The Chinese Way-Is there something for India?

Anand took me yesterday to Apple Shop for buying a lap top for Shannon. We reached the shop at 9PM. I had agreed to accompany Anand as I wanted to see the life at this late evening in the shops of US. For Anand and Shannon too, as they told me, it was one after many years. Surprisingly the shop was closing for the day and denying the fresh customers to enter, though Shannon had confirmed that it would remain open till 10PM. But when we explained our case, the manager who happened to hear us made us enter and buy the laptop, a $1400 commodity. For me it was a strange thing in US and that too with Apple’s own outlet.

I found both Anand and Shannon very happy with the purchase. As we came out of the shop, Anand and Shannon wanted to have some night strolling in the shopping complex. I asked them to allow me to get into the next door Barnes and Noble. It was open and pretty crowded even at that late hour. This is another indicator of the reading habits of the nation that differentiates it with India.

I love to glance through HBR as the first thing always.

I came across an article by Thomas M. Hout and Pankaj Ghemawat, ‘China vs the World: Whose Technology Is It?’ in Harvard Business Review December 2010. It’s a pretty good study on the changing Chinese strategy to take a lead in high tech manufacturing sector.

I am quoting some extracts from the article with wishes that India can draw some lessons from China and gets into manufacturing in a big way. It’s only manufacturing that can provide jobs for persons with all levels of skill. India must focus on facilitating some companies such as BHEL, BMEL, and even HMT Machine Tools Division to become global by providing more autonomy and bringing in the professional heads. If Obama’s visit has given opportunity, India must take advantage of it.

Can it encourage globally known names in high technologies such as GE and Boeing to gradually have its major manufacturing facilities in India that will create a lot of local enterprises of all sizes and provide employment?

Can the Indian companies with large number of collaborations for many years learn the way Chinese have done and independently be global companies?

China is quietly and deliberately shifting from a successful low- and middle-tech manufacturing economy to a sophisticated high-tech one, by cajoling, co-opting, and often coercing Western and Japanese businesses.

The Chinese government has deployed several strategies to help local companies acquire state-of-the-art technologies and break into the global market.

Beijing drives the process nationally in most capital-intensive sectors. Consider high-speed railway systems, now an estimated $30 billion a year market in China. In the early 2000s the superior equipment of multinational corporations such as Alstom, which built France’s TGV train system; Kawasaki, which helped develop Japan’s bullet trains; and Siemens, the German engineering conglomerate, gave foreign companies control of about two-thirds of the Chinese market. The multinationals subcontracted the manufacture of simple components to state-owned companies and delivered end-to-end systems to China’s railway operators. In early 2009 the government began requiring foreign companies wanting to bid on high-speed railway projects to form joint ventures with the state-owned equipment producers CSR and CNR. Multinational companies could hold only a 49% equity stake in the new companies, they had to offer their latest designs, and 70% of each system had to be made locally. Most companies had no choice but to go along with these diktats, even though they realized that their joint-venture partners would soon become their rivals outside China.

The multinationals are still importing the most-sophisticated components, such as traction motors and traffic-signaling systems, but today they account for only 15% to 20% of the market. CSR and CNR have acquired many of the core technologies, applied them surprisingly quickly, and now dominate the local market. In addition, they are cutting their teeth in the estimated $110 billion international rolling-stock market, moving into several developing countries where the Chinese government funds railway modernization projects. The combination of low manufacturing costs and modern technologies is helping them make inroads in developed markets too, with CNR recently winning contracts in Australia and New Zealand.
The Chinese government sometimes synchronizes its desire to accelerate growth in a particular sector with the imposition of new regulations on multinationals in that sector. For example, from 1996 to 2005 foreign companies held a 75% share of the Chinese market for wind energy projects. Then the government decided to grow the market dramatically, offering buyers large new subsidies and other incentives. At the same time, it quietly increased the local-content requirement on wind turbines from 40% to 70% and substantially hiked the tariffs on imported components. As the market exploded, foreign manufacturers were unable to expand their supply chains quickly and meet the increased demand. Their Chinese competitors, who had been licensing technology mainly from small European turbine producers, took up the slack rapidly and cost-effectively. By 2009 Chinese companies, led by Sinovel and Goldwind, controlled more than two-thirds of the market. In fact, foreign companies haven’t won a single central government–funded wind energy project since 2005.

Are there some lessons? Those interested may go through the article critically.

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