Removing the boundaries that inhibit integration is, in a sense, the definition of globalization. Thanks to the advances of information,
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communications, transport, and other technologies, combined with the lowering of political barriers to international trade and investment, the world has become a far smaller, more interconnected place. This perspective is, no doubt, familiar to readers of this book; it was popularized by New York Times columnist and author Thomas L. Friedman in his 2005 book The World Is Flat and by the Japanese strategy writer and thinker Kenichi Ohmae fifteen years earlier, in his book The Borderless World. 4 According to this view, companies in a globalized world can situate different parts of their business wherever they can find the right skills and abilities. The location of a company’s headquarters need have little say about the distribution of its operations in countries worldwide. Instead, thanks to instant communications, anything that can be moved electronically—including capital, in-depth knowledge, human contact, data, and instructions—can be placed at any spot on the globe connected via fiber-optic cable, copper wire, or satellite to the Internet or other forms of electronic communication.
That multinationals with operations spanning the world have bought into this vision is no surprise; by their very nature, they are always looking for new sources of cross-border value. But the Chinese government and business leaders, and most of its citizens, have also bought into the same vision.
This represents a more dramatic shift than many people realize. In chapter 4,1 noted that China’s original intention when it first opened its doors to foreign investment was to control the world’s influence, corralling it in special economic zones. Even today, it remains very much a developing nation; its per capita GDP, despite the growth of the last three decades, is still just one-fifteenth that of the United States, on a par with El Salvador and Namibia.
But it has also become the world’s most connected nation, with more people using the Internet than any other country (more than 300 million, 5 compared with 220 million in the United States; India’s 60 million pales in comparison), and more of them using broadband (120 million, or about half again as many as in the United States). Throw in its 1 bil-
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lion phone users—550 million of them mobile subscribers—and it is clear that China’s rulers have accepted the fact that the country’s population can surf the World Wide Web, talk to each other openly, and exchange emails and text messages. The Chinese government still blocks or censors what it views as politically unacceptable websites. But, by and large, the Chinese people enjoy a level of freedom to communicate with each other that was not possible a decade ago. If we include the marketopening measures of China’s World Trade Organization accession terms and other measures China has taken to free up trade and welcome investment, then there is certainly a strong case that China has not only embraced globalization vigorously, but made a remarkable transition from isolation to global engagement.
In the aftermath of the 2008 financial crisis, that openness is taking on new dimensions. As Financial Times columnist Martin Wolf noted in September 2009, “The west’s reputation for financial and economic competence is in tatters, while that of China has soared.” 6 Others have observed Chinese officials beginning to deliver advice and warnings to outside companies and governments, and to be treated with deference. For example, a group of Chinese diplomats admonished Peter Orszag, the director of the United States Office of Management and Budget, on the importance of health care reform, in part on the grounds that this would safeguard the value of U.S. government bonds in which the Chinese famously hold a $2 trillion investment, but also with a status directly related to weathering the crisis more successfully than other nations. 7
To outsiders looking in, the benefits of globalization for China are abundantly clear. The benefits of Chinese globalization for multinational companies are also clear, not just for those using the country as a manufacturing or sourcing location, but for those like IBM, which have integrated their China operations into their global value chain.
There could even be great opportunities for companies entering China for the first time. With the emerging consumer culture in Tier 3 and 4 cities, there will be new potential in untapped markets, such as the service sectors. A company entering China could pick out one
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market category or consumer segment and have hundreds of thousands of potential customers. That could make China the largest market niche play opportunity in the history of the world.
From within, the view of what has happened might look rather different—so different it’s worth briefly considering just how daunting and unfamiliar the changes of the last two decades might seem to an executive of a Chinese company who went to sleep in 1989 and woke up in 2009.
Since the government opened the country’s doors to foreign business, barriers to competition have fallen relentlessly, and a nonstop stream of multinationals has flooded in. Many of them now dominate their sectors. Microsoft looks as much a behemoth in China as it does in Europe and America. KFC is ubiquitous on the streets of Chinese cities, far ahead of any Chinese fast-food chain. Procter 8c Gamble is the leading fast-moving consumer goods company. Tetra Pak, the Swedish company, is the leader in liquid packaging. Global accountancy companies, law firms, and consultancies, all with non-Chinese names, occupy the high ground of professional services. Coca-Cola and Pepsi dominate China’s carbonated drinks sector.
Both state-owned and private companies find themselves under ever more intense pressure to be profitable, to find new markets, to add new skills, and to acquire new technologies. When they innovate, they find multinationals following in their paths, assimilating their techniques and methods. Huawei may have changed the global telecommunications equipment manufacturing business forever, but all the world’s major equipment vendors now have operations in China, taking advantage of its low-cost production and research environment. Huawei’s staff are now the targets for poaching, and its intellectual property is vulnerable to being stolen.
In short, one might expect Chinese business leaders to regard the outside world with concern, trepidation, and resentment, not unlike the way that incumbent company leaders in many countries feel about competitors from outside.
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But most Chinese business leaders don’t feel this way. They regard the outside world with curiosity and entrepreneurial zeal, even when it encroaches on their own markets. In short, they see the promise that the world holds for them. Foreign observers have paid a great deal of attention to the impact globalization has had on China. But the Chinese themselves are keenly aware of the potential they have to affect globalization itself. China’s development over the next decade and beyond will shape the economic and perhaps the political landscape of the rest of the world.
Globalization, of course, is a two-way phenomenon. The combination of the scale and openness of China’s markets, and its entrepreneurial drive (particularly in manufacturing and manufacturing-related services) will combine to propel Chinese products and ideas everywhere. And the channels through which globalization has flowed into China—investment and trade, and the interconnection of transportation and communications networks—will also carry China’s influence back out to the global economy.
The rest of this chapter is about this impact, and how China’s participation in the globalized economy will affect value chains, company structures, and corporate thinking on every continent.