UK: EDITORIAL - ALL ABOARD FOR CHINA.

UK: EDITORIAL - ALL ABOARD FOR CHINA. - Management Today owes an apology to Mr Johnson of QDF Components. In December last year, Perspective observed that 'Raw material prices are down on the levels of a year ago, in large part reflecting the weak world

by
Last Updated: 31 Aug 2010

Management Today owes an apology to Mr Johnson of QDF Components. In December last year, Perspective observed that 'Raw material prices are down on the levels of a year ago, in large part reflecting the weak world recovery'. Mr Johnson was quick to point out that this did not apply to his key material, scrap metal, the price of which had rocketed. The cause in large part was Chinese consumption. China, previously a scrap exporter, had become a voracious importer.

The impact of China, felt by Mr Johnson and the scrap metal industry, has ceased to be an isolated blip. Other commodities ranging from recycled paper through to chemical compounds have experienced sharp price increases caused in varying degrees by Chinese demand.

Such movements in world commodity prices should alert companies worldwide that China is operating in the same global market as they are. Its 1.2 billion consumers, drinking almost as much beer as the US and buying 30,000 washing machines a day, are not inhabitants of some parallel universe straddled only by the major multinationals; they represent a spectacular opportunity for all but the most insular companies. Those who grasp even a small part of that opportunity will not only be gaining a presence in the world's fastest growing marketplace, they will also be increasing their clout in their existing markets.

The other side of the coin, which cannot be ignored, is China's huge production capability. South-east Asia's businesses are certainly paying full attention. There are almost daily reports of companies moving facilities from countries previously noted for their low costs - Taiwan, for example - in a continuing search for cheaper manufacture. And those who claim that China is not an immediate cause for competitive concern, until it can prove its ability to manufacture to world-class standards, are kidding themselves; most foreign companies setting up in China focus immediately on attaining world-beating quality. The experience of multinationals operating in China shows that those who took an early plunge are leaving later arrivals trailing in their wake. Volkswagen's joint venture formed in 1984 (and signed in the presence of Chancellor Kohl - politicians, please note) has given it a remarkable head-start in Chinese car production. Cable and Wireless has also diligently pursued a long-term relationship: its past and present chairman, Lords Sharp and Young respectively, have both served on the Mayor of Shanghai's personal think-tank: C and W has offered scholarships to Chinese telecoms workers since 1985 and has donated decommissioned exchange equipment since 1986. This has placed it in pole position for developing China's telephone infrastructure. As Keith Woolcock points out in Lord Young's Chinese Puzzle (p32), success in China will dwarf anything else that C and W might achieve and will be the basis on which Lord Young's chairmanship will be judged.

Cracking China is not easy, particularly for companies with limited resources. Problems range from local corruption to the spectre of political instability. In January this year, the state-set exchange rate was unexpectedly abolished, leading to an effective 40% currency devaluation. Different regions of China need different approaches (as one might expect from a country where the southern region alone has the same population as the entire European Community). But such difficulties should not be viewed as an excuse for inaction. Managers whose interest in China extends little beyond reading Jung Chang's Wild Swans could experience a very rude awakening.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today