The Greek philosopher Heraclitus of Ephesus is perhaps best known for the adage that “You cannot step twice into the same river,” highlighting his doctrine of the centrality of change within the universe.
I often think of Heraclitus when I visit China, where the pace of change is fast and relentless. I have now been there over 20 times in the last 15 years, and each time I visit so much has changed since my previous trip that I feel I’m stepping into a different country.
Perhaps fittingly, I read Edward Tse’s The China Strategy while visiting Chongqing with my executive MBA students during the last week of April. A rapidly developing region of 33 million people, Chongqing is one of next great frontiers for multinational investment in China and provided me an interesting on-the-ground perspective for many of the dynamics discussed in the book.
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In his book Mr. Tse, a former senior partner and the first Booz & Company chairman for greater China, takes a hard look at the continued rapid evolution of the Chinese economy. He also asks what this growth could mean for global competition and the strategies of global companies.
He argues, in particular, that given the intensifying pace of change in China, foreign executives will find that the experiences of the last decade are not the best guide to the next one. In his view, even companies currently successful in the Chinese market are likely to be caught offguard by future changes.
The book details the powerful forces that Mr. Tse sees as driving future changes in the Chinese economy. Many of these are well-known to anyone who reads the business press, but the author packages them nicely to support his thesis.
They include the increasing openness of the Chinese market and its evolution into a vast, highly differentiated and sophisticated consumer economy. China is projected to have urban population of 600 million to 800 million in the next decade, with much of the growth taking place away from coastal areas. This will include hundreds of cities with populations of one to two million, which are becoming easily accessible thanks to the massive highway and high-speed train building program.
Change is driving the explosive growth of new companies in China, many of which are hoping to use the country’s growing market, low manufacturing cost, scientific resources and government support to build platforms of sufficient scale to take their businesses global. Chinese companies like Hauwei and Haier are already having a major impact on their industries. Many others are currently in the wings and are looking to exploit declines in corporate valuations in Europe and North America to grow globally through acquisitions. The author predicts that over the next decade, the presence of Chinese companies like these will drive the restructuring of a wide range of global industries.
At the same time, open markets and foreign investment are making China’s economy increasingly interdependent, a situation he sees as only likely to increase in the future.
One of the wild cards in the direction and speed of change is, of course, the Chinese government. In Mr. Tse’s view, the government is highly unlikely to give up its control of the strategic direction of the economy and of key industries or to become less authoritarian in the near future. He says his position is, based on polling data, also supported by the majority of Chinese.
He concludes that companies in all major industries and sectors need to focus attention on what’s happening in China. But to be successful they’ll also need to look at the market differently than most do today. In other words, they need a “new China strategy” a strategy for fully integrating the knowledge of Chinese markets and the country’s low cost suppliers and scientific talent into their global competitive strategies.
The book provides several examples of companies – including Nokia, IBM, Honeywell and GE Ð who have integrated China’s advantages and capabilities into global value chains.
The China Strategy is a useful addition to business literature on China. It is a valuable read for both executives and policy makers who want to better understand the changes taking place in China and what they mean for the future of global competition.
Micheal Kelly is dean of the Telfer School of Management at the University of Ottawa.
