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The China Transformation … and Your inevitable involvement. A transformation is taking place a transformation of societies from agricultural and rural to industrial and urban. A wave of innovations in production, technologies and capabilities A transfer of new technologies across the country Advanced industrial factories far surpassing prior factory standards. The fabrication and assembly of standardized parts. A Focus on modernization of transportation and communication and the Beginning of the application of science to industrial processes. What am I talking about here? You would THINK I’m talking about China and in a way I am. However ,what I’m talking about here is a Revolution. The Revolution of America beginning in the late 1800’s. Do you see the analogy here? Can you see the similarities? CHINA is going through a massive industrial revolution, THEIR industrial revolution, in our lifetimes …that will transform their economy and our world forever. There are 3 reasons:
Who gets up every morning thinking about China? Who gets up every morning thinking about work? While I don’t expect that you wake up every morning thinking about China and while you may not believe today that you have much of a role. The opportunity and challenge is there for everyone and you have been or will be affected either way! The question is: Are you going to be proactive or reactive? Are you going accept the challenge, pursue the opportunity and MAKE an impact or BE impacted by someone else’s acceptance of the challenge and their leadership. I will tell you from my 20 years of working in China and from my involvement with China today we have a formidable competitor or partner in China depending on how you wish to be engaged. The work ethic, commitment, capabilities and quality of the Chinese is intense. On several trips I make each year to China, we work 7 days a week, literally sun-up to sun-down. Sometimes I feel like the Chinese have no sense of time restraints. When I’m back in the states, it’s not unusual for me to be on the phone with the Chinese at 2:00 to 3:00 in the afternoon, (which is 4:00 to 5:00 in the a.m. for them). And it’s not that they’re getting to work early, they have never gone home! Now.. Am I advocating, this working style for us? I’m obviously not advocating this work schedule, I want impress upon you where the Chinese are…. And where they are going. With the new market economy There’s this feeling of uplifting for the Chinese The Chinese can’t believe it’s happening.. and they are running as FAST, and HARD as they can before the candle burns out! But you know what, it’s not burning out It’s burning bigger and brighter and bolder every single day that goes by!!! Let me share with you some basic developments in China to help you better grasp the transformation that’s taking place in China Slide 5 In this year, 2006, in the US we have entered our first baby boom, Those born in 1946, including our President, who turned 60 this year China is entering its 4th baby boom China was granted the 2008 Olympics in Beijing They were granted the 2010 World Exposition in Shanghai China gained admission to the World Trade Organization in 12/11/2001 These ARE NOT casual developments China had foreign reserves at the end of 2005 of $819 billion Only Japan, with reserves $847 billion has a larger stockpile Last year alone – China’s reserves grew by $209 billion $42 billion in the 4 th quarter of 2005 Let’s talk about what’s happening with infrastructure Slide 6 In the past 5 years, China has spent more on transportation infrastructure than in the previous 5 decades of communist party rule. From 2001 to 2005, expressways, interstates that is, grew by more than 15,000 miles, bringing the total expressways to over 25,000 miles The US has 46,000 miles of interstate In addition China will build more than 100,000 miles of rural highways in the coming years By 2020, China is likely to overtake the US with the most paved roadways. Only India has more road miles, but 1/3 are unpaved. The Chinese government has set a goal to generate 15 % of its energy supplies with renewable resources by 2020 Clusters of windmills for power generation are being built along the eastern coast of China Over 30 nuclear power plants are planned to be built by 2020. The Central Government also promotes water energy, solar energy and biological energy. AND when we talk about population density Anyone want to guess how many cities the US has with populations over 1 million? The US has 9 cities over one million China has 34 cities over 1 million each And to accommodate the massive influx into the cities, China would have to build a city the size of Houston every month. And how about the economy Slide 7 China’s economy is growing at 9% year over year Measured on a PPP basis, China is the second largest economy in the world after the US The Chinese GDP stated in PPP is $8.2 trillion …. The US is $12.4 trillion And as a comparison: Japan: $3.9 trillion … Germany $2.5 trillion … and UK at $1.8 trillion These are figures right out of the World Bank and CIA Fact Book Slide 8 The world’s largest luxury motor yacht builder, Ferretti Yachts has entered China An entry level yacht costs $1.43 million Ferretti targets individuals with liquid assets of at least $5mil There are 823,000 people in the world matching this profile – Rick Brown being one of them There are 50,000 people in China who match this profile More than 300,000 Chinese have net worth over US$1 million … Excluding property And China has MORE than just the wealthy … China has a huge developing mid market … growing exponentially China has a tremendous appetite for Western products and brands. Now I offer all of this being fully aware issues surrounding China Issues surrounding trade restriction, IP rights, environmental issues, currency undervaluation, human rights issues and general barriers to trade. And unfortunately, time today doesn’t allow me to go into these important areas. I will just offer that significant progress is being made in these areas everyday and the Chinese, as much as anyone, recognize this need and are making strong, dedicated commitments and progress. Many foreign companies are now penetrating the Chinese market in cosmetics, western food, lasik eye surgery, wines, vitamins, industrial products, instrumentation and a multitude of other products. A huge representative example is Wal Mart, China’s 8 th largest trading partner in exports However, on the China market side: Wal Mart has opened 39 stores, including Super Centers, Sam’s and neighborhood markets in 15 cities around China Further validating local market opportunity in China SO …. Given all of this.. You might ask where do we go? Where is YOUR opportunity? Slide 9 Let’s talk about this. A growing number of large successful domestic Chinese companies are already beginning to look outward as they begin to develop their brands and business on a global scale. You recently witnessed what took place with IBM, Unocal, and Maytag and Haier between the US and China Brand development, domestic or global, is one of the least understood concepts in China today. And although the knowledge and talent it takes to develop brands does not exist widely within China today, it almost certainly will exist tomorrow. Chinese companies have realized that in the margin chain of business, the Chinese manufacturer traditionally has the lowest margins, While the more attractive margins are realized by the brand owner Chinese manufacturers need to align themselves with, make investments in or acquire local Western companies to position themselves in the more lucrative part of the margin chain. While China, in the short term, will follow the Taiwan model, a competitive advantage based primarily – if not singularly – on low cost copycat manufacturing, China does aspire to a more South Korean (Samsung) or Japanese (Sony) model basing it’s competitive advantage on technology breakthroughs and innovations. And let’s not forget that the Chinese are credited for inventing paper and printing, the compass, gunpowder, and hence fireworks The Chinese also revolutionized agriculture by being the first to harness animals. And long before the calculator or computer, The Chinese developed the first object for counting; the abacus As China graduates more than 1 million university students each year and more than 90% of them in engineering China is very serious about moving beyond just a low cost of manufacturing competitive advantage. In addition, to penetrate other markets, the Chinese are recognizing the NEED to partner with western companies to achieve distribution, service levels, brand loyalty and to leverage the localized advantages and networks built up US companies over many years. There exists in China thousands of companies that have extremely high quality, capability and desire to do business in the US. These are companies certified to ISO 9000 standards, utilizing 5S and incorporating modern management and manufacturing methods. They have been successful with Japan, Germany and other industrialized countries for years. Only recently, within the last 10 years, has China really had the opportunity to work and partner, on a large scale basis, with the United States. In addition, companies in China, offer tremendous partnering opportunities to penetrate their local markets, bring western products, transfer global industry standards and achieve higher levels of professionalism throughout various industries. As with joint ventures in global branding, China’s long term global competitive pricing advantage offers tremendous opportunities to Chinese and Western companies. Companies from Western countries can preempt their traditional competitors by partnering with selected Chinese domestic companies. This advantage is likely to continue into the unforeseeable future much longer than Japan’s 20 year competitive run. The undeniable fact is that Chinese companies WILL globalize with or without active engagement by Western companies ….. It’s inevitable. What may not be inevitable is the vision and courage needed on the part of Western companies to engage Chinese companies in new, bold ways Slide 10 In closing, you might wonder about advice for doing business in China. Bottom line … It is very different. Not necessarily difficult, just different. As in any business relationship, you need to find and work with the right people. Unless you have experience, you need to become familiar with the Chinese business approach, travel to the country and understand the business culture, attend trade shows and visit various commercial organizations. It is also advisable to have a local expert agent in China A local agent in China who can introduce you to the right people, pave the way for government officials, monitor shipping schedules and organize inspections, continuously negotiate terms including price provide daily communication and translation, and most importantly, provide insight and direction I encourage you to explore with your management ways to help your customers become engaged with China. Explore your customers’ needs as THEIR value added supplier And understand how you might help them, and effectively YOUR company, get involved with China in a meaningful way Perhaps you could explore ways with your company where you could bring Chinese business through your company to the benefit of your customers Perhaps you could assist them with sourcing needs or private label products Perhaps you could help arrange a three way partnership that might help get their products into the Chinese market. SLIDE 11 Personally, for me, it is a very exciting area If you haven’t already gathered by now, I have a tremendous affinity for China And the possibilities for all of us And we are ready to personally help you with your China engagements in any way we can. I speak not only for the company’s resources but also for me personally I am always available to help you and your customers begin their Chinese efforts and strategies in a meaningful way. Please feel free to contact me or my office anytime for assistance. Finally, the message is to get started. Take a step by step approach, but if you don’t want to get left behind, make it a personal goal to be committed with China some way in 2006. I assure you the Chinese aren’t waiting. USA Today recently reported that 10,000 Americans are learning Chinese each year. So that’s great. They are making an effort. They’re taking a step. Oh, and by the way. USA Today also reported that 100 THOUSAND Chinese a year are learning English!! |
