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SINOROVING
Selling
China to the world
By Pepe
Escobar
BEIJING and GUANGZHOU - The
headquarters factory of Lenovo north of Beijing is
light-years away from the classic Chinese
sweatshop. No rows and rows of regimented cheap
labor. Instead, everything is automated. An
immense computer-controlled arm, installed at the
end of 2000, wanders around grids of components
and gradually feeds the production lines.
According to a company spokesman, robotics - and
not the Stakhanovist (highly motivated, productive
and rewarded Soviet) masses - is the key to
increased productivity.
"And the system
also allows for automatic replenishment from our
suppliers." This is globalized China at its best:
"Globalization is not only a matter of selling our
products abroad. It's a question of applying
international standards in terms of design,
production, management of human resources, and
culture," the spokesman said.
Lenovo is
organized in a fascinating mix of strict Chinese
discipline and regimentation and more creative,
Silicon Valley-style methods. Every worker's
performance, every day, is assessed by a
color-coded system. Red is bad; blue is normal;
purple is very good. Every Friday the senior
management team drinks a cup of after-lunch coffee
with all the staff. Everybody is allowed to talk,
as everybody sports his own "c time" cup of coffee
- meaning "coffee and communication". Workers even
enjoy a stock-option plan. Salaries and stock
options are evaluated on a quarterly basis by
management and staff alike. Every department head
is evaluated both by senior management and his or
her own colleagues.
Only a few months ago,
few around the world could name a well-known
Chinese brand. Lenovo instantly changed the
equation last December when it became the no 3
global producer of personal computers by acquiring
the PC arm of IBM - three times its size - for
US$1.25 billion. According to the terms of the
deal, Lenovo has only five years to become a
global success. Before the end of 2010, it will
have to market its own brand and be accepted as
being as reliable as Big Blue IBM, the company
that invented the concept of the personal
computer.
Lenovo is a shining example that
once in China's "market socialism" a decision is
made on top, things always proceed at breakneck
speed. It helps a lot that Liu Chuanzhi, Lenovo's
founder, and still at the helm, is an influential
member of the Communist Party Central Committee, a
fact that explains his freedom of action.
Lenovo is a state-owned enterprise (SOE),
which sprang up from the belly of the Chinese
Academy of Sciences only two decades ago as
Legend, with no international experience. The
"Legend" brand had to be dropped two years ago
because it was already copyrighted in many
countries. Legend/Lenovo started out as a computer
distributor of other brands, among them IBM. It
only started making its own computers in 1990,
profiting from state commissions and practically
no competition, until getting a real run for its
money with the arrival in the Chinese market of
giants Dell and Hewlett-Packard.
Even with
stiff competition, Lenovo has been on top of PC
sales in China since 1997 (market share of 27%) -
quite a performance in what is already the
second-largest PC market in the world, only behind
the United States. This also means that Lenovo is
already the No 1PC maker in the Asia-Pacific
region, excluding Japan. Growth possibilities are
immense: Lenovo is a major sponsor of the 2008
Beijing Olympics - the perfect window for brand
recognition all over the globe.
Bought
by China
Made in China, move over: make way
to Bought by China. The Middle Kingdom is no
longer happy to be "just" the factory of the
world, inundating us all with low-tech and
mid-tech goods, from textiles to cell phones, from
computers to toys, from cameras to bedside lamps.
Former president Jiang Zemin and former premier
Zhu Rongji, stalwarts of the Communist Party's
"third generation", decided in the mid-1990s that
up to 50 state-owned enterprises should be
destined to become globally competitive
multinationals by 2010. Inside China, all of these
companies profited from unlimited tax breaks,
abundant cheap land and torrents of yuan flowing
from state-owned banks. More than a dozen are now
in the Fortune 500.
Beijing's strategy
calls for the development of world-class
multinationals able to impose Chinese bands and
Chinese technology. With an educational system
designed to produce hundreds of thousands of
scientists and technologists, China in theory can
easily compete in advanced technology. Except at
the very top post-university level, Chinese
scientific education has already outpaced Germany,
France and the United Kingdom.
From the
Chinese Academy of Social Sciences to Tsinghua,
China's leading university, the impression is that
even with so much internal inequality for the
Chinese to deal with, one of the most
extraordinary events in economic history is almost
taken for granted: the possibility that before
2015 China may overtake both the US and the
European Union as the world's No 1economic power.
Not by accident in Brussels, from the top (the new
European Commerce secretary, Peter Mandelson)down,
the crucial strategic challenge is the relation
with China, which is already the EU's
second-largest trading partner, behind the US. The
only way out, European diplomats say, is to lay
off any national policy of grabbing market share
and to define a common European strategy towards
China.
This Asian tiger on steroids
instills enormous fear, as Western alarmists now
invoke comparisons with the emergence of Japan and
South Korea in the 1960s and 1970s. According to
Francoise Lemoine, an economist at the Cepii in
Paris and a China specialist, "The implications of
China's emergence, because of its size, are closer
to the emergence of Japan. Japan's share of world
exports went from less than 1% in 1950 to 3% in
1960 and 8.6% in 1986; China's share went from 1%
in 1980 to 5.5% in 2003. China's emergence is
indeed shaking the global hierarchy." But for the
Chinese that is not enough. Zhang Zhigang, vice
minister at the Ministry of Commerce, recently
told a corporate seminar that "China urgently
needs more local export brands".
Lenovo is
only one of the budding Chinese multinationals.
Electronics giant TCL (TCL Holdings Co Ltd) -
whose chief executive officer (CEO) is also a
member of the Communist Party's Central Committee
- was unknown outside Asia before it bought the TV
arm of France's Thomson and became the world's No
1 in terms of production; and then it kept going,
buying the cell phone arm of France's Alcatel.
Shanghai Automotive Industry Corporation (SAIC)
bought South Korean Ssngyong Motors - whose luxury
SUVs are extremely popular in Asia - and is also
saving British Rover from bankruptcy. SAIC
received its training as a passive partner of both
Volkswagen and GM in China, assembling the
Santanas and Buicks which today clog the streets
of China's big cities; now SAIC will take over the
majors directly. Its aim is to be in the global
top six by 2020.
Greencool, an obscure
maker of buses and refrigerators, bought a British
firm of transport engineering and a French maker
of auto parts. But none of this even compares to
the appetite of China's oil and gas giants. CNOOC
(China National Oil Offshore Corporation), with a
market capitalization of US$21.5 billion, now
wants to buy American Unocal (market
capitalization of US$11,7 billion) for $13
billion.
The three big Chinese oil
companies - PetroChina, Sinopec and CNOOC - are on
a buying spree in more than a dozen countries, as
well as involved in building pipelines across
Central Asia in response to China's increasing
thirst for energy. CNOOC is already Indonesia's
largest offshore oil producer.
Baosteel,
China's top steel producer, based in Shanghai, by
2010 will have become the world's No 3. The
biggest foreign investment ever made by a Chinese
multinational will be by Baosteel in Brazil. China
Minmetals, a base metals giant, wants to buy
Noranda, a Canadian copper and nickel miner, for
US$7 billion. Wanxiang, an auto parts group
founded by a farmer's son as a bicycle repair
shop, is already doing business in 40 countries.
Beijing's master strategy is always
twofold: to get access to technology or research
centers that cannot be found in China, at least
not yet; and to enter with a bang in Western
markets. Last October, Beijing announced measures
to facilitate the acquisition of foreign companies
by budding Chinese multinationals. Bought by
China, in its breakneck speed, aims to turn
unknown Chinese brands into both household names
and high-tech powers. But adaptation also has to
proceed at lightning speed, because these
companies have absolutely no experience in
multicultural management. They're getting there
Bought by China has also its mirror face:
Have China Will Travel. Haier, China's No 1
household appliances maker, based in Qingdao,
didn't buy anything and went abroad by itself: now
it has a factory in the United States and branches
in Europe. Haier holds a domestic market share of
as much as 70% for most home appliances and it is
represented in more than 100 countries. Its
challenge now is how to compete with foreign
brands, considering it lacks things like cost
control and sales support teams.
Telecom
equipment maker Huawei is selling its killer
technology abroad at unbeatable prices - 30%
cheaper than the competition. Huawei is another
facet of globalized China at its best. It does
business in more than 70 countries. More than 40%
of its more than US$5 billion in revenues in 2004
came from abroad. And more than 3,000 of its
24,000 employees are foreigners. Huawei's
multi-billion-yuan headquarters on the outskirts
of Shenzhen includes, in pure Silicon Valley
style, four football fields, a smattering of
swimming pools, model apartments for 3,000
families and a Disneyland-like research center
complete with Doric pillars. It is already a
highly respected Chinese global brand. But
Beijing's hand, as usual, is not far behind. One
of Huawei's founders, Ren Zhengfei, was a People's
Liberation Army officer, and speculation is rife
that the company is still controlled by the
military.
The key question seems to be
what kind of Chinese multinationals will be
successful. Analysts in Hong Kong bet on component
manufacturers or processors of intermediate goods,
rather than global consumer brands like Sony or
Samsung, although to become a Chinese Sony or
Samsung is the avowed long-term goal of TCL Corp,
China's top TV and cell phone maker.
More than
with Japan, a contrast with South Korea can be
enlightening. It took 20 years for South Korea to
build successful chaebol, family-owned
business conglomerates, and lay the groundwork for
their high-tech and consumer brands, such as LG
and Samsung, to take over the world. China, with
leader Deng Xiaoping's reforms launched a little
more than 25 years ago, is still far from this
stage. China's corporate landscape is still
dominated by lots of struggling state-owned
enterprises, lumbering, inefficient and saddled
with bad debts, plus very powerful foreign
multinationals, with very few private giants such
as Huawei.
Businessmen swarming the White
Swan Hotel in Guangzhou acknowledge that most of
China's high-tech manufacturing is in fact
low-value-added assembly. The really high-tech
parts - integrated circuits, for example - are
imported. Foreign multinationals control virtually
all intellectual property in China; they are also
responsible for 85% of China's high-tech exports.
American companies excel in innovation. Japanese
companies excel at process and incremental
innovations. Chinese companies may excel at making
everything cheaper. This may be the essence of
their own, typically Chinese, "market socialism"
model.
But they're learning. And learning
fast. TCL, for instance, depends on Thomson's
rear-projection technology to make slim TV sets
and thus take on Samsung's relentless competition.
Sooner or later TCL's technicians will be
inventing their own ground-breaking technologies.
The US sells two top-of-the-line stealth
fighters to Israel. Israel - secretly - then sells
one of them to China. One day the Pentagon tells
the Israelis it's sending technicians for a
routine inspection of the fighters. Tel Aviv
anxiously contacts Beijing. The Chinese then send
an army of technicians to Israel, where they build
in record time an exact replica of a stealth
fighter. The Pentagon technicians are deceived.
One day the Israelis decide to conduct their own
checks. And they discover that their original
stealth fighter is also a fake. The Chinese
technicians absconded with the genuine article.
This joke is currently making the rounds
in Guangzhou. In a few years, it may cease to be
just a joke.
(Copyright 2005 Asia Times
Online Ltd. All rights reserved. Please contact us
for information on sales, syndication and republishing.) |
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