“Profits and Perils in China, Inc.”
Published in Strategy + Business
1st Quarter, 2002
Kenichi Ohmae
Who is Ken Ohmae?
A famous consultant
Toyota, Honda, Sony
Former Director of McKinsey & Co.
Popularized the idea of “kaizen” or
continuous improvement.
China - The Sleeping Giant Awakes
Ohmae compares China today with:
Japan in the 1970s
USA in the 1890s
Britain in the 1840s
Ohmae cites the reforms of Zhu Rongji
Overhaul SOEs
Get rid of bad debt held by banks and
“International Trust Companies”
Streamline the Central Government and
attack high-level corrpution
The Region-States
Ohmae identifies de-centralization of
economic power as one reason for China’s
rapid economic growth.
Power to make economic decisions is now
made by leaders of “Region States” that have
common history, language and culture.
Economic Milestones
Ohmae lists three important factors
in China’s competitiveness:
Entry into the WTO
A stable currency
Rapid adoption of “world class” best practices
such as MBA education and 6
China’s Corporate Powerhouses
Chinese companies are developing innovative
low cost export businesses in apparel, footware,
vitamins, foods, watches, consumer electronics,
appliances and precision electronic and
mechanical components.
In short, China is entering the world market
faster than Japan did in the 1970s.
Some Promising Chinese Companies
Neusoft Software and Specialty
Equipment
Haier Appliances
Little Swan Appliances
Hua Wei Switching Equipment
Legend Computers
Japan’s Fast Retailing Company
Manufactures high quality clothing in Chinese
plants
Sells in its own retail outlets in Japan
Prices are 33% of competitors
Profit margins are 5 times higher
Industry Clusters in China
Pearl River Delta Textiles, Manufacturing
(Taiwanese Investment)
Shanghai Manufacturing
(European Investment)
Northeast Foods, Textiles
(Japanese Investment)
Beijing Area Research, Hi Tech
(US Investment)
Asia’s Big Tiger
Wherever China competes directly with another
Asian country, China wins.
It took 10 years for Malaysia and Thailand to
be able to sell components for Swiss watches. It
took China just one year to take over the business.
China is doing to the Asian economy what Japan
did to the West 20 years ago.
The Future
Ohmae predicts that consumers all over the world
will benefit from low cost, high quality and
innovative goods made by Chinese companies.
No other nation can match China’s combination of
low-cost labor and high-tech automation.
Non-Chinese companies will find it difficult to
compete with China
The Future
Ohmae suggests that because Chinese companies
are not yet skilled in marketing, it will take them
5-10 years to develop global brands.
The competition of the future will not be between
China, the US, Japan and Europe, but within
industries to see which companies can meet
the challenge from Chinese companies.
US and European companies faced the same
challenge from Japan in the 1970’s.
