The End of Cheap China: Economic and Cultural Trends That Will Disrupt the World Read Online Free PDF Page A

its founder, Li Shufu, auto manufacturer Geely bought the Swedish Volvo brand. Home appliance giant Haier bought the domestic and and Southeast Asian operations of Japan’s Sanyo. State-owned conglomerate Bright Food, China’s second-largest food company, was rumored to have been in talks with Yoplait and nutritional supplement maker GNC before deals fell through, but it is still on the lookout for such megadeals. After buying Australian firm Manassen, Bright Food Chairman Wang Zongnan announced that he hopes 30 percent of its sales will come from overseas by 2016, and that he is actively looking to acquire more European or Australian companies in the food-distribution and sugar industries.
     
    As I said good-bye to those leading entrepreneurs in the Okura Garden Hotel that night, it became very obvious that the rise of Chinese firms will disrupt world markets in a way most never could have imagined just a decade ago, and that the country was as far from Mao’s vision of China as it could be. The End of Cheap China means that Western executives need to be prepared to fend off increased competition from their aggressive, battle-hardened, well-capitalized counterparts. Western consumers will get used to choosing products at Best Buy or Target with prominent Chinese brand names, or brands owned by Chinese investors, instead of just those bearing hidden “Made in China” stickers.
    I was also left with some questions that I wanted to examine more closely. If these entrepreneurs had moved so quickly to build brands, what exactly had caused that change in such a short period of time? What changes in the labor force are forcing Chinese companies to go upstream? Was it due to soaring real estate prices, commodity markets, or something else? Visits to Chinese factories answered my questions.
    CASE STUDIES WHAT TO DO AND WHAT NOT TO DO IN CHINA
Do Not Underestimate Domestic Chinese Brands’ Quality
    Western executives often foolishly scoff that Chinese brands could never compete with Western ones on anything but price. “They do not have the branding ability or focus on quality like the Japanese have,” one global executive told me. He is underestimating the competition—never a smart thing to do .
    Not only has the day arrived when many Chinese firms offer products that are as good as Western goods, but many compete head to head on quality and innovation. The Chinese business landscape is littered with global number one brands that failed when they hit China’s shores. Critics complain that the government creates an uneven playing field by supporting domestic firms over foreign ones, but the reality is that search engine firm Google lost to Baidu because Baidu’s technology for Chinese-language search was far better. Internet auction site eBay lost to Taobao because Taobao adopted an escrow-like pay system called Alipay that limited fraud, while eBay used PayPal .
    Among the Chinese product companies starting to compete against Western brands is telecom giant Huawei, poised to overtake Ericsson as the world’s largest network equipment maker, was recently chosen by Tele2 and Telenor over Ericsson in Sweden to install a 4G telecommunications system. Construction manufacturer LiuGong sells similar products to Caterpillar and Terex for 20 percent less. In interviews with dealers and end customers that my firm conducted, the majority said that for most projects, Chinese brands were more than good enough. China’s wealthiest person in 2011 was the founder of construction giant SANY, Liang Wengen, who is worth over $9 billion .
    Chinese companies are often able to cut operating costs and set prices below those of foreign brands while still offering comparable quality. To combat rising Chinese brands, Western brands might need to launch secondary brands, acquire Chinese ones, or shape the market to ensure premium positioning .
    Key Action Item
    Foreign brands should not discount the rise of Chinese brands. They are aggressive