book. Should you be more interested in these cultural issues than in actually starting or operating a business, I recommend the excellent book by Chen (2001).
There are other nuggets for the product developer. Toward the end of chapter 2 Zinzius provides information on building and maintaining face, which is essential for any westerner working with the Chinese. Chapter 3 contains an illuminating discussion, which is valuable for product marketers, on naming companies, brands, and products in Chinese. For instance, Coca Cola first attempted a literal approach, which was a disaster, because Ko-ka Ko-la means approximately “bite the wax tadpole” (p. 177). Then they went to Kekou Kele, which has some phonetic resemblance, and translates to “tasteful, delightful” (p. 173) and provides auspicious connotations as well. And do not miss Deng Xiaoping's guidance “that foreign investors in China are expected to be milked” (p. 100).
The Chinese Century presents the case for why we should take China seriously as a world business power—in Shenkar's opinion, the dominant business power of the twenty-first century. Shenkar believes that China will surpass the United States as the world's largest economy within 20 years. Already, Volkswagen is exporting cars from China, and Honda is set to do so. Wal-Mart imported US$12 billion worth of Chinese goods in 2002. Shenkar observes that Chinese manufacturers fit synergistically with Wal-Mart's strategy of low prices combined with massive promotions of little-known brands. For a major promotion of televisions, for instance, Chinese manufacturers are the only ones that can supply the volume needed by Wal-Mart, and Wal-Mart does not need well-known brands for such sales.
Besides low-cost labor, China has several factors in its favor. It is receiving vast amounts of foreign investment, and the government is clever to ensure that foreign investors transfer their technology as part of the deal. Their educational system is improving rapidly, and 43 percent of those in universities are studying science or engineering. There is an active program to bring back talented “overseas Chinese” professionals. The government assigns a high priority to establishing research and development (R&D) centers; over 200 such centers now exist, including those established by Oracle, Siemens, Lucent, Nokia, Nortel, Agilent, IBM, and Hewlett Packard. Finally, in a country known for its bureaucracy, the communist government can react very quickly because it has essentially no checks and balances such as a legislature or judiciary.
Shenkar's chapter 5, “The Two-Dollar Rolex,” covers the intellectual property (IP) difficulties manufacturers face in China. Counterfeit products are quite common: Yamaha estimates that five out of six motorcycles carrying its name in China are bogus, and 94 percent of the business software in China is bootlegged. Other authors, including Zinzius, attribute Chinese IP violations to the culture, since many Chinese cannot conceive that intangible property can belong to a person. Shenkar notes that this seems to be supported by the Confucian teaching that emulation is the sincerest form of flattery. However, he argues that IP rights are sidestepped because it is in individuals' and the government's economic interest to do so. Furthermore, he maintains, this will change only when China has enough IP of its own that it makes more sense to protect rather than to violate IP rights, which is unlikely to be soon. He points to the United States in the nineteenth century, which followed exactly the same route.
Shenkar admits that there are some dark clouds on the horizon, but he believes that these will only slow China's plans, not stop them. These difficulties include a banking system on the verge of collapsing, major environmental and natural resource shortage problems, building a social support system to replace the unprofitable and thus fading state-owned enterprises, and the tightrope Communist Party officials are walking in encouraging prosperity while maintaining strict dictatorial control. He cites the Confucian Mandate of Heaven, which dates back to earlier dynasties, suggesting that the people have not only the right but also the duty to bring down a ruler who is not delivering prosperity.
These two books offer the product developer a valuable perspective on this rising economic power in new products, and they help us understand how China is deftly balancing communism and capitalism today. As Yin Mingshan, China's motorcycle manufacturing tycoon and a man worth US$113 million, puts it, “The Party is evolving in line with the changes in China. It is no longer interested in making the whole world believe in communism. Today, the main aim of the Party is to make the country and the people prosperous” (Leong, 2004, p. 49).
Released: October 2, 2013, 10:56 am
| Updated: November 20, 2013, 11:48 am