The Chinese Renaissance

B usinesspeople entering China would do well to take the truly long view: a view spanning several centuries. For this country stands on the threshold of a renaissance, one that could see it regain the glory of its greatest era, the Tang dynasty, which lasted from the seventh to the tenth centuries, both China’s most open era in history and the greatest period of Chinese influence.

This new resurgence is already beginning to spill from its current economic resurgence to other spheres, especially in science. It is providing examples of innovation and development that everyone can both contribute to and learn from. Living at such a time is a privilege. Participating in the events that are shaping it is even more so.

But whereas during the Tang dynasty (and throughout most of its history) China viewed itself at the world’s center—as the “Middle Kingdom”—its new incarnation is far more open. Chinese people see themselves not as dominant, but as participants in the world as a whole. This perception drives many Chinese people, and many Chinese companies, forward. As I have mentioned, some of its best companies have a sense of purpose that extends far beyond simply making money for their owners. Yes, they want to be profitable, world-class companies, but

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even more so they want to be successful Chinese companies. They want to make a mark on the world at large, and they also want the world at large to make a mark on them.

It is only by having a knowledge of this aspect of China’s context that multinational companies can grasp the multifaceted agendas of Chinese companies—what motivates them and why they behave as they do. Possessed with such understanding of China, any company can not simply improve its prospects of success, but also participate in one of the great projects of the twenty-first century.

Through this book we have seen how China, starting from its adoption of openness and market freedoms, has paved the way for multinational companies to migrate ever more parts of their value chains to China. We have seen how the world’s best manufacturers are starting to integrate production in China with their manufacturing and marketing operations in the rest of the world, and vice versa.

We have seen how this is opening up possibilities for one world companies and the kind of strategies businesses should be developing to realize these possibilities. A major consequence of this is that China will be shaping our world. At a time of global financial crisis, when many countries are looking inward, China is still looking outward.

China’s growth rate may have dropped slightly during the current worldwide recession, as trade and overseas investment retreated. But as the world economy recovers, both companies and countries will be in even greater need of the advantages China and its involvement in the globalization project offers: the efficiencies provided by worldwide supply chains, the net benefits of international trade. Manufacturers will continue to want to produce their goods where costs are lower; information will flow even more freely through the Internet; capital will continue to move around the world in search of a higher return; and China’s markets will be an even greater attraction for companies looking to sell more of their products. At the same time, China will become more globally oriented in its search for resources, for markets, for expertise, and for understanding.

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For multinational companies, having a China strategy will be essential. The framework proposed by this book for conceptualizing China—its move toward ever greater market liberalization in more and more sectors and the integration of its economy into the global economy—will continue to hold true for the foreseeable future.

Of course, the ideas and conceptual frameworks I have described cannot guarantee success. Given China’s complexities, its rate of change, and the infinite number of variables involved that would be impossible. But this book does offer a way to both see what is happening and be able to put this into the context, first, of China and, second, of the world. With this understanding, companies—either those already established in China or those venturing in for the first time—should be better prepared both to anticipate change and to handle unanticipated change. As I noted in chapter 6, instead of focusing just on the “three Cs” in conventional strategy-—customers, competitors, and their own company— corporate leaders need to consider a fourth “C”: the context.

Successful one world companies will be those that, although excited by the prospects China offers to developing globally integrated businesses, always bear in mind the demands and constraints imposed by local customs at one extreme and the government’s agenda at the other. They know that China will remain a place intensely local in its demands on operations. Its markets are a complex mosaic of fragmented elements, divided by geography, culture, income, education, skills, and other factors, further complicated by the rate of change they are all undergoing.

As a good friend of mine, Heather Ting, the chief financial officer of BP’s global petrochemicals business, once said to me: “The desire to create a new, better China is always there.” Ever present in China is the feeling of having to develop and catch up so that it can be perceived as a nation at the forefront of culture and commerce. This aspiration should not be underestimated; it is a goal that underlies the country’s drive and gives many Chinese a motive for realizing success beyond money or power.

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THE CHINA STRATEGY

The Chinese are patient about this aspiration. But they also realize that many targets that sound rhetorical are likely to be real; maybe not today, but at some point in the future, and possibly sooner rather than later. For business the implications of this attitude are as follows:

• Do not underestimate how much change China can get through in an extremely short time. China has been brilliant at targeting what it wants and then getting it. This does not mean that things will be different overnight, but certainly within the space of just a few years, issues that looked extremely difficult can be moved along surprisingly fast.

• Plan for a better future. Chinese are very optimistic, or at least hopeful, that their country is changing for the better; it would be foolish to bet against them. The country still faces many problems, from environmental degradation to income disparity to corruption. Its people know that many of these problems are systemic and hard to change quickly. But they also compare their country’s condition to the way it was before the period of economic reform. They know that China has come a very long way in a very short time. Most Chinese people are justifiably proud of this progress and feel they have reason to hope that other difficult issues will be addressed over time. The how and when may not be clear to them, but for most of them the direction is certain.

• What works today may not work in the future, or even in the very near term. We have seen how surges in demand for different types of goods have been sparked by combinations of regulatory change and consumers surpassing their income thresholds. Such changes can also be negative and are likely to occur as the government strengthens its regulatory regimes. Stricter enforcement of laws is more likely to affect Chinese companies that have been exploiting lax practices in areas such as the environment than multinational companies that have brought in developed-country practices. But other rule changes can hurt international busi-

EPILOGUE: THE CHINESE RENAISSANCE

nesses more than local ones, such as the various attempts by officials to mandate Chinese-developed standards instead of international ones.

• Very little works out fully as planned, so be prepared for changes. As powerful as it is, official China’s writ over industry and the economy is not complete. Even in core industries dominated by state-owned companies, developments often turn out other than as officially designed. Take the auto industry, where China has gone from nowhere to being the world’s number-two vehicle producer (expected to be number one by the end of 2009). Government direction of the industry has helped, but at the same time, the sector’s structure is very different from that envisaged in the mid-1990s. Instead of being built around three massive state auto enterprises picked by the government, a series of second-tier auto companies, nimble and aggressive, have emerged looking more like potential long-term winners than their giant big brothers. 1

No other country resembles China. No other country has so many opportunities—and challenges. And no other time has been so crucial for entering China as now. The paradoxical truth, however, is that a China strategy is not a strategy for entering China. It is a strategy for creating a global business, in a way that prepares for something that may be happening for the first time in history: the knitting together of worldwide enterprise into a coherent whole.

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Chapter 1

1. Li Ning himself is now the Chairman of Li Ning Company. Day-to-day operations are run by its CEO, Zhang Zhiyong.

2. “China Auto Sales Hit 1.14m Units in August,” China Daily , September 10, 2007, http://www.chinadaily.com.cn/bizchina/2009-09/08/content_8668545.htm; and “China’s Top 500 Perform Better Than U.S.,” China Daily , September 9, 2007, http://www.chinadaily.com.cn/china/2009-09/07/content_8660388.htm (both accessed September 10, 2009).

3. Angus Maddison, Contours of the World Economy, 1-2030 AD (Oxford: Oxford University Press, 2007), 340.

4. According to the U.S. Department of the Treasury; see http://www .treas.gov/tic/mfh.txt (accessed July 21, 2009). In 2000, China held barely $70 billion, according to the Brookings Institution; see “Sky’s the Limit? National and Global Implications of China’s Reserve Accumulation.” Available at http:// www.brookings.edu/articles/2009/0721_chinas_reserve_prasad.aspx (accessed July 21, 2009).

5. For data on China’s GDP and trade performance in 2008, see “Statistical Communique of the People’s Republic of China on the 2008 National Economic and Social Development,” February 26, 2009, http://www.stats.gov.cn/english/ newsandcomingevents/+20090226_402540784.htm (accessed October 20,2009).

6. Shanghai Maglev Transportation Development Co. Ltd. See http://www .smtdc.com/en/gycf3.asp (accessed September 3, 2009).

7. Andrew Cainey, Suvojoy Segupta, and Steven Veldhoen, “The Asian Recovery” (working title), to be published in strategy ^business, Winter 2009.

8. China Daily , op. cit.

9. Zachary Karabelli, “They’re Winning: Why Is China’s Stimulus Working So Much Better Than Ours?” The New Republic, August 1, 2009.

10. Source: China’s Ministry of Commerce. See “Experts: China’s Outbound Investment Unlikely to Outstrip FDI,” Xinhua News Agency, July 2,2009. Available at http://news.xinhuanet.com/english/2009-07/02/content_l 1667032.htm (accessed July 21, 2009).

11. Pankaj Ghemawat, Redefining Global Strategy (Cambridge: Harvard Business School Press, 2007).

Chapter 2

1. China’s retail sales: National Bureau of Statistics; China Economic Quarterly 13, no. 1, March 2009, 2. U.S. retail sales: U.S. Census Bureau, http:// www.census.gov/mrts/www/mrts.html (accessed April 15, 2009).

2. China Statistical Yearbook 2008 (Beijing: China Statistics Press, 2008), 636. Hereafter referred to as CSY ; all editions cited were published in Beijing in the year of their title by China Statistics Press, with the exception of the 1998 edition cited in note 8.

3. Ibid., 223.

4. Yang Jian, “Toyota’s Underperformance Underscores the Toughness of the China Market,” Automotive News China, July 15, 2009.

5. According to official accounts, 28.18 million state-owned enterprise workers were laid off between 1993 and 2003, but this is almost certainly an undercount of the true total. See Barry Naughton, The Chinese Economy: Transitions and Growth (Cambridge: Massachusetts Institute of Technology Press, 2007), 185-189.

6. CSY2001, 107; CSY2008 ,109. Derived by adding total employees for private enterprises and self-employed individuals.

7. CSY2008 , 729; Ministry of Commerce announcement, January 15, 2009.

8. CSY 1998 , 619, 636; CSY 2008 , 726, 728; General Administration of Customs of the People’s Republic of China, 2008, China export. See: http:// www.customs.gov.cn/publish/portal0/tabl/infol56574.htm.

9. Gerald Adolph and Justin Pettit. Merge Ahead: Mastering the Five Enduring Trends of Artful M&A (New York: McGraw-Hill, 2009), 36.

10. Regional GDP figures are derived from CSY 2008 , 49. See also “Yangtze River Delta, Pearl River Delta and Bohai Rim Cities Lead the Economic Running” (in Chinese) at http://www.gov.cn/jrzg/2008-ll/27/content_1161209 .htm (accessed April 15, 2009).

11. CSY 2006, 99.

12. See Deepak Bhattasali, “The State of the Chinese Economy—A Development Economist’s Perspective,” World Bank, 2001. Available at http://www .worldbank.org.cn/Chinese/content/chineseeconomy.pdf (accessed April 15, 2009).

13. CSY2006, 389.

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14. CSY 2008 , 606; Length of Transportation route, Chinainfobank, from China Statistics Press 2009.

15. According to Sam Su, in a personal interview conducted in 2008. Also see Warren Liu, KFC in China: Secret Recipe for Success (New York: Wiley, 2008).

Chapter 3

1. China Economic Quarterly , June 2008, 38.

2. See http://money.cnn.com/magazines/fortune/global500/2009/countries/ China.html.

3. By 2005, total utilized foreign direct investment had reached $570 billion, according to the Ministry of Commerce (see “Total Foreign Investment in Actual Use Tops $570 Bln in China,” People’s Daily , March 15, 2005. Available at http://english.peopledaily.com.cn/200503/15/eng20050315_176936.html (accessed May 21, 2009). Another $280 billion was invested between 2006 and 2008. The total for 2009 was forecast at around $80 billion at the time of writing. See China Economic Quarterly 13 , no. 3, September 2009, 2.

4. Ming Zeng and Peter J. Williamson, Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition (Boston: Harvard Business School Press, 2007), 46-49.

Chapter 4

1. David Shambaugh, China’s Communist Party: Atrophy and Adaptation (Washington/Berkeley: Woodrow Wilson Center Press/University of California Press, 2008).

2. Melinda Liu, “Right Brain,” Newsweek Web exclusive, September 8, 2009, http://wAvw.newsweek.com/id/214993 (accessed September 16, 2009).

3. The Pew Global Attitudes Project, “The 2008 Pew Global Attitudes Survey in China,” issued July 22, 2008. Available at http://pewglobal.org/reports/ pdf/261.pdf (accessed March 6, 2009).

4. Barry Naughton, The Chinese Economy: Transitions and Growth (Cambridge: MIT Press, 2007), 464.

5. Melinda Liu, “A Lean, Green Detroit,” Newsweek, May 4, 2008, http://www .slideshare.net/wrussol011/newsweek-china-takes-the-lead-in-the-automotive -industry (accessed September 16, 2009).

6. See http://www.hsbc.com.en/l/2/misc/branches-and-atms.

Chapter 5

1. Samuel J. Palmisano, “The Globally Integrated Enterprise,” Foreign Affairs, May/June 2006, 127-136. Available at http://www.ibm.com/ibm/governmental programs/samforeignaffairs.pdf (accessed March 4, 2009).

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2. Robert Malone, “IBM Moves Global Procurement to China,” Forbes.com, October 13, 2006. Available at http://www.forbes.com/business/2006/10/13/ ibm-procure-shenzhen-biz-logistics-cx_rm_l013ibm.html (accessed September 15, 2009).

3. Ibid.

4. Thomas Friedman, The World Is Flat: A Brief History of the Twenty-First Century (New York: Farrar, Strauss and Giroux, 2005); Kenichi Ohmae, The Borderless World: Power and Strategy in the Interlinked Economy (New York: Flarper & Row, 1991).

5. “China’s Internet Users Exceed 300 Million,” Wuhan newspaper (Chinese language), July 17, 2009, http://news.sina.com.en/o/2009-07-17/103215969496s .shtml (accessed September 15, 2009).

6. Martin Wolf, “Wheel of Fortune Turns as China Outdoes West,” Financial Times, September 13, 2009.

7. Noam Scheiber, “Peking Over Our Shoulder,” New Republic, September 15, 2009.

8. Associated Press, “China Showcases Commercial Jet at Asia Air Show,” September 8, 2009; Polly Huin, “China Unveils Jet at Asia’s Biggest Air Show,” Agence-France Press, September 8, 2009.

9. For a full list of Chinese companies in the Fortune Global 500, see http://money.cnn.com/magazines/fortune/global500/2009/countries/China .html (accessed September 14,2009).

10. 2008 OFDI, Minstry of Commerce of the People’s of Republic of China, Department of Outward Investment and Economic Cooperation, February 19, 2009. Available at http://fec.mofcom.gov.cn/tjzl/jwtz/215102.shtml; 2007 Statistical Bulletin of China’s Outward Foreign Direct Investment.

11. See Arthur Kroeber and G. A. Donovan, “Sudan Oil: Where Does It Go?” China Economic Quarterly 11, no. 2, Q2 2007,18.

12. David Barboza and Michael Wines, “Mining Giant Scraps China Deal: Rio Tinto Ends Plan to Sell $19.5 Billion Stake to Chinalco,” New York Times, June 4,2009. Available at http://www.nytimes.com/2009/06/05/business/global/ 05mine.html (accessed September 15, 2009).

13. David Barboza, “News Media Run by China Look Abroad for Growth,” New York Times, January 14, 2009. Available at http://www.nytimes.com/ 2009/01/15/business/worldbusiness/ 15tele.html (accessed April 5, 2009).

Chapter 6

1. Booz Allen Hamilton (now Booz & Company) and the American Chamber of Commerce in Shanghai (AmCham), China Manufacturing Competitiveness 2007-2008, 2008, AmCham; and Booz & Company and AmCham, China

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Manufacturing Competitiveness 2008-2009, 2009, AmCham. The study surveyed sixty-six manufacturers belonging to AmCham’s Manufacturing Business Council.

2. See Geoff Dyer, “China’s Wary Shoppers Set Store by Western Brands,” Financial Times , September 4, 2007. Carrefour’s controversial methods of fueling its growth have been widely documented. For one example, see Shu- Ching Jean Chen, “Carrefour Contends with Bribery in China,” August 27, 2007. Available at http://www.forbes.eom/markets/2007/08/27/carrefour- bribery-china-markets-equity-cx_jc_0827markets03.html (accessed September 15, 2009).

3. The rise of D’Long is entertainingly told in “The Great Consolidator,” China Economic Quarterly , Q1 2004. For details of what happened to Tang Wanxin, see “Tycoon Jailed in China’s Largest Stock Scandal,” Shanghai Daily , May 1, 2006. Available at http://www.chinadaily.com.cn/china/2006-05/01/ content_581687.htm (accessed June 18,2009). Kelon was subsequently acquired by another leading Chinese maker of white goods, Hisense; see “Hisense to Take over Kelon for US$85 Min,” Xinhua News Agency. April 24, 2006. Available at http://english.china.eom/zh_cn/business/appliances/l 1025897/20060424/ 13271449.html (accessed June 18, 2009). Ningbo Bird’s rise and fall is briefly documented in “Is Ningbo Bird’s Goose Cooked?” United Press International, July 19, 2005. Available at http://www.physorg.com/news5293.html (accessed June 18, 2009).

4. AmCham, 2008 Business Report, AmCham, 2009.

5. Joe Studwell, “Dream, Dream, Dream ...,” China Economic Quarterly, Q4 2004, 24.

6. For details of Volkswagen’s turnaround strategy for China, see http://www.volkswagen-media-services.com/medias_publish/ms/content/en/ pressemitteilungen/2005/10/17/volkswagen_group_presents.standard .gidoeffentlichkeit.html (accessed December 11, 2007).

7. Adapted from Ronald Haddock and Christoph Bliss, “Integrating China into Your Global Supply Chain,” Booz 8c Company, February 2008, 4-5.

Chapter 7

1. James Pomfret and Joanne Chiu, “BYD Aims to Sell 700,000 Vehicles in 2010,” Reuters, July 2009. Available at: http://www.reuters.com/article/company News/idUKHKG36676120090727 (accessed September 19, 2009).

2. The company’s rise is examined in an article by Ronald Haddock and John Jullens, “The Best Years of the Auto Industry Are Still to Come,” published in strategy+business, no. 55, Summer 2009. An account of production innovations at its battery business can be found in Peter J. Williamson and Ming Zeng,

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NOTES

“Value-for-Money Strategies for Recessionary Times,” Harvard Business Review , March 2009,66-74. See also Norihiko Shirouzu, “Technology Levels Playing Field in Race to Market Electric Car,” Wall Street Journal , January 12, 2009.

3. “Yum! Takes Bite of China’s Little Sheep,” March 2009, What’s on Xiamen.com. Available at http://www.whatsonxiamen.com/wine_msg.php? titleid=495.

4. See http://szb.qzwb.com/dnzb/html/2009-04/14/content_31314.htm.

5. See http://www.fdimagazine.eom/news/fullstory.php/aid/l 146/China_ claws_back_the_tax.html.

6. See http://research.nokia.com/node/252.

7. Nandani Lynton and Kirsten Hogh Thogersen, “How China Transforms an Executive’s Mind,” Organizational Dynamics 35 , no. 2, 2006, 170-181.

Chapter 8

1. Geoff Dyer and Jamil Anderlini, “Man in the News: Huang Guangyu,” Financial Times , November 28, 2008. Rick Carew and Jackie Cheung, “Three Private-Equity Firms Vying for Stake in Chinese Retailer GOME,” Wall Street Journal , May 28, 2009; Wong Ka-chun, Tim LeeMaster, and Jasmine Wang, “Bain in HK$3.6B Deal to Acquire GOME Stake,” South China Morning Post , June 13,2009, Yu Ning and Wang Shanshan, “Gome Hatches Plan to Raise HK$ 3 Billion,” Caijing Magazine, June 16. 2009.

2. Joseph S. Nye, “Soft Power, Hard Power and Leadership,” October 2006. Available at http://www.hks.harvard.edu/netgov/files/talks/docs/ll_06_06_ seminar_Nye_HP_SP_Leadership.pdf (accessed December 30, 2008).

3. The Pew Global Attitudes Project, The Chinese Celebrate Their Roaring Economy, as They Struggle with Its Costs: Near Universal Optimism about Beijing Olympics, 2008, Pew Research Center, Washington, DC, 14-15.

4. Economic Observer Online staff, “China’s Stimulus Package: A Breakdown of Spending,” Economic Observer Online, March 7, 2009, http://www.eeo.com .cn/ens/finance_investment/2009/03/07/131626.shtml (accessed September 20, 2009).

5. Booz & Company and AmCham Shanghai, “China Manufacturing Competitiveness 2008-2009.”

6. Kirby Chien, “China Sourcing Safe, but with Caveat,” Reuters, September 7, 2007. Available at http://www.reuters.eom/artide/TheChinaCentury07/id USPEK17996020070907 (accessed December 4, 2007).

7. According to Airbus; “More Than 3,000 Aircraft Needed on the Chinese Mainland in Next 20 Years,” Airbus press release, February 14, 2007. Available at http://www.airbus.com/en/presscentre/pressreleases/pressreleases_items/ 07_02_14_Chinese_Mainland_EN.html (accessed December 13, 2007).

NOTES

8. George Day and Paul Schoemaker, “Vigilant vs. Operational Leaders: Changes at Ford, the Coke-Pepsi Fiasco, and Other Management Moments,” September 20, 2006, Knowledge@Wharton, http://knowledge.wharton.upenn .edu/article.cfm?articleid=1553 (accessed September 19, 2009).

Chapter 9

1. Christian Koehler and Ronald Haddock, “China’s Auto Policy: Structured for Success?” Auto Focus Asia, no. 1, 2007, 16-20.

This book would not have been possible if not for the collective effort and wisdom of a group of exceptional individuals. Their time, advice, expertise, and support have enriched the book’s materials and have helped immensely in pulling together a series of observations through the years into a coherent and cogent piece of work.

I wish to thank our partners at Basic Books. Tim Sullivan deserves particular gratitude for his vision and early belief in the book’s appeal to the broader market and how this book can help others navigate for success in the China market. His role with this book was much more than that of publisher, and we are better for it. As project editor and copy editor, respectively, Laura Esterman and Gray Cutler raised the quality of the material and—equally importantly—kept it moving so that it would be both timely and relevant.

The China Strategy draws deeply on the experience of corporate leaders I know, who have both inspired me with their insights and demonstrated how critical it really is to have a novel, integrated approach when dealing with China. I am grateful to many people, among them the following individuals who specifically contributed to this book: Michael Cannon-Brookes, Paul Etchells, Warren Liu, Josef Mueller, Sam Su, Shane Tedjarati, Heather Ting, Wang Jialin, Wang Zhihong, and Zeng Ming.

Many colleagues at Booz 8c Company contributed significantly. I learned a great deal about globalization and the role of China in it from

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ACKNOWLEDGMENTS

working on numerous client engagements with my fellow partners. A special thanks to Ron Haddock, who has helped shape many of the theories and frameworks in the book. I would also like to thank Shumeet Banerji, our firm’s CEO, for his encouragement on this project, along with Andrew Cainey and Bill Russo, for their insights and knowledge as well as time in reviewing the manuscript.

I also would like to acknowledge the effort and insight brought by a number of other staff members who worked on this project, both directly and indirectly. This includes Bill Bai, Yu Huang, Steven Jiang, Xia Jin, Tao Ke, Yichin Lee, Elizabeth Liang, Kevin Ma, Chris McNally, Ben Mok, Sarah Ng, Fushing Pang, Arnold Sun, Edwin Tong, Adeline Wong, Alex Wong, Guang Yang, Raymond Yeung, Kenny Yip, Ting Zhao, Jessica Zhang, Tina Zhang, and others who, while they are not specifically named here, made much-appreciated contributions.

Thanks to our team of professionals devoted to intellectual capital and marketing at Booz & Company. They helped make this book a reality. Those involved directly with this book include Jonathan Gage, Richard Sanderson, and Ella Mak. I would also like to thank Jim Levine, our literary agent, for his frank comments and guidance through the process. A special thanks goes to Linda Eckstein, who created all the diagrams and tables for the book, for her creative touch.

A special acknowledgment and thank you is owed to Grace Leung. Grace was the guiding force behind the project, helping to articulate the book’s value, organizing the process, making sure that all the pieces were in place, and holding the project steady through its entirety.

It is difficult to articulate the nature of the contribution that our firm’s editor-in-chief, Art Kleiner, provided. His perseverance and dedication to the quality of the idea, and his firm grasp on how to integrate the many rounds of feedback and comments—coming from a very diverse group—are unmatched, and I am deeply thankful. Without Art, this would not be the same book. I am also thankful to the firm’s chief marketing and knowledge officer, Tom Stewart, who helped us navigate the marketing environment.

ACKNOWLEDGMENTS

I owe a huge debt of gratitude to Simon Cartledge, who as consulting editor helped with all the major elements of the book, from developing the initial draft through to the final end product. This book benefited from his knowledge of the business environment in China and his tireless effort and patience through our many rounds of changes and refinements into making this book what it is now.

I would also like to take this opportunity to thank Bob Ching for introducing me to consulting in China all those years ago and for serving as a long-time mentor.

To others who deserve credit, but whose names were inadvertently left out from this list—thank you.

Finally of course, I am most grateful to my family, Grace, Karen, and Kevin; they provide ongoing inspiration and support for me— and, in doing so, help me to achieve my personal best in delivering the essential advantage to all our clients.

Accountancy firms, 156 Acquisitions, 35, 69, 83, 125, 130,131, 133, 162, 172, 175, 178, 186,191, 195, 201, 209-212, 214, 225 (n3) in emerging markets, 210 Addax Petroleum Corp, 125 Adidas, 1, 35, 68, 69 Adolph, Gerald, 41 Advertising, 57, 69, 184 Aerospace, 14, 77, 120, 137, 145 Africa, 103, 107, 125, 127,210 Agricultural Bank of China, 100-101, 105, 172 Agriculture, 43 Airbus, 120,214,228 (n7)

Aircraft, 77, 120, 123, 214-215, 228 (n7) Airports, 9, 10, 47, 89 Akzo Nobel, 179

Alcatel/Alcatel-Lucent, 35, 56, 120,159, 175,210

Alibaba.com, 68 Al Jazeera, 128

Aluminum Corporation of China

(Chinalco), 67,127, 130, 133, 201, 211

American Chamber of Commerce, 146-147, 160 Anta company, 68, 84 A.O. Smith company, 151 Apparel industry, 83-84

Apple, 82

Architecture, 2, 89-90 Argentina, 1

Asian financial crisis of late 1990s, 100 Asset management companies, 101 Assets Supervision and Administration Commission (SASAC), 66, 212 Australia, 67, 70,103, 125, 127, 133, 209, 211

Authoritarianism, 7, 90, 97, 111-112 Automobiles/automotive industry, 5, 12, 14, 27, 29, 33,40,47, 60, 66, 71, 75, 83-84, 90, 102, 122, 132, 143, 144, 161-162,167, 175-176,180, 203, 209-210,212,213-214, 221 car rental industry, 81-82 Chinese independent carmakers, 33-34

electric cars, 33, 132, 168, 207, 213-214

sedans sold, 30 (exhibit), 31 See also Joint ventures: automotive Aviation Industry Corporation of China (AVIC), 120 Avis company, 81

Backward-vertical integration model, 213

Baidu company, 68

Bain Capital, 57,67,127, 196, 202

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Banking sector, 8-9, 12,41,60, 66, 92, 100-101, 134, 156,172,178,189, 198,200-201,202, 204 China Banking Regulatory Commission, 104-105 foreign banks, 105-107,125, 143 recapitalization of biggest banks,

100

Bank of America, 106-107

Bank of China, 100,105,106, 158, 209

Bank of Communications, 106

Bankruptcies, 157

Baosteel, 155

Barclays Bank (Britain), 107 Batteries, 167,168, 213 Bayer Schering Parma, 172 Beijing, 44,48, 52, 89, 152,154,181,187 airport in, 9

American Chamber of Commerce in, 160

Beijing-Tianjin region, 43 R&D center in, 172 Zhongguancun neighborhood in, 7, 115

See also under Olympics Berkshire Hathaway, 168 BHP Billiton, 70 BMW, 40, 75, 161 Boao Forum, 209 Boards of Chinese companies, 155 Boeing company, 120, 214 Bohai Sea region, 43, 181 Booz & Company, 23,41,147,179,203 Borderless World, The (Ohmae), 116 Brand names, 20, 21, 27, 28, 53-54, 77, 80, 82, 83-84,130,184,213 Brazil, 70

Bribes, 205, 206. See also Corruption

Britain, 214

Buddhism, 14

Buffett, Warren, 33-34,168

Bureaucracy, 90

Business culture, 19, 84-85,186, 187 (exhibit), 188

Business models, 152,169, 212, 213. See also under Multinationals Business strategy, classic approach to, 140

Business Week, 57 BYD company, 22, 33-34, 84, 102, 129-130,132,167-169,191,192, 213-214,216

Capitalism, 89, 90,101 Carlyle Group, 171 Carrefour company (France), 49, 154 Certainty vs. opportunity, 157 Central China Television, 89 Chang’an (Xi’an), 14 Changhong company, 83 Changsha, 28, 90 Charpentier, Jean-Marie, 89 ChemChina, 190, 210-211 Chemicals, 9,14, 35,144,174, 205, 211 petrochemicals, 189-190 Chengdu, 124 Cheng Li, 96 Chen Hong, 180 Chen Yihong, 216 Chery Auto, 33, 34,132,176, 213 QQ model, 212 China

as aging society, 102, 206 challenges facing, 101, 128, 204 coastal regions, 42-43, 44, 53, 75,124, 153,172

decisions that shaped, 98-104 divides in, 52-53 engaging with official China,

104-110

foreign businesses in, 35, 39 (exhibit), 48-49,108 (see also Investments: foreign investments in China; Ownership: foreign companies) future of, 15, 16, 82-88, 90, 110-112, 197, 198,220

as game changer, 212-215 as global power, 111

government, 18, 24, 25, 58, 60, 77, 104-110, 202-203 ( see also Communist Party) holdings of U.S. Treasury bonds, 9,

221 (n4)

holistic picture of, 24, 194 as homogeneous, 53 Ministry of Commerce, 125, 143,

188

Ministry of Finance, 66 Ministry of Posts and Telecommunications, 25 National Bureau of Statistics, 154 national pride in, 13,18, 90 relationship with United States, 121, 127 ( see also United States: Treasury bonds held by China) scale and intensity in, 5-8, 58, 212 size of cities in, 44-46 ( see also Urban centers)

State Administration of Taxation, 110 State Environmental Protection Administration, 203 trade surplus of, 40 China Association of Automobile Manufacturers, 31

China Construction Bank, 100, 105,106, 158

China Development Bank, 107 China Europe International Business School, 192

Chinalco. See Aluminum Corporation of China

China Minmetals, 125, 211 China Mobile, 8, 30, 65, 130 China Mobile Pakistan, 210 China National Offshore Oil

Corporation (CNOOC), 66, 67,

127,130, 190, 201-202,210,211 China National Petroleum Corporation (CNPC/Petro China), 66,189-190 China Netcom, 155 China Petroleum & Chemical Corp. (Sinopec), 8, 66,125, 190, 210

China Telecom, 65

China Unicom, 30, 65

Chinese Academy of Sciences, 152

Chinese Enterprise Confederation, 11

Chongqing, 138

Chrysler company, 132

Cisco Systems, 56, 78

Citigroup, 106

Climate change, 101, 199. See also Global warming

CNOOC. See China National Off-shore Oil Corporation

CNPC. See China National Petroleum Corporation Coal, 101

Coca-Cola, 22, 32,46, 80, 118, 125,152, 154, 171, 172, 177, 178, 184, 188 Cold War, 121 Collins, Jim, 87 Commoditization, 83 Communications, 14,17, 19, 35,48, 56, 119, 122, 128, 134,145 between China operations and global headquarters, 148,191-192 See also Telecommunications Communism, 7. See also Communist Party; Socialism

Communist Party, 7,17-19, 89, 91-92, 108,110, 111, 198

leaders, 91-92,93, 94, 97,104,134 (see also individual leaders ) legitimacy of, 18, 94, 97, 98,109 study of longevity of political parties by, 94-95

See also China: government; Socialism Company Law of 1994, 61, 99 Competition/competitiveness, 8, 15,

16-17, 21, 23, 24, 28, 32, 34,40, 54, 57, 65, 70, 72, 76, 80, 102,105, 108, 118, 128, 178, 201

competition among value chains, 121 competitive advantage, 86,123, 144, 151,214

on prices, 212-213

Competition/competitiveness ( continued ) progress and competition vs. cooperation, 194

for skilled engineers and technical people, 185

study of manufacturing competitiveness, 146 Computers, 17, 20, 90,113,114,115,123, 130, 191. See also Internet Confucianism, 7,14, 85

Confucian multinationals, 133 Confucius Institutes, 128 Construction sector, 12 Consumer markets, 4, 5,11, 15-16, 28, 29-30, 34, 36,46-47, 79,118, 123, 170

consumer culture, 52-54,117 consumerism, 90 discontinuities/disruptions in, 156-157,213,214 market growth for mobile phones, mortgage loans, and sedans, 30 (exhibit)

regional markets, 41-47

sales of consumer goods, 29 (exhibit)

(see also Retail sales)

See also Industry: consumer goods industry

Contracts, 108, 109,188, 205 Coordination of operations among markets, 180-182 Corporate reforms, 202 Corruption, 92-93, 102,154,171, 198, 220. See also Bribes; Embezzlement; Economic crimes

Costs, 32, 35,40,49, 69, 83, 86,108,124, 157, 162, 168,215 of environmental pollution, 205 land, labor, and capital costs, 204 See also Manufacturing: low-cost manufacturing; Mobile phones: low-cost phones; Prices Counterfeited products, 79, 137, 138,

154, 159,180

Credit cards, 105 Cultural change, 183 Cultural Revolution (1966-1976), 7, 90, 92,185,208

Dalian, 10,163 Day, George, 215 Decentralization model, 154 Decision making, 126, 140, 157, 160,183, 187 (exhibit), 188,196, 209, 216 decision rights, 192 Dell company, 121 Deloitte Consulting, 139 Demand, 17,42,47, 56, 73,170,175, 177, 182-183,200, 202, 204, 220 Democracy, 90

student democracy movement of 1989, 37, 92

Demographics, 6, 204, 206

Deng Xiaoping, 5, 7, 18, 32, 92, 93, 99,

103

southern tour of, 36-37, 90 Department stores, 27-28 Deregulation, 25,144,171 Deutsche Post company (Germany), 171 Development, expansive vs. intensive, 73 DHL company (Germany), 171 Distribution, 32, 35, 47-52, 130, 165, 177,211

D’Long conglomerate, 157 Dongfeng Auto, 160 Dongguan, 7

Dongxiang company, 22, 68-69, 84, 216 Dragons at Your Door: How Chinese Cost Innovation is Disrupting Global Competition (Ming Zeng and Williamson), 79

Drivetrain Systems International company (Australia), 209 Du Juan, 196

eBay, 178

Economic crimes, 196, See also Corruption

Economic crisis. See Recession/economic crisis of 2008-2009

Economic growth, 2, 3-4, 6,11, 21, 38,

59, 85, 92,93, 126, 181,198, 200, 202, 203,208,218 drivers of China’s economy, 15-20 and legitimacy of China’s government, 18 vs. other priorities, 93-94 slowing of, 12, 42

Economic restructuring/liberalization, 8, 10, 18,27,40,61, 101, 178,202 partial, 104,106-107 See also Reforms

Economic stimulus, 5,11-12, 72-73,102, 124, 171,176, 183 spending amounts, 200 subsidies concerning consumer spending, 172

Economic zones, 18, 36, 38, 72, 92, 114, 116

Economies of scale, 168, 201 Economist, 57

Education, 93, 102, 200, 207 eHi Car rental, 81-82 Electronics, 9, 14,41,47, 49, 75, 80,114, 123, 124, 149,172, 195 Ellassay fashion house, 171 El Salvador, 116 Embezzlement, 158 Employment contracts, 109 Energy issues, 8,14,17,19,35,67,102, 103,124,127,178,190,198,203,207 alternative energy, 145 solar energy, 78 wind power, 201, 207 See also Oil

Entrepreneurship, 2, 6-7, 10,15, 16-17, 19, 55, 56, 68, 83, 84, 85, 88, 99, 119, 126, 183

versatility of Chinese entrepreneurs, 169-170

Environmental issues, 17, 93,101,111, 156,169,177,198,201,203,205,220

Ericsson company, 56,175, 211 Ethnic conflicts, 198 Europe, 12,13,49, 57, 70, 84, 104,122, 170, 188, 200,209 Eastern Europe, 94, 95, 162 Exchange rates, 6

Exports, 9,11, 12, 13, 18, 33, 34, 38, 64, 83, 109,138,147,149, 151,156,161, 164, 170,200, 204, 207,210 from foreign enterprises in China, 39 (exhibit), 64, 71

Expressways, 9, 10, 46,47,48-49, 92,124

Finance sector, 17, 20, 37, 108, 171, 189, 198,200,202

financial services, 172, 204 See also Banking sector Financial Times, 117 First Auto Works (FAW), 158 Five-year plans, 77 Foreign Affairs, 113 Foreign currency reserves, 9 Fortescue Metals, 125 Fortune Global 500, 65 (exhibit), 125 Foxconn-Hon Hai company, 114 France, 214

Friedman, Thomas L., 116 Fujian province, 10, 46, 52, 86, 205 Future Cola, 80 Fuyao Glass, 83

GDR See Gross domestic product Geely company, 131,176, 209, 212, 213 General Electric, 146 General Motors (GM), 15, 33,41, 71,

125,146, 155,158, 176,212 GM’s Hummer business, 210 Germany, 214 Ghemawat, Pankaj, 19 Global economy, 5,14, 19, 36, 67, 103-104, 119-123,202, 208 global financial system, 105, 107 globalization, 40-41, 58, 74, 103, 115-119,126, 128,133-135

Global economy ( continued ) global marketing, 1 gross domestic product of, 6 See also Global integration; Recession/economic crisis of 2008-2009

Global integration, 135,147, 148,150, 153,162,190,192,208,219, 221 Global strategy, 22

Global value chains, 10, 69. See also Value chains

Global warming, 53. See also Climate change

Goldman Sachs, 106 Goldwind Science and Technology . Company, 78

GOME company, 49, 68,195-196 Goodyear company, 163 Government pressures on legal issues, 203-204

Government restrictions, freedom from, 58

Great Leap Forward, 208 Green economy, 203 Gross capital formation, 71-72 Gross domestic product (GDP), 6, 9,11, 42-43,92

per capita GDP, 43,44,116 Guangdong Development Bank, 106 Guangdong Kelon, 157-158, 227 (n3) Guangdong province, 9-10, 52, 201 Guangzhou, 13, 33, 43,44,154, 160,182, 192

Guangzhou Auto, 158 Guanxi (personal connections), 25,144, 155,188-190 Gu Chujun, 158

Haier company, 17,22, 69, 83, 87,130, 131, 151, 160,180,211,216 Han people, 5-6

Hansgrohe manufacturer (Germany),

151

Hard currency, 38

Health care, 93,102,117, 200 Hengan company, 22, 86-87, 216 Hertz company, 81 Himin Group, 78 Hisense company, 227 (n3)

Honda, 71

Honeywell company, 22, 82,137-139, 140,141, 146,153,190,192 Hong Kong, 19, 24, 70, 84, 101,106,109, 114,154,195,196

Housing market, 31,47, 53-54, 200 HSBC (UK bank), 106, 172 Huang Guangyu, 195-196 Huawei, 17,22, 35, 55-57, 67,69, 77-78, 83, 87,118,127,131, 160,191,202, 212,213

distribution of 3G data cards, 211 Huiyuan Juice, 125,143,171,188 Hu Jintao, 93, 97,101,103 Human capital, 182-186 Human rights, 97,127 Hunan Valin Iron and Steel, 125

IBM, 4, 22, 52,56, 76, 113-115, 117,131, 138,144,146, 185,190-191 China Research Laboratory, 114 ICI Paints, 179, 181, 182 Imports, 9,132,151,159 Income, 178, 220 per capita, 28, 43 residential income growth, 47 Incremental change, 98-101, 108 India, 5, 6, 7, 74,116, 122,139, 151, 208 Industrial and Commercial Bank of China (ICBC), 2, 9, 100, 105,106, 107, 155,158,210 Industrial revolution, 6 Industry, 199

Chinese presence in world.industries, 83

consumer goods industry, 59-60 foreign participation in, 59, 60 hands-on industrial policy, 102-103 industrial companies, 63 (exhibit)

I 240 |

industrial restructuring/liberalization,

34, 35, 56, 59, 60, 61,108, 142,143, 198,208-209

not migrating to China, 122 return on labor, 43

strategic/less strategic industries, 124, 131 {see also State-owned enterprises)