Opinion

Economy of brawn and brain

By Handel Jones (China Daily)
Updated: 2010-09-10 15:02

China has had excellent success in building a large industrial base, which enables it to export more than 50 percent of its output and also meet a high percentage of its domestic demand. Its companies are proud of their factories and the goods they make. Larger and more efficient factories are being built in China, with its auto industry becoming the largest in the world - in April 2010 alone, it made 1.73 million.

To achieve such an industrial growth, Chinese workers and managers have made huge sacrifices. The more than 200 million migrant workers have given up their family lives, and many get to see their children only during the Chinese lunar new year.

Many Chinese entrepreneurs are very wealthy. The country now has the highest number of billionaires after the US. Many of these billionaires are under 40, and in most cases, owe their success to the country's large market and demand. Examples include Baidu, Alibaba, Tencent and other Internet-centric companies.

Though Huawei, Haier, and some other companies have begun experiencing success in the global market too, most of the successful Chinese companies have to thank the domestic market for their success.

But the times are changing. The children of migrant workers want to go in for higher studies and lead a life different from their parents', and workers are becoming less passive. The strikes in Honda, Omron, Denso and other factories were called not only to demand higher wages, but also to protest against the poor treatment of workers. There's a new awakening among workers. One worker has even been quoted as having said: "Are we not as good as the Japanese workers?"

The strikes should thus be seen as an expression of workers' frustration. It should be a reminder that workers need to be treated with more respect.

The special economic zone (SEZ) concept has been successful in building a large industrial base in many Chinese cities and provinces. A World Bank analysis says that the existence of about 3,000 SEZ projects in 120 countries indicates the effectiveness of such zones in stimulating the economy.

But a key problem with China is that many of the products (for example, iPhone 4, iPad and HP personal computers) its companies make are designed abroad. Chinese companies can take an existing design and make a product, and even improve it, at a lower cost.

What China needs to do to continue prospering, however, is the ability to design new products. It needs original ideas and the brains to design and develop new products and set up SEZs of "brainpower". It has to maintain its efficient manufacturing base, but that should only provide the foundation for a new knowledge-based economy.

The country has to recapture the creativity and innovation so common to its past. The skills that would be needed to build its innovative phase are strategic planning, marketing and innovation. Chinese history is full of examples of clever strategies, many of which helped the country win battles. Today, China needs to devise strategies to win the battles in the global market.

China spends huge amounts amount on producing engineers and scientists. But many of its graduates cannot find suitable jobs, because its market mainly demands low-paid manufacturing workers. To overcome this problem, China has to build its next industrial phase based on brainpower that would enable it to conceive and design new products.

Chinese companies have to develop and nurture new skills that can help them decide which products to develop, and how to develop and market them successfully. They invest millions of yuan to build modern factories but are reluctant to spend on market data or competitive analyses. This attitude has to change.

Strategic planning and proper marketing require huge volumes of data, which include the size and growth of markets, competitive analyses and impact of new technologies (such as software and user interfaces). These data need to be based on global conditions because China must evolve from being inward-looking to having a global outlook. In fact, it needs to strike a balance between the two, because its inward focus in the past gave foreign countries the chance to take advantage of its innovations.

It would be foolish to think that the Chinese have lost their innovative powers. But they have to learn to leverage their innovations to cash in on the global market, something they didn't do with gunpowder and their other gifts to the world.

Chinese people have to change their "factory mentality", which they have acquired over the past few decades. Corporate managers, too, need to change their "mindset" and, along with university students, should be made to undergo training in strategic planning and marketing skills.

Strategic planning can determine what products to make, after which engineers (and software writers) can design high value-added products to attract more customers. And proper marketing can convince customers of the need to buy those products.

Many successful foreign companies have innovative strategic planning and marketing departments. But most successful companies' approaches are specific to their products and market needs. Strategic planning and marketing require customization and need to be enhanced in real time as the business environment changes.

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China is now arguably the second largest economy in the world. To continue growing, expanding its middle class and broadening its employment base and factory power, it needs to develop new skills. If it broadens its base in strategic planning and marketing, it will create more jobs for university graduates and enhance its ability to produce more value-added products.

China needs the power of "brawn" and "brain" both to continue providing labor at comparatively low cost and to start making more value-added and hi-tech products. Innovation, and strong research and development can make "made-in-China" products the leaders in their fields.

Leveraging brainpower is a gradual process in which new skills have to be developed. China has adapted to changing times in the past. It can do so again.

The author is founder, owner and CEO of US-based International Business Strategies, Inc. in Silicon Valley, California. He is the author of Chinamerica: The Uneasy Partnership That Will Change The World.