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back to index backCHINAtalk April,  2005

A new division of labor: end-game or mind-game?

For many non-Chinese, China's economic rise is still an abstraction. This is about to change. It is not just the pace of economic change in China that is important, but how China is changing the pace of what we do and how we do it. In the 21st century, the globally-ambitious firm is the sum of its value-chain partners. Increasingly, what happens outside the firm amongst its value-chain partners is as important as what is happening inside. This inevitably affects the "clockspeed" which paces the cadence of work within the firm, and the complexity of management. At this point in time, in most industries, clockspeed is accelerating. A major reason for this is China's emergence onto the world's economic stage. There are several places where this is occurring.

China's rise as "the world's factory," has resulted in it providing 7% of the world's manufacturing capacity, with the "China Economic Quarterly" speculating that 20% is not out of the question. This all makes global value chains more complex and increases the likelihood of additional branded competitors eventually arising out of this OEM field. Similarly, China's increased role as a first-tier supplier of a number of important industrial raw materials, such as coal, coke, aluminum and manganese have also added an element of unfamiliarity at the upstream-end of many value-chains. China's need for more petroleum has already had a profound effect on the price of that resource in many industries. The net result is that China is requiring us all to work faster and smarter than before.

Similarly, Chinese customers, particularly in the most advanced cities, such as Shanghai, are more demanding, better informed, and closer to the cutting-edge than their counterparts in many of the world's more well-established markets. It is no exaggeration to suggest that Chinese customers, both individual and industrial, may be the "lead-users" of the future in many industries, setting a pace of change that will stretch more traditional suppliers.

Upstream, the pace of Chinese innovation is also accelerating clockspeed. "Outsourcing Innovation" are the words vividly splashed across this week's Business Week cover, accompanied by the warning: "Are companies going too far?" Even more ominously, an editorial in the same issue opines: "Globalization is moving so fast that now even the knowledge economy is being redistributed around the world." China's ability to attract more than four hundred foreign-funded R&D laboratories is testimony to the relocation of thought-power. And, Chinese innovation is suddenly moving at a much faster pace than many of its Western counterparts.

Up and down the value-chain, the testimony to China's emergence as an economic power is to be found in the faster pace of change that is being driven by Chinese activities. As customers, collaborators and competitors, China is forcing a sense of urgency on even the most dormant of firms. The real test of China's admission to the global marketplace will be how smart and fast the rest of us are in adjusting.

Source: - GAI

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Other articles from the same issue (April,  2005).

Complying with PRC anti-bribery laws
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A new division of labor: end-game or mind-game?
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Rising oil prices, stiff competition put a dent in the hopes of Chinese SUV makers
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China's machine tool market
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Sourcing from China: Everybody's Doing It, So Why Should We?
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Business tax certificates not required for technology transfer payments overseas
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China In-House Programs Offer Flexibility And Customization
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Dongguan tax bureau steps up transfer pricing activity
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China serves notice it will not only build its own auto industry but make it a serious global player
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