|
» China-Business-Articles » Reading: "China Moving Up the Value Chain - AmCham"
|
 |
|
 |
| China Moving Up the Value Chain - AmCham |
By:
Brian Schwarz |
|
Foreign companies should view China more as a competitive manufacturing base and as a hub for an Asian growth strategy and less as a low-cost provider of labor and resources, the American Chamber of Commerce (AmCham) in Shanghai said in its latest survey of its members in China. The survey suggested that foreign manufacturers in China develop a strategy to capitalize on the domestic market and reduce dependence on exports.
While foreign investment has fallen dramatically in the past year, China remains a popular manufacturing base for foreign firms amid the global economic downturn. Anil K. Gupta and Haiyan Wang, authors of the new book Getting China and India Right, wrote in Businessweek in June that the role of higher domestic productivity as a driver of China's economic growth is growing and the future lays in R&D-related work. They note China’s 11th five-year plan calls for the country to build a competitive advantage based on science, technology, and innovation. Some of the key initiatives in this new thrust include an increase in the R&D-to-GDP ratio from about 1.3% in 2005 to 2.5% by 2020.
Foreign direct investment (FDI) in Shanghai tumbled 37.4 percent in May from a year earlier - compared to the fall of 18.3 percent in April - as a result of the global financial crisis. Starting from August 1, district governments in the city will be able to approve FDI projects of up to US$100 million, compared with US$30 million now. The city also plans to ease rules on the approval of special foreign-investment projects, such as mergers and acquisitions, by the end of this year.
AmCham polled 108 foreign-invested manufacturers in China in the fall of last year for the survey, and did an updated poll of 79 companies in late December. Only 10 percent of respondents last year said they had concrete plans to relocate or expand manufacturing capacity out of China in the next five years, compared with 17 percent in 2007, despite countries such as India and Vietnam offering low-cost alternatives.
Telecoms Reform in the Works
China's telecommunications market is on track to generate US$187 billion by 2014, fueled by mobile uptake in its rural areas and 3G, according to Pyramid Research. In June, China's top economic planning body called for telecoms and other government monopolies to be opened up to private investment. In guidelines for industry reform, the National Development and Reform Commission (NDRC) said it hoped to encourage private investment into telecoms, oil, power, rail and other monopoly areas to boost economic growth. The NDRC said it "was hopeful" that the introduction of measures to encourage private investment to enter telecoms would be accelerated. It said it expected "realistic progress" from the convergence of telecoms, internet and cable.
Pyramid estimates the Chinese market will surpass Japan by 2014, growing at a compound annual growth rate (CAGR) of 8.8 percent between this year and then. Daniel Yu, Pyramid Research analyst is quoted in Businessweek as saying, "China, like many emerging markets, is becoming an increasingly mobile market, adding 71.2 million mobile subscriptions in 2008, roughly 12 percent of all additions worldwide and second only to India's 113.3 million net additions."
The Chinese government will spend 20 billion yuan (US$2.93 billion) this year on technological innovation in a range of sectors. The spending program calls for technological upgrade in the development of integrated circuits, next-generation Internet and the home-grown TD-SCDMA 3G technology.
A Technology Partner
China is tied with Germany as the world’s top exporter. Gupta and Wang say some of the early evidence regarding a move up the value chain in China's exports is already in. Its exports to India heavily comprise capital goods such as power plants and other infrastructure equipment, where much of the value in the products is added within China.
China's outsourcing industry is making use of the global slowdown to branch into new markets as corporations shift to outsourcing to cut costs, said a recent report from KPMG, a global consultancy firm. While the potential benefits of China as an outsourcing center are many — technical skills, language skills, depth of talent and pricing to name but a few — it is the increasing professionalism of the industry which is impressing many, concludes the report entitled A New Dawn: China's Emerging Role in Global Outsourcing.
Concerns over intellectual property, English skills and offshore capability remain for many western companies, but industry experts say outsourcing companies in China have made some improvements in all of these areas. “There were incidents in the manufacturing industry that give bad names to China, but for outsourcing, where service reputation is a critical business asset, this concern, though common, have been well addressed,” argues Hayden Hong, CEO of Long Circle, a Shanghai-based firm provides IT outsourcing services including GPS, mobile, VoIP, wireless, video surveillance, .NET and communication products to high-tech clients from around the world, including Motorola and China Telecom.
AmCham advises that investors should develop new business models for the domestic market and tailor existing products to meet local preferences and conditions. "Manufacturing among foreign-invested companies continues to evolve steadily, with more companies implementing sophisticated production operations and technologies while also integrating their China operations into their global supply chains," the survey said.
According to a report by consultancy firm McKinsey published last year, China’s top four outsourcing firms have enjoyed 21% annual growth over the past three years. China’s 3,300 outsourcing businesses had a combined contract volume of USD 4.69 billion in 2008. Perhaps most significantly, at the end of 2007, China’s sales of IT outsourcing work were growing at roughly twice the rate of India’s, according to China-based research firm Analysys International.
Attracting Talent
Companies should seize the downturn as an opportunity to upgrade their talent mix as the market in China for skilled professionals evolves. During the boom years of 2007 and 2008, HR managers were focused on retaining staff. After months of slowing growth and job losses, now the challenge is attracting available talent. The sectors which show the strongest recruitment growth prospects in China are R&D and technical jobs at Chinese companies, said a recent report HR consultancy firm Hudson. Companies should seize the downturn as an opportunity to upgrade their talent mix.
“This is the one time when companies have a little more leverage than they did before in the hiring process. It is a unique opportunity. Go and secure your talent and upgrade your positions,” Chris Watkins of MRI China Group was quoted as saying in the Shanghai Business Review. “The window of opportunity could be a couple of months or it could be a years but companies should take action now.”
Conclusion
AmCham advises that investors should develop new business models for the domestic market and tailor existing products to meet local preferences and conditions. "Manufacturing among foreign-invested companies continues to evolve steadily, with more companies implementing sophisticated production operations and technologies while also integrating their China operations into their global supply chains," the survey said.
While much of the West digs itself out of a deep downturn, China’s economy looks likely to reach its 8 percent growth target this year as most provinces have achieved or even bettered the goal in the first six months of 2009. Frank Gong, JPMorgan Chase's chief China economist, who expects the country's economy to grow 7.8% this year, compared with his previous forecast of 7.2% a few months ago. "The economy is doing a lot better than the market expects," says Gong. "The risk is on the upside." His prognosis for next year is even rosier, with an expectation of 9% growth, compared with his earlier forecast of 8.5%. |
|
|
 |
 |
 |
 |
|
|
