|Daguo Xintai - China, the New Power
of the XXIst Century
Interview with Peter Williamson by
Rodrigues, editor of Gurusonline.tv, December 2003
INSEAD Professor, Peter
, recently wrote about China Tomorrow
for Harvard Business Review (October 2003 edition).
In this interview for Gurusonline.tv he explains the
earthquake that China emergence will be for geo-economics
and geo-politics. He is one of the co-authors of the
Metanational Theory, with Yves Doz and the Portuguese
Jose Santos, at INSEAD.
Daguo Xintai = mentality of global power
About the Metanationals Theory
Recently, Goldman Sachs published its study about
the emergent powers path to 2050. China, Brazil, Russia
and India will account for half the size of the G6 in
2040. In 2050 will account for 60%. China will be the
larger in 2050, and India the 3rd. The G6 will have
only China, USA, India, Japan, Brazil and Russia. In
20 years those 4 emergent powers will account for 1/3
of the G6. Is this a geo-economic and geo political
The weight of population and growth potential makes
this shift virtually inevitable. Hence the existing
G6 will have no choice to respond to the geo-economic
and geo-political "earthquake". In practice,
this will mean the existing members of the G6 will have
to make two main adjustments if they are to maintain
their living standards and some of their economic and
- To link their economies more closely to the emergence
of China, India, Brazil and Russia and the large, wealthy
economies of US and Japan -- finding ways to benefit
from these economic powerhouse through export of products,
investment in these economies, and supply of sophisticated
services to them;
- Relentlessly proceed with the further integration
of Europe to become an economic and political powerhouse
in its own right, re-establishing its influence in a
world of giants.
Interestingly, although progress is slow, the South-East
Asian countries have come to a similar conclusion. Businesses
in everywhere from Singapore to Thailand and the Philippines
and Taiwan are seeking to connect themselves to the
growth wave in China and India as suppliers of products
and services. The agenda for economic integration (through
APEC and ASEAN), even with the ultimate possibility
of a single currency, has received renewed impetus recently.
Relentlessly proceed with the further
integration of Europe to become an economic and political
powerhouse in its own right, re-establishing its influence
in a world of giants.
Regarding the international reports - for instance
from ATKearney, Ernst & Young, Cushman & Wakefield
- we observe that China is taking the role of the "commodity
manufacturing" center of the world (for outsourcing
movements from multinationals) and India the BPO leading
place (for BPO off-shoring). What's the impact in the
world economy of this trend?
The continued shift of commodity manufacturing and services
that can be delivered remotely (such as call centres
and basic financial services) to China and India will
be relentless because for the next 20 years, these economies
will continue to have a very substantial labor cost
advantage. For the most part, commodity manufacturing
and services in Europe will become uneconomic. But those
who supply differentiated (non-commodity) products and
services should not be complacent! China and India will
not be content with staying at the commodity end. Please
see numerous examples in our HBR article of Chinese
companies starting from the "low end" to build
volume, but rapidly moving up to higher value, more
sophisticated segments as they gain experience and build
their knowledge base.
Where does this leave European companies?
The answer is not simply to try to "retreat"
to the "high end" with China and India "snapping
at their heals". The answer is to drive for specialization
and global scale: asking what are the unique capabilities
that we can offer in the global market, including to
China, India, Brazil, US and Japan. Most of these unique
capabilities will be built on complex, "messy"
knowledge -- because ultimately advantage that comes
from these kinds of knowledge pools are the most difficult
to imitate. This means companies and countries need
to ask themselves "what special know-how do we
have locally and how can we leverage this in the global
But, wrongly, China is mainly considered a manufacturer
by the western analysts and policy makers, although
China has more than 1 million researchers and an emergent
knowledge intensive sector (not only in space and military).
What's your comment about that?
Following on from a previous answer, the implication
is that focusing on "knowledge intensive"
industries per se will not be enough to compete with
China long term. Although most people don't yet recognize
it, China is starting to compete in knowledge-intensive
industries as well (see the section on "technological
upstarts" in our HBR paper for examples). So it
won't be enough for European companies to compete in
"high technology" or "knowledge-intensive"
activities. Instead, they will need to choose those
knowledge-intensive activities where they have a real
and distinctive advantage because of know-how built
up by years of experience in the business -- know-how
that it will be difficult for China to replicate. It
also means that European companies should be looking
to China as a potential source of new technology in
the future -- building the business by sensing interesting,
but under-exploited technologies and knowledge in China
and combining this where their own know-how to come
up with world-beating "metanational" products
and services that hey can sell globally. Its because
of this potential that forward-thinking companies like
Otis Elevator, Nokia, and Novartis are putting R&D
centers in China.
The implication is that focusing
on "knowledge intensive" industries per se
will not be enough to compete with China long term.
Although most people don't yet recognize it, China is
starting to compete in knowledge-intensive industries
Japan was seen as the "engine" of the
world in the 80's and the futurists forecasted an Asian
Century for the XX Century. Japan is in serious trouble
since the 90's and the XXI Century opened with a new
geo-political strategy from the US. Do you think that
the XXIst century, particularly its second half, will
be the true Asian Century, but with China as its "engine"?
I'm not sure that the concept of an "Asian Century"
makes sense. We are in a globalized environment where
economies will be increasingly integrated, so you can't
look at one region in isolation. The US will continue
to be an important driver of the world economy. This
is still true of Japan today -- people keep on reminding
us how much "trouble" it is in because of
slow growth, but we shouldn't forget that Japan remains
the second largest single economy in the world and a
significant source of new technology (look no further
than "flat panel displays"). China is already
an important engine of world growth, it will become
more important in the future. But what this means is
the global economy will be like an airplane flying on
6 engines in the future, not just two.
As you mention in the HBR article, one of the new
emergent "actors" in the global scene is the
"hidden dragons", the emergent Chinese brands.
Do you think the leading present economic "actors"
and the present global brands (native from US, EU, Japan)
are aware of that trend?
As we argue in the HBR article, I don't think established
brands in the US, EU and Japan are paying enough attention
to China's "hidden dragons" -- they are myopic
about China, seeing it as a market only. But it is also
a new source of competition. It's interesting that in
the West everyone sees China's entry into the WTO as
a big market opportunity. But in China, people also
see entry into WTO as a big opportunity: an opportunity
to better penetrate US and EU markets with Chinese products!
Western companies typically forget this. [The HBR article
gives a list of myths that Western companies have about
China which leads them to ignore this new source of
The new Chinese multinationals have
been more open to leveraging the knowledge and capabilities
of others than traditional multinationals.
What are the main characteristics of these new brands?
Are they traditional multinationals?
These brands are mostly based on the capability of low
cost manufacturing or low cost R&D in China. But
they differ from traditional multinationals in two main
- They are generally focused on segments that existing
multinationals have ignored or views as "unattractive"
(like Haier's small refrigerators or Pearl River's entry
level pianos). These segments are the "loose bricks"
in multinationals' competitive walls. There attack is
targeted at the weak spots;
- Chinese firms have recognized their limitations and
used distributors, advisers, partners etc. to help them
fill gaps in their knowledge base more readily that
traditional multinationals who tended to want to do
most things, except for local sales and distribution,
themselves. Quite simply: the new Chinese have been
more open to leveraging the knowledge and capabilities
of others than traditional multinationals, whether its
using European designers to improve their product design,
or making acquisitions to provide access to new technology
(as China International Marine Containers bought Hyundai's
container-making operations in China, primarily for
Hyundai's refrigerated-container manufacturing technology).
Its not that traditional multinationals haven't do these
things, but the emerging Chinese brands are doing them
earlier in their lifecycles and faster. This makes them
closer to the "metanational strategy".
In your study about metanationals you refer to a
new kind of international companies, mainly native from
the Asian tigers or Europe. Are you seeing a similar
trend in the Chinese or Indian new brands?
As I said, the new Chinese companies are gaining strength
by combining their own advantage with knowledge they
can obtain from others elsewhere in the world. So they
are following a "metanational strategy" in
terms of leveraging knowledge from around the world.
They are probably more open to this because, having
faced strong competition from multinationals inside
China, they are well aware of the gaps in their knowledge
base. They are not shy about moving to fill these gaps
because their moto can be summed up as "what makes
you competitive long-run is not what you know today,
but how fast you can learn". Indian companies are
at an earlier stage in building global brands, but they
are following a similar path. In 2001, for example,
Tata bought the famous UK tea brand "Tetley"
(founded in Britain in 1837) to obtain improved knowledge
about international brand building and distribution.
© Gurusonline.tv, January 2004