How China Will Change Your Business

The next question is whether any commercial technology is beyond an imminent challenge from China.

Given how quickly China is climbing the industrial ladder, perhaps the next question is whether any commercial technology is beyond an imminent challenge from China. Gal Dymant, an American Israeli venture capitalist in Beijing, believes the answer is that few will be. One of the companies Dymant works with, a database publisher named Asia Direct, produces an annual China Hi-Tech Directory. Tracking the directory's updates year to year gives Dymant an informal measure of the shifts in Chinese industry.

The first thing one notices about the directories, he says, is how much thicker they grow every year, particularly in industries where there have been large foreign investments. In 2003, Asia Direct's volume grew considerably fatter in the sections devoted to China's domestic mobile-phone manufacturers and suppliers, broadband communications, and in companies establishing themselves in cities outside of China's eastern powerhouses. The manufacture and sale of integrated chips is also soaring, along with healthy gains in China's software and information-services markets. Then again, every section in the directory has grown, including biotechnology, semiconductors, and Internet development, areas in which Chinese firms have newly established themselves, many now in partnership with the world's leading technology-driven companies.

For his part, Dymant is putting together an investor group to build a Chinese version of one of the world's most advanced and costly medical devices, the magnetic resonance imaging (MRI) machine. "The talent is here to build anything," Dymant says. "We think we can develop MRIs for about 60% of the price they are built for in the U.S."

7. China is closing the research and development gap -- fast. The ability of American industry to stay ahead of its international competition rests on the national gifts and resources that the U.S. devotes to innovation. The research gap between the U.S. and China remains vast. In December, Washington authorized $3.7 billion to finance nanotechnology research, a sum the Chinese government cannot easily match within a scientific infrastructure that would itself take many more billions (and years) to build.

Yet when it comes to more mainstream applied industrial development and innovation, the separation among Chinese, American, and other multinational firms is beginning to narrow. Last year, China spent $60 billion on research and development. The only countries that spent more were the U.S. and Japan, which spent $282 billion and $104 billion, respectively. But again, China forces you to do the math: China's engineers and scientists usually make between one-sixth and one-tenth what Americans do, which means that the wide gaps in financing do not necessarily result in equally wide gaps in manpower or results. The U.S. spent nearly five times what China did but had less than two times as many researchers (1.3 million to 743,000). China's universities and vocational schools will produce 325,000 engineers this year -- five times as many as the U.S.

For now, the emphasis in Chinese labs is weighted overwhelmingly toward the "D'' side -- meaning training for technical employees and managers. Nevertheless, foreign companies are moving quickly to integrate their China-based labs into their global research operations. Motorola alone has 19 research labs in China that develop technology for both the local and global markets. Several of the company's most innovative recent phones were developed there for the Chinese market.

8. China now sets the global benchmark for prices. Big news can be found in little places. In its November 2003 circular, a dryly written four-page publication, the Chicago Federal Reserve Bank noted complaints from American makers of automotive parts that "automakers had been asking suppliers for the 'China price' on their purchases." The bank's analysts observed that U.S. suppliers had also been asked by their big customers to move their factories to China or to find subcontractors there.

Over much of the business world, the term China price has since become interchangeable with lowest price possible. The China price is part of the new conventional wisdom that companies can move nearly any kind of work to China and find huge savings. It holds that any job transferred there will be done cheaper, and possibly better.

 PREV  1 | 2 | 3 | 4 | 5 | 6 | 7  NEXT