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Thanks Ted, and thanks Geoff for giving me the opportunity to share with you !
Some ideas from this podcast, and further reading :
The World is not flat !
It’s a bad idea to think the world is flat. It’s a good idea to think that the world is a lot of mountains, and rivers, and roads. And you don’t drive on the freeway the same way as you drive on the small roads. And if you want to be prepared to acquire very high quality, high-end technology, you should better think not so much in terms of everything’s the same everywhere, since they all wear the same black suits and the same yellow ties. But rather think that, in fact, what they have inside their head, behind the yellow tie and the black suit, might be very different from your way of thinking of the same market, the same product, or the same technology. So I would say it’s better to focus on differences rather than similarities. Now what you want, for example, to do a value chain in Intel is good Engineers. But you also need persons that are quite open to the fact that you don’t manage in the same way in Beijing or in Guandong and that you don’t manage in the same way in Taiwan as in mainland China. This is differences, it’s not similarities,...
In any case I am against this "flat world" argument developed by Friedman. Wikipedia has a summary of the book.
Chinese companies are very faithful to their clients
in many cases the Chinese companies are quite confident with their international client and try to serve him for a long period of time. And the clients rely on that because it’s very difficult to make the business contact. So if you have a good producer, you will not try to make the effort to have thousands of producers. Except if you’re a large corporation and you can afford the costs. But the cost is high, so the cost of taking these contacts with your producers is very high. So this explains quite simply why copying is not just an isolated activity that reproduces one another, and another. But it’s embedded completely inside the system of relations between clients and producers in the Chinese economy.
A paper of mine is devoted to this topic :
Arvanitis, Rigas, Wei Zhao, Haixiong Qiu et Jian-niu XU (2005). "Technological Learning in Six Firms in South China : Success and Limits of an Industrialization Model." International Journal of Technology Management to be published (accepted).
Chinese companies dont really copy : they try to do it their way
So what usually happens,and I would pretty fairly say that 99% of the cases what happens is that they do not try so much to copy a product that they buy on the market. Rather, they try to have a client that’s a good foreign client. Because there’s a lot of foreigners that circulate in China that want to buy cheap products in China. And they tell them that they can produce at whatever costs their first, or second, or third order of products,in exchange of some teaching inside the workshop on how to do the things. So usually what happens is that the buyer comes with the product and one Engineer that stays there 15 days, or something like that. Or less, depending on the complexity, and installs what appears to him as important in order to maintain the quality or the type of product. So he gives a blueprint, he gives a product, he explains how to produce it, and he explains how to control the production process. Right, but then these person usually does not come with one blueprint, but with two or three. And these guys and the companies they look at the product, they look at the photos in the magazines, and they say, with the same more or less technology, we could do 15 different varieties of the same product. What’s interesting is that they try it even if they have never done it. So they are ready to pay whatever the price to get installed the process and then they are quite ready to copy it and to manufacture it by their own
This argument is probably very controversial. A lot of foreign companies complain about copy issues in China. The point is to understand here why Chinese companies copy.
The history of Chinese companies explains their behaviour
the Chinese industry has not been the outgrowth of a strategy of being inserted in the famous flat world Thomas Friedman is talking about. It has been much more spontaneous local, very local phenomenon. Industries grew out of industrial cities, all industrial cities, all into places where there was some large company. In that time large company, I’m talking at the end of the 70s, beginning of the 80s. So there are infinitely small companies with today’s standards. But that dominated a specific technical area like knitting, like textiles, like shoemaking, like whatever. And these companies the abundant workforce and the abundant voluntarily creation of companies that have been created by dozens in that time, created the conditions of a new industrial ecology. You have in a small city of 60, 000 inhabitants, which is really a village in China, you can have 400 small companies. The numbers are enormous, and the number of companies are enormous. And the terms of the competition today, they have difficulties because they compete one against the other today. But at that time they were not competing one against the other, the market was expanding very quickly. You had new consumers, you had a rising level of urban citizens, you had a lot of construction. Chinese growth is not only based on the foreign direct investment, it’s also based on the fantastic growth of the cities. So of construction, and construction goes with a lot of industries around that produce for in order to have doors, and doorknobs, and faucets and plumbing, and cement, and whatever you need to construct. This is what has been pulling the economy at a macro level. And this ecology, this local ecology, has not been created by people who thought that they will be inserted in the value chains of the big corporations. They discovered the big corporations, 5, 6, 10 years after being themselves created. They discovered the outside world much later than they were created. So when they were having one client, for them, it was something very rare to get somebody to buy their products. So when they got one client, they were keeping him, they were carrying him. They were not copying him savagely so he would go away. Of course not, they were trying to be as nice as possible for him because he was the key to success since what they were lacking was technology. I think that explains the sense of copy.
On the historical development of Chinese entreprises, you can read my paper :
In English : Arvanitis, Rigas, Pierre Miège et Wei Zhao (2003). "A fresh look at the development of a market economy in China." China Perspectives(48) : 50-62.
In French : Arvanitis, Rigas, Pierre Miège et Wei Zhao (2003). "Regard(s) sur l’émergence d’une économie de marché en Chine." Perspectives chinoises(77) : 53-65. Pre-published version here.
Chinese businesses are not opportunistic, they are persistantly opportunistic !
It’s true that they are highly opportunistic in the sense that if they see a business opportunity, they will never, never let it go. And they will never let go some way, somehow they need to stick on it and they will try every way to profit from this.
Q : There’s a sense of persistence.
A : There’s a sense of persistence. So it’s opportunism, but it’s really "persistencism". It’s also very curious, this very short term view, at the same time constructs for the future, that’s the interesting aspect about it.
Chinese are social and economic experimenters :
What I have seen concretely because I’ve participated in this kind of negotiations with a client, is that the companies can be ready to have a series of products delivered at lower than cost in order to get the technology first, and if they don’t know it, to experiment it.
this state of mind of experimenting is not proper to the companies, it’s also true for the local government authorities.
There is no close distinction of the private and the public
... something else probably that profited a lot to the Chinese industry, the barrier between what is private and what is public is not very clear. Now at the first ages of the industrialization, at the early steps or the early years, this is an enormous advantage, because there’s a lot of costs that are supported by the public whereas it would have been normally paid by a company. And a lot of other things in the management of authority in the way you deal with the workforce, in the way you deal with immigration, with work accidents. A lot of things that can be with taxes, a lot of thing that can be arranged by the fact that the public and private are very close. The status of the company is if it’s a private collective or public company is totally irrelevant to the industrial success. The only thing that counts is how it’s managed, the company. And the closeness of the public and the private has been really some sort of fuel to this industrialization. Now this may be a limit today. Because when you have more competition you have people that begin to claim for some justice in the way the companies are treated in the same area, for example. Of course, this poses problems and these problems, which are not visible in the newspapers, are quite common today in China. I would guess that the biggest problem that will have to be confronted by the government at all levels in China, will be to resolve this kind of conflicts of interests between companies that have been either supported or not by the local authorities.
A research project was dedicated to the Public-Private relationship in Chinese institutions devoted to research and innovation in the South of China. More here.
If you go to China, be aware about yourself
So I don’t have a lot of advise, just one thing. If you go in China, the problems will not be with the Chinese, but with you. Because you have to be prepared to go in a market that’s different. So you have to be open to certain suggestion that will be feedback from this productive sector, which is different. You don’t produce in the same way I imagine in Silicon Valley, and in Thailand, well, you don’t produce in the same way in China, either. Why should it be the same way in China like other countries, it’s just different, so you just get to be accustomed to go to a different place. Why should you expect to deal differently with a German, or a French, and not with a Chinese ? Well, it’s different point, that’s all, period. But then from there on, you just have to know that they will be aggressive, but if I remember well, the American economy has been grown by aggressive entrepreneurs.
This argument I also been made in an interview for "La Lettre des achats" a journal for outsourcing (in French).
The same is true when innovation policy is examined in China.
Chinese can also do stupid things !
Now the Chinese are very open ... They have no problem in just having the same copy, just a photocopy of the book in English translated to Chinese. And they have a tradition in doing that, which is not the good part of China, by the way. But they are humans like you are and we are, that is, they can make stupid errors as we do. And one of the stupid errors they are doing, which is very dangerous for them, is to think that the only good way to manage things is just to do it as in the US, or in France, or whatever. This "stupid copying", as I call it, of classes material is going to revert itself quite quickly when the Chinese people who have experience in managing businesses will be themselves part of the faculty, something which is going to happen in the following years.
More on that topic "La mondialisation des formations" (in French)