China – the new super power of sport and businessChina's rapid development as a superpower was further demonstrated at the Olympic Games in Athens with Chinese athletes starting to dominate sports that were once the domain of the U.S. and the former Soviet Union. In truth, the face of the Olympics probably changed forever when Liu Xiang powered over the hurdles to win China's first-ever gold medal for a track event.
While China's rise as a superpower in sports may be a surprise to some, anyone who has witnessed firsthand China's emergence in the field of business will know that China is rapidly emerging as a global competitor on many stages.
In 2008, China will further its reputation as a global player when it combines business and sport to host the Beijing Olympics. Similar to South Korea's experience with the 1988 games in Seoul, and the jointly hosted football World Cup with Japan in 2002, China will showcase both its technological sophistication and economic development at the 2008 Olympics.
It is 24 years since Deng Xiaoping, the father of China's modernization drive, initiated China's economic reform policy. Yet four years from now, when the first 2008 Olympic gold medallist stands on the winners' podium, China, in terms of U.S. dollars, will be the fourth-largest economy in the world.
It has taken China two decades to go from an underdeveloped nation to a global success story, with an average 9 percent growth rate in gross domestic product (GDP). China's economy today is seven times larger than it was in 1979, and trade volume has seen an even more staggering 2,700 percent growth rate in the same time period.
Hundreds of millions of individuals have been raised out of abject poverty – more by Deng Xiaoping than any other individual in the history of man – as China has become the world's largest producer of a host of products, ranging from low-tech toys and textiles to sophisticated PCs, cameras and mobile phones.
To fuel this manufacturing machine, China imports raw materials and energy resources, as well as machine tools and expertise. In 2002, China consumed 28 percent of the world's iron ore, 21 percent of its aluminium, 24 percent of its zinc, 17 percent of its copper and 23 percent of its stainless steel. Companies and entire economies around the world are increasingly depending on trade with China.
Just as competing in an Olympic event is far from easy, conducting business in China also has its problems and pitfalls. Nevertheless, many enterprises consider the potential rewards offered by China's untapped market of 1.3 billion consumers worth the effort and investment. Although when it comes to IT, foreign enterprises often either overestimate or underestimate Chinese spending.
Yes, China is a fast-growing IT market, but China-based enterprises spend less on IT products and services than enterprises in countries with more developed economies. According to the research firm Gartner, the annual revenue for China's enterprise IT market is less than one-fifth of Japan and less than eight percent of the U.S. market.
"The dominance of large, state-owned enterprises, many of which lack the modern management processes or competitive pressures that usually drive technology investment is a key reason behind the lack of growth," said Dion Wiggins, vice president and research director at Gartner Hong Kong. "Many private companies are small and opportunistic, but aren't yet ready to purchase a great deal of technology equipment. In addition, automation is a less urgent issue in China because of the wide availability of inexpensive labor."
By contrast, foreign enterprises often underestimate China's consumer technology market. Already China is the world leader in the mobile handset market and boasts the world's second largest PC market. By 2007, Gartner says it will be the world's largest Internet subscriber market.
According to Gartner, China poses two immediate threats but also offers compelling opportunities.
Many already know the threat posed by low-cost Chinese products is immediate and impacts all businesses, regardless of their location. Companies are affected by the influence of China's low-cost, high-volume manufacturing on worldwide pricing, whether they have operations there or engage in direct trade.
The second threat is the emergence of new global competitors from China. Just as companies from Japan and South Korea have successfully penetrated other markets in the past, a few Chinese companies are launching their own brands in the global technology and consumer electronics marketplace.
"Many enterprises will be caught off guard, because they failed to realize that the doors that opened to trade when China joined the World Trade Organization swing both ways," said Wiggins. "Several Chinese companies will emerge as new global competitors, with some already creating brands that have started to take market share from older, bigger and financially stronger rivals in Asia Pacific, Europe and the United States."
Leading Chinese contenders for global brands in the near future include AsiaInfo, Datang Telecom Technology and Industry Group, Founder, Galanz, Haier, Huawei Technologies, Konka, Lenovo, Ningbo Bird, TCL, UTStarcom and ZTE.
But while there is threat there is also opportunity. China offers the immediate advantage of its low-cost capabilities in global supply chains. Companies worldwide should plan to take advantage of the reduced costs of R&D, manufacturing and other Chinese resources to more effectively compete globally. CEOs need to consider the potential benefits of tapping into China's cost advantages, or consider the implications if a competitor does.
A midterm opportunity is to sell to the Chinese domestic market. As China increases its share of global production, its industry will require enormous quantities of inputs, from raw materials to machine tools.
The domestic consumer market is also primed for rapid acceptance of products and services. Consumer spending is robust and, on a per capita basis, the Chinese seem more willing to purchase foreign products than the Japanese have been.
Huge numbers of Chinese are entering the middle class, and have disposable income for the first time. The consumer technology market is booming. Sales of PCs reached an estimated 13.1 million units in 2003, and are expected to climb to 15.5 million units by 2005.
The domestic enterprise IT market (including corporate and small office/home office spending) remains relatively small when compared with the U.S., Japan and Western Europe. But China is in the early stages of deploying modern IT throughout major enterprises, a process that will accelerate once the economy opens further to global competition.
In China change is rapid. This underscores why, in Gartner's view, almost every company in the world needs a China strategy.
"The issues for international organizations are complex," said Wiggins. "It is not enough for them to try to deal with the influx of inexpensive products manufactured in China. For many Chinese competitors, this is not the game plan – they are determined to create global brands and compete head-on in international markets.
"So companies would do well to consider how to take advantage of China's productive capability to improve their product costs in global markets. They should also consider tapping into the inexpensive intellectual capital being amassed within China for R&D and advanced research.
"Finally, with China likely to become the world's largest economy in a few decades, they need to develop a strategy to become successful within the world's fastest-growing group of consumers."
The new face of the Olympic Games is no longer about sport alone, it is about supremacy. It now encompasses politics and economics, and in 2008 it will be about proving to the world that China is unbeatable.
|
