The Globalization of Chinese Business

Robert Taylor

• Publisher: Chandos Publishing
• Year: 2014
• Print ISBN: 9781843347682
• eBook ISBN: 9781780634494
• Topic: Economics
• Subtopic: Management
• Index: Economics

The main theme of the book is the globalisation of China's markets and Chinese business management in the context of ongoing reform at home and the country's growing global economic role. The Globalisation of Chinese Business includes contributions relating to a wide range of manufacturing and service sectors, encompassing such areas as foreign investment, state and private enterprise, human resource management, consumer culture and advertising, financial markets and healthcare. Following an introduction by the editor there are four sections, the first focused on the globalisation of Chinese management and the second on the evolution of Chinese management. The remaining sections contain chapters on China's growing service sector, growing markets and competition, and healthcare system reform. An epilogue by the editor in the remaining section concludes. - Covers a range of managerial issues relating to both manufacturing and services in China in the context of ongoing managerial reform - Discusses the corporate strategies of both Chinese and foreign companies - Examines the targeting of Chinese and global markets - Details the globalisation of Chinese business management

Part 1

The Evolution of Chinese Management

1

The Real Leap Forward: China’s R&D and innovation strategy

Guilhem Fabre¹

Abstract

R&D and innovation have become much more strategic for China, as investment and export-led growth have shown their limits in the context of the global crisis. A Real Leap Forward has been accomplished since the turn of the millennium, not only in terms of scientific demography at the college and university level, but also with the definition of a National Plan for Science and Technology Development (2006–20) which puts the emphasis on indigenous innovation, mainly led by state-owned enterprises (SOEs) in key sectors. At the same time, access to the Chinese market is more and more linked to technology transfers, especially for transnational corporations, which tend to develop a part of their R&D in China. The country’s catching-up strategy is analysed through three sectors (high-speed trains, aeronautics, clean energy) with a discussion of its potential impact on world industry.

Key words

R&D

innovation

technology

high-speed trains

aeronautics

clean energy

IT

Introduction

In 2010, China became the world’s largest manufacturing nation (19.8 per cent of world manufacturing output) bypassing the US (19.4 per cent), thus ending its 110-year run as the largest producer of goods.² After joining the WTO in 2001, China’s growth during its golden period (2002–7) was driven mainly by fixed asset investment and exports, whose average annual growth rates were respectively 29 and 24 per cent. Following the spread of the US financial crisis around the world, the fall of global demand revealed China’s high-export dependency. Meanwhile, the government’s stimulus package, based on an expansionary fiscal and monetary policy to maintain economic growth, raised the investment rate to 48 per cent of GDP in 2010 and 2011, leading to overcapacity in certain sectors, a decline in efficiency (Yu, 2009), inflation and wage pressure, which reflect the general imbalance between investment and consumption.

China’s investment and export-led growth is largely dependent on the supply of cheap labor from the hinterland, in a context of stunted urbanization resulting from Maoist policies (1949–79). This compelling illustration of Arthur Lewis’ development model, whereby the transfer of an unlimited supply of labor in the traditional sectors feeds accumulation in the modern sectors through urbanization dynamics (Lewis, 1954) has been challenged for several reasons. First of all, in 2004 and 2007 there was a shortage of labor, partly due to the absence of any social insurance for the massive migrant population, in the Pearl River Delta Region of Guangdong province, which concentrates some 30 per cent of foreign investments and exports, and 10 per cent of GDP between Canton, Shenzhen and Zhuhai, the two special economic zones at the borders of Hong Kong and Macao (Fabre and Rodwin, 2011). Although this shortage of labor often takes the form of high turnover rates, and an imbalance of female employment, generally more docile and required for precision processing than male employment (the ratio between young women and men is of the order of 117 to 100), this trend will increase in the future. United Nations projections show that in the 15 years from 2010 to 2025, the pool of 15 to 24-year-olds, which provides the bulk of labor-intensive activities, will fall, as a result of the one-child policy, by 56 million people to a total of 173 million (United Nations, WDI Database).

Second, China has seen double-digit annual growth of real salaries, partly due to the multiplication of work conflicts before and after the slowdown of 2008–9. According to a Chinese survey in Shandong province, 80 per cent of migrants in 2007 were paid less than 800 yuan (US $105) per month, and nearly two thirds of them were working 56 hours per week without any day off per month (Xu, 2007). In 2012, the average salary for the 163 million trans-provincial migrants reached 2290 yuan (US $375).³ Some local economists underline China’s loss of competitivity for labor-intensive products: according to the Ministry of Commerce, China’s urban workers’ salaries rose at an average of 33 per cent in the last three years, and minimum salaries rose for the last two years at an average of 20 per cent in most of the provinces (Xinhua News Agency, 27 April 2012). These higher salaries profit mainly half of the 260 million migrant workers, born after 1980, who are better educated, with an average education of about ten years, more demanding than their parents and familiar with the Internet and new technologies.⁴

Third, since 2000, the cost of land has increased drastically, and even more so after the 2008 crisis, when land was used to finance the local part of the stimulus package, which led to a predictable property bubble, in the absence of any land tax. Last, but not least, the cost of energy, which accounts for a third of the cost of grain production, has also risen dramatically, to the point that China’s crude oil imports, in 2011, represent 2.7 per cent of its GDP. If we add the competitiveness loss due to revaluation of the yuan to the US dollar, and the relative fall of the euro, it is clear that China’s high investment and export-led growth model is no longer sustainable.

This quadruple shock, in terms of costs, exchange rate, labor, energy and land, has put to the forefront the role of China’s R&D and innovation policy for sustaining growth while climbing up the value chain, as Japan and the four dragons had previously done in the mid-1980s. The US Department of Commerce estimates that 75 per cent of the growth in the American economy since World War II is due to technological innovation (Glassman, 2010).

Basic research is the field of the ‘know why’, from abstract mathematical demonstrations to the highly theoretical world of quantum physics and quantum mechanics, or the discovery of the gene structure for life sciences. Applied research is the field of the ‘know-how’, based on the corpus of basic science. The laser, the semiconductor industry and the IT revolution are thus applications of quantum physics and quantum mechanics. Development is about products, the conception and construction of prototypes and the standardization of industrial production. These fields are not separate; they are strong interactions between basic and applied research, as well as between applied research and development.

The broader concept of innovation takes into account these interactions. Although ‘innovation can be based on investment of complementary asset...

Table of contents

• Cover image
• Title page
• Table of Contents
• Copyright page
• List of figures and tables
• List of abbreviations
• Acknowledgements
• Preface
• About the editor
• About the contributors
• Introduction and overview
• Part 1: The Evolution of Chinese Management
• Part 2: China’s Growing Services Sector
• Epilogue
• Index