Two Critical China Trends for 2020
Upcoming trends in uncertain conditions
David Iwinski Jr.
Two Critical China Trends
Upcoming trends in uncertain conditions
2019 was a challenging year for global business, as numerous shifting elements of the global economy as well as local political swings in policy have created an environment where stability is disrupted and uncertainty becomes the norm. The challenge for business leaders is how to plan when both the tides and the winds are changing, often fueled by populist political elements. When looking specifically at China and business in greater Asia, there are two important trends to take note of when planning for 2020 and beyond.
Deleveraging China - For much of the past 35 years, the default setting for offshore manufacturing from the United States was to start with, and often complete with, China. Over the past decades, their skill and capability in automated and semi-automated manufacturing has slowly but steadily eclipsed the initial value proposition of inexpensive labor. Simply put: while vigilance is required, there are few things that cannot be made to exacting global standards in China. However, as labor prices rise and are now often accompanied with new tariffs, the ultimate low-cost manufacturing position of China is no longer a given. As a result, manufacturing has started a steady migration southwards and, depending on the relative sophistication of the product, has been finding new resources in places as far-flung as Vietnam, Thailand, Malaysia, the Philippines, and other locales eager to welcome new manufacturing opportunities.
While often these new facilities are built and designed to serve North American and European markets, increasingly, China-based companies are also setting up shop in adjacent nations - both in order to take advantage of favorable trade relationships and tariffs with the United States, but also to simply diversify their risk and take advantage of lower labor costs. One thing is certain in this manufacturing migration. The wealth of expertise hard-gained over the last 30 years means that the transitions in these other countries will happen much faster, and with much lower risk, than firms who made early entry into the China manufacturing world in the 80s and early 90s. Hungry for growth and enthusiastic about having a crack at global markets, these new nations will be formidable competitors even if the trade policies between China and the United States normalize.
Technology Acquisition – The phases of China’s economic development, from early-stage cost-based manufacturing to highly sophisticated automated production, have been an extraordinary transition that has occurred in a very compressed timeframe. However, the same cultural elements of cooperation and conformance to specifications that made China manufacturing so successful so quickly are proving to be a challenge when trying to evolve a business culture of innovation. China has been extraordinarily capable in copying and perfecting ideas and producing reliable high quality product in volume, but the mindset that develops innovation is one based on disruption, discontinuity and challenging the existing orthodoxy. These traits are not as common in the China model, and so while the perfection of manufacturing has moved forward smoothly, the creation of a innovation culture that overturns the old has been much slower.
The primary result of this reality is that increasingly China investors, innovators, manufacturers and venture capitalists are turning to American universities and their rich resources of intellectual horsepower and available patents. Some are merely mining the patent backlog to see if there are technologies that could be rapidly deployed in China, while others are going full speed ahead on setting up well-funded and thoughtfully developed innovation institutes to bring together knowledge workers, marketeers and technological futurists to develop ideas that will turn things upside down as fast as possible and rapidly innovate new technologies and new products. While the mergers and acquisitions that are coming from China interests have definitely slowed over the past two years, investment and innovation is rapidly picking up, and presents an opportunity for American companies and universities who can engage this new investment flow to mutual advantage.
While there will undoubtedly be many twists and turns over 2020, these two trends will maintain their longevity, and should absolutely be factored into any business decision when planning for the future.