I. Christianto, Contributor, Jakarta
Chinese multinationals are rapidly forging ahead in the world, moving into high-end products and industries and competing for high-value activities in numerous business lines, including in basic manufacturing, which affects global competition.
In an interview with The Jakarta Post after delivering a presentation on his book Dragons at Your Door: How Chinese Cost Innovation is Disrupting Global Competition (co-authored with Prof. Ming Zeng and recently published by Harvard Business School Press), Peter Williamson warned that Chinese companies are indeed determined and confident to win the global market with well-planned strategies.
Williamson, a professor of international strategy and Asian business at INSEAD in Fontainebleau and Singapore, and subject expert matter of the Jakarta-based SRW&Co., said that other business players, including Indonesians, need not be frightened but should move ahead like Chinese companies, which he called dragons.
Follow are excerpts of the interview:
Question: What do you want to convey in your book?
Answer: Chinese companies are bringing cost in creative ways to bring higher technologies at very good prices in the mass market, making them available to a huge number of people. This creates sharper competition, including in Indonesia.
How does this affect Indonesia?
I think in a number of ways there will be competition for Indonesian companies because Chinese companies are looking for markets which are like China, where consumers are spread out and want to acquire very low prices in order to buy. So they will be very interested in Indonesia.
The Chinese dragons will also compete with Indonesian companies in the international market. But I think there is a possibility for partnership between Indonesian and Chinese companies because Indonesian companies have the resources and knowledge in the international market.
What is your message for Indonesian companies?
There are three things. Firstly, is to learn about cost innovation. Learn how to use this more creatively, not only to sell at a low price but how to sell higher technology at a good price. This is hard but companies, including Indonesian companies, have to learn this in order to face Chinese companies.
Secondly, to become more curious about being in the Chinese market. I think China is certainly a big growing market, and by being there, Indonesian companies will learn how to do business with Chinese companies. It is better to do this in China than in Indonesia.
Thirdly, Indonesian companies should consider more partnerships with Chinese companies, not just in Indonesia or in China, but anywhere in the world. They can combine a strong partnership in the global market, in Asia, Europe or even the U.S. These can be joint venture companies or another form or partnership.
In your book, you mentioned that acquisition is one of the strategies of Chinese companies to enter the global competition. Are there any specific businesses that the Chinese find attractive?
Yes. I think the kind of business lines attractive to the Chinese are middle technology businesses like machinery, telecommunications equipment and automotive. Interestingly, they are also interested in piano making. In automotive, a company named Chery has just launched cars in Singapore and Indonesia. I understand they sell the cars for Rp 40 million each in Indonesia, which is a very low price. And it looks nice because the company received help from an Italian design company.
It's interesting that they are also interested in piano manufacturing.
Yes. A Chinese company, Pearl River, wanted to produce pianos like a company producing cars. It understands that nobody will buy low quality pianos. In 2002, the company bought piano maker Ritmuller, which was founded in 1795. The Chinese company hired a German expert to learn about quality and started to make improvements. It also recruited an American to understand the market in the U.S. It is now the world's largest piano maker.
Which is more common, acquisition or real business development?
They mostly develop from the beginning. Firstly, they are usually going strong in China. When they win in China, they have big volumes. Then they start to expand. One example of this is Lenovo, which bought IBM including the brand, the distribution worldwide, as well as the manufacturing itself.
So, sometimes they make big acquisitions. But usually they're looking for smaller companies with technology or brand that they can use to grow.
The argument in the book is that everybody used to think that Chinese companies could only make low-end, cheap, low-quality products. But now they can combine low-cost manufacturing with low-cost engineers. A harbor crane company I mentioned in the book hired 800 engineers and then it combined things by buying brand and technology overseas. And suddenly, from the low-end, it could reach the global market all the way out.
What do you mean by low-cost engineers?
There will be about four million university graduates this year in China, and about 50 to 60 percent of them are engineers. So it's a huge supply that's available to companies in China. Roughly, you can now hire five engineers in China for every one you can hire in Europe or the U.S. in terms of cost.
What about the quality?
Well, they wouldn't win a Nobel Prize. The companies don't need that. What they need is people who are competent. They don't have to invent something completely new.
If a Chinese company just relies on low-cost labor for manufacturing, it knows that all competitors in the West can do that. The Chinese company knows that it needs to do something more. So in terms of technology, more people are hired in R&D. This doesn't have to be a completely new technology; they just have to improve the technology step by step. This is about competing in applications rather than in inventions.
How significant is the political will from the government?
It's very important. The Chinese government has introduced a policy for major companies in China to go global, to become international. They say that China won't be a strong country with a proper place in the world unless it has multinational companies. This is a very important way of thinking to build up Chinese companies. This is part of the Chinese policy to become an important global player. The other part is the Beijing Olympics 2008. They want to do it from all sides, politics, sport and business. This is a very strong push.
What about the roles of cultural background and mentality of the people?
They combine the visions to make China great, what they call the Dragon Dream. As they are very pragmatic, they combine the vision of where they want to go with very practical things. They are also hard working people.
In addition, something else has happened. China is the first country to become global, to integrate to the world economy before it is fully developed. In other countries, they develop first at home and then integrate to the world. We see China is integrating to the world while it's still very much a developing country. We've never seen this in the history of the world.
You mentioned weaknesses in your book, what are they?
There are some weaknesses. For one thing, there are not enough people in the Chinese companies with experience in other parts of the world. This is about management. Everywhere they go, they have to learn. Management in modern China is relatively new. You can probably buy technology, brand or anything but you can't buy people with international experience.
But some Chinese companies hire expatriates as top management.
Yes, that is what they are also doing.
Do you know if there has ever been a change in consumers' spending habits once they learn that a certain product is made and owned by a Chinese company?
People now know many things and brands are made in China. I don't think this will stop people from buying the products. People are looking for brands and quality.
Certain Chinese products were recently banned (in some countries) because they contained poisonous chemical ingredients. Could there possibly be an impact on other Chinese products?
think there will be impacts. The Chinese government is very tough on this. We have to remember that there are also bad companies in China copying the products of other Chinese companies. I think there will be very hard action taken against this problem.
Source : The Jakarta Post