Monday, February 16, 2009

BOOK REVIEW: Made in China


Sudhanva Char, Editorial Board – Academic Resources

Made in China (2009) by Winter Nie and Katherine Xin, with Lily Zhang, published by John Wiley & Sons, ISBN: 978-0470-82436-8

Made in China is an interesting book. It would grab the attention of any person desiring to connect one way or the other with China’s Business. Are you one of those that believe that China’s economy is basically government owned and controlled? You would be in for surprises after this book. You are more likely than not going to change your view of China’s business as being nothing more than a State-dominated sector of the China’s economy. More likely, you may start appreciating that it is more of a mixed economy than you would care to accept as true. Judge for yourself: the unexpected facts from “Made in China” are that Privately Owned Enterprises (POEs) account for about 50% of China’s GDP, or for about $3.5 T. Similarly, 52% of the investment in fixed assets in urban areas is made by POEs, and they also account for some 78% of the foreign trade, some 76% of the total national tax revenue and the same 76% of the total urban employment. Dramatically, their contribution to fixed assets formation has increased from 42% in 2000 to 60% in 2005, whereas the share of the State Owned Enterprises (SOEs) during the same period has declined from 50.1% to 30.6%. These and other statistics about the POEs beginning with this century are amazing!

The World of POEs
The book is all about native Chinese enterprises or POEs and their domestic strategies to be winners in business regardless whether the competition is from other domestic companies or from foreign companies. It is possible that immediately after China emerged as a nation in 1948 the State called all the shots and most of China’s growth was almost exclusively Government-driven or was due to SOEs. The book proves all that is history and in recent decades it is the POEs that are in the driving seat of the Chinese economy. It also proves that that American and European businesses do not always succeed in China, especially even when they are face to face with competition from POE. The deduction that seems to be obvious as one reads the book is that China’s home-grown businesses are a different kettle of fish in contrast with American or European Multinational Companies (MNCs) setting up business in China to take advantage of lower labor and production costs. POEs possess certain flexibility and dynamism that would make the MNCs look muscle-bound!

While one need not pursue their business models, leadership styles and market strategies, nevertheless, POEs seem to offer vital lessons for all business dramatis personae in all departments of Chinese business. POE founders made their first pot of gold in discovering the golden opportunities and going for them zealously. The western business model is one that is based generally on technology and innovation.
Environment Not one of the Success Characteristics
Everyone knows how in a short time of about two short decades China has telescoped a century of economic and industrial progress to emerge as the second largest economy in the world. It is a fact of life that it is difficult to do without products made in China. It has appropriately earned the moniker of “Factory of the World” exporting literally thousands of consumer and even some capital goods to almost every country in the world. However, there are serious concerns about the sustainability of such economic progress at a blistering tempo. The association of last year’s earthquake with the Three Gorges Dam, the poisonous melamine milk powder, or the sickening ginger or the pet food and other stories, the grim contamination of air and water, and other bye-products of economic growth has now instigated a “Don’t Buy from China” campaign. This book is not about any of these contentious issues, but strictly more about the “explosive” growth of about six million POEs, that constitute approximately 80% of China’s corporate enterprises. It is a mute point if some one would like to pick this up as a weakness of this book, that it does not discuss the role of POEs in the repairs and maintenance of the environment they operate in. That would, however, not detract from the merits of the book which is one of highlighting the business smarts of POEs. Hopefully, in the near future, environmental astuteness would also be one of the dynamics in the matrix of factors that contribute to success discussed in the book (P.171)

The Representative 20 POEs
The outstanding feature of the book is the tracking of the growth trajectories of 20 POEs (listed in Appendix B of the book), all of which had humble origins before they became the engines of growth all over China. In this basic task the SOEs are now relegated to a relatively back seat. For purposes of generating the data needed for the book the authors interviewed with each one of the 20 entrepreneurs.

The book’s pedigree is attributable to the intellectual pursuits of the distinguished authors: All three of them either teach or conduct research at the globally eminent business School IMD, in Lausanne, Switzerland. Winter Nie is professor of Operations and Service Management programs. Katherine Xin is also a professor at IMD and has had world-wide teaching and consulting experience. Lily Zhang is a Research Associate at IMD and she has had her salad experiences in two admirable economic and business publishing houses of Dow Jones and The Economist. They have also distinguished themselves by their exhaustive knowledge of Chinese corporate history, cultural and social factors that impinge on management styles and their impact on business outcomes, and by their thorough familiarity with individual corporations such as Alibaba, Taobao and Wahaha. Their insight into the workings and success of POEs comes from their long years of residing in China, teaching, consulting and researching there.

The book has eleven chapters over five parts, two appendices and a bibliography besides the index. The first part presents three case studies of competition between MNCs and POEs in China’s domestic markets. The three cases are those of Wahaha vs. Danone, Nice vs. Proctor & Gamble, and Taobao Vs. eBay. Danone Group has charged Wahaha with creating a parallel corporation that competes with Wahaha’s products and the deal between the two are under (Swedish) arbitration in Stockholm although a Chinese court has approved of Wahaha’s domestic marketing policy. But for this off-putting “divorce” aspect of the collaboration, and in particular the dispute about the transfer and ownership of the Wahaha trademark, it could serve as a useful case study in the success of Chinese enterprise at the cost of Danone. Nice, a typical POE won the marketing battle over P&G and also Unilever. Taobao, a unit of Alibaba, managed to carve out for itself, a substantial part of eBay’s market share.

The second part with two chapters deals with “Evolvement of Entrepreneurship in China.” This is a history of Chinese entrepreneurship. The third part is about the background of POE entrepreneurs and how their business models are different from American models. The last part with three chapters shows up the threats and opportunities for MNCs and for POEs and how they join hands for mutual benefit. The interview questions are listed in Appendix A and you have a list of the 20 companies in Appendix B.

There are a few strange expressions or presentations in the book that the authors could take care of in the next edition. For instance, on page 52 they say “In 2005, tax paid by POEs reached RMB 2 trillion and RMB 337.79 billion….” Do they mean RMB 2.33779 trillion? Secondly, it is somewhat self-evident that the book is more of a compilation of previously published material, at least part of it, albeit in reputed professional journals, and as such it lacks a strong linking thread with a common general idea relating to say, POEs. Third, one would also very much like to have a more detailed financial analysis of the millions of POEs both as a group or more desirably as individual POEs.

On the whole, in a global sense, the book is a valuable addition to the literature available regarding the private sector of one of the most socialist economics of the world. It is an eye-opener and has valuable hints for those wishing for meaningful business relationships with the world’s second largest economy. It is worth adding to your reference library.