![]() It took a long time, but the resultant massive trade deficit the US has with China and the huge loss of manufacturing jobs in the US, as well as the incredible amounts of intellectual property China has infringed upon or stolen have finally caused the US to wake up to the problem and to respond by ratcheting up trade tensions. Lastly, they are not shy about reverse engineering or patent infringement, which dramatically lowers development costs.Īmazingly, almost twenty years too late, the US is realizing it made a mistake allowing China into the WTO because of these unfair, low-cost aspects of manufacturing in China. China also massively weakened their currency in the mid-1990s and rode that tailwind for two decades. On top of all of that, Chinese companies get export tax rebates of up to 17 percent to help them sell overseas. There are no real unions, and costs from environmental concerns are minimal. Pension or medical costs for employees are low. Only the variable costs of materials, manufacturing wages, and distribution are considered. If the Chinese company was state owned, well connected, or focused only on gaining market share, the management wouldn’t factor funding, advertising, R&D, management costs, fixed factory costs, depreciation, or anything else at the SG&A line into pricing.Įnergy and water prices are also artificially low for industrial companies in China. The perception in the West was that this was primarily due to cheap labor, but there were many other factors. Chinese companies originally started off with huge cost advantages. BYD went into new businesses first with only lateral connections: rechargeable batteries to gasoline engine cars to solar to electric buses to electric cars, and they learned each new business as they went along.Īnother big difference between American and Chinese businesses is the Chinese attitude toward costs. The business started well, which allowed the company to leverage this success to go into solar equipment and electric buses. This lateral move from manufacturing cell phone batteries to producing gasoline engine cars seemed inscrutable to stock market investors, who were unable to draw a connection between these two products.īYD’s thinking was that they were good at batteries so they could make electric vehicles in the future, therefore normal cars would be a good in-between step. They grew over time and, with the money they had amassed, decided to start making gasoline engine cars. They started off as a small maker of rechargeable batteries. I think BYD is another good example of Chinese entrepreneurial business development. Their answer was that they would learn as they went along! Aim-fire-ready. I asked again what they knew about running hospitals. So, they “aimed” at hospitals, they “fired” by acquiring some, and now they were getting “ready” to operate them. With their government connections, they realized their advantage over competitors in securing these deals. They said that everyone knows running hospitals in China is a good business, but the difficult part was buying out poorly run, existing state-owned hospitals. Here was their lateral logic: since they operate mega-sized factories, they have very good relationships with the governments in the localities where they operate. I asked the company what producing screens for TVs or smartphones had to do with running a hospital. One of the biggest flat panel producers in the world decided to acquire hospitals. Here is an example of a Chinese company following the aim-fire-ready model. ![]() (Some of my Chinese friends disagree and think the Chinese business style is fire-fire-fire.) Then, according to how the business goes, they will adjust their plan (ready). The Chinese will look at how much money they have or can raise (aim) and develop a business to fit their budget and start selling (fire). Basically, Americans look at the market and then develop a product.Ĭhinese are lateral thinkers and more of what I would call aim-fire-ready. One big difference between American companies and private Chinese companies is the way they develop new businesses.įor linear-thinking Americans, the steps to start a business are ready-aim-fire: develop a business plan (ready), raise the money required to create the business and develop a marketing plan (aim), then execute the plan (fire). ![]()
0 Comments
Leave a Reply. |