How can Made in China achieve nirvana in the new economic landscape?
On November 3, 2007, the small auditorium of Cass Business School in the City of London was filled with listeners. This unique lecture tour by Chinese business envoys chose this famous business school as the venue for the first “Tao discussion”. The title of the lecture tour is “Believe in Made in China”. One of the two keynote speakers is from China’s manufacturing sector – Shi Zhengrong, the 2006 CCTV China Economic Person of the Year and the richest man in China at that time, President of China Wuxi Suntech Solar Energy Co., Ltd.
This is a peculiar arrangement. As the first stop of the series of activities, China chose London – it was once a “factory” but now it is a financial center. The current Chinese factory visited here to rectify the name of “Made in China”.
Indeed, for most of 2007, China’s manufacturing industry faced an unprecedented crisis. Prior to this, the perceived threat was that Chinese products filled the shelves of department stores and convenience stores with unbelievable “Chinese prices” and also destroyed the jobs of many blue-collar workers. Under the aggressiveness of China’s manufacturing, Western countries have no choice but to accuse China of anti-dumping, set quotas, and even burn goods from China in a disgraceful manner.
For a time, Chinese products, from soaps and toys to food and toothpaste, seemed to be synonymous with wealth and murder. American politicians participating in the election campaign will also be tempted to use these things to criticize China: “First, the Chinese took our jobs, then they killed our cats and poisoned our children.”
All of this makes China’s manufacturing industry seem to lack confidence when facing London, the once established factory. As the birthplace of modern finance, the ancient city of London is not as vibrant as New York on the other side of the ocean. Or, we should say, the City of London represents the direction of China’s future efforts. Indeed, today, when the new economy represented by information technology and financial services is in the ascendant, China’s huge group of enterprises are no longer as capable as they were more than a century ago in trying to find huge amounts of gold from the increasingly barren manufacturing industry. easy.
In 2007, Chinese manufacturing companies faced two difficulties: First, Chinese companies were at the end of the division of labor in the industrial chain. Our factory was very frustrated and the efficiency was not ideal. How can Chinese manufacturing companies improve their performance in the industrial chain? Position in the industrial value chain? Secondly, the upgrade of China’s manufacturing is vague, but the strength of the new economy is lackluster. It is becoming more and more thrilling for companies to realize a jump in wealth. Against this background, where should China’s new economic landscape go?
Part 1: Dilemma and Turnaround
On August 11, 2007, after paying workers’ wages, 51-year-old Zhang Shuhong hanged himself in the factory warehouse at around 3 o’clock. Zhang was the vice chairman and main operator of Foshan Lida Toys Co., Ltd. during his lifetime.
This shocking news became a microcosm of China’s manufacturing crisis in 2007. As the largest order processing factory for Mattel, a large American toy manufacturer, Lida’s three factories have more than 2,500 workers. In 2006, the annual output value was 200 million yuan, and the volume of export containers ranked second in Foshan. Mattel announced on August 2 that it was voluntarily recalling 967,000 toys due to excessive lead content in some toys produced by Lida. Lida suffered losses of up to 30 million US dollars.
Zhang Shuhong has passed away, but for other toy manufacturers that supply Mattel, the bad luck is far from over. On August 14, Mattel recalled nearly 19 million Chinese-made toys due to excessive lead content in paint and the risk of magnets being easily swallowed by children.
Under the banner of Made in China, Chinese companies are stereotyped as a source of cheap goods. Carrying this reputation, it is difficult for Chinese companies to extend their position in the industrial value chain. This weak position in turn locks Chinese companies into the role of cheap workers. Under this division of labor, the meaning of the existence of Chinese companies seems to be to pour out countless low-end products at astonishingly low prices. Any appeal to raise the asking price seems inconsistent with this identity.
Helpless low prices
In the case of Lida, what drove Zhang to a dead end seemed to be his own negligence in production quality. In fact, it was the negligence of Chinese companies in the industrial value chain. subordinate position in. Lida is a company that processes supplied materials. Many of the quality problems of finished products stem from the raw material process. The excessive lead content is obviously due to the negligence of quality inspection by Mattel. In addition, the design of the toy template is also from the United States, but the design problems are imposed On the manufacturing side. The weakness of China’s manufacturing industry in the division of labor is also reflected in its pricing power. The coordinator of the Hong Kong labor rights protection organization found that Mattel and other customers have been demanding lower production costs, forcing suppliers to take opportunistic measures to save money as much as possible, and even directly requiring Chinese suppliers to use low-cost substandard raw materials, resulting in Negligence such as the use of toxic paint in products.
The Wall Street Journal once used Logitech’s mouse as an example to describe the profit distribution pattern of this division of labor: “The Wanda wireless mouse is one of Logitech’s best-selling products and sells for about $40 in the United States. In For this price, Logitech takes…�The agreement signed between Lenovo and IBM to use the brand until 2010 has been advanced by two years.
Lenovo is indeed growing rapidly. One symptom is to further penetrate into the Indian market. Lenovo opened a new factory in northern India in September 2007, increasing its annual computer productivity in India to 3 million units, three times the current level. Moreover, Lenovo also plans to headquarter its marketing business in Bangalore, India, to take advantage of India’s low costs. Currently, Lenovo’s market share in India is only 9.5%, which is far lower than HP’s 21.2% share.
How far can the Chinese premium help Chinese companies go?
A confusing fact in 2007 is, does the rapid expansion of China’s economy and corporate market value indicate that Chinese companies have embraced the new economy? The problem is that China now has world-class companies, but no one takes them seriously.
Since this year, the market value of Industrial and Commercial Bank of China (601398 Quotes, Stock Bar) has successively surpassed HSBC, Bank of America and Citibank, becoming the bank stock with the largest market value. China Life (601628 Quotes, Stock Bar) is a life insurance company with a high market value. Although China Merchants Bank (600036 Quotes, Stock Bar) is classified as a “small and medium-sized joint-stock bank” in China, its market value has exceeded that of Royal Bank of Canada and Deutsche Bank, which are large and powerful banks in Canada and Germany respectively. However, China Merchants Bank’s total assets in mid-2007 were less than 1/10 of Deutsche Bank’s total assets at the end of 2006, and less than 1/3 of Royal Bank of Canada’s total assets at the end of 2006; in 2006, China Merchants Bank’s net profit was only equivalent to Deutsche Bank’s 12% of net profit and 22% of Royal Bank of Canada’s net profit.
Against this background, Jack Ma and his Alibaba are colliding with the luxurious “China Premium”. Alibaba was listed in Hong Kong in November 2007, becoming the Chinese Internet company with the highest market capitalization in one fell swoop. On the day of listing on November 6, Alibaba’s closing price rose 192% from the issue price, setting the first-day gain for Hong Kong stocks this year. Its market value reached HK$199.6 billion, equivalent to the combined market value of the three major portals, Shanda and Ctrip. It became the first company in China’s Internet industry with a market value of more than 20 billion US dollars. The company’s price-to-earnings ratio reached an astonishing 300 times! In the international placement part, Alibaba received US$180 billion in subscriptions, equivalent to an oversubscription of 186 times. In the public subscription part for retail investors, HK$450 billion in frozen funds was oversubscribed by more than 259 times, breaking the historical record of Hong Kong stock issuance.
Nirvana in the New Economy
The year 2007 also belongs to Shi Yuzhu, a legendary figure in the Chinese business community. Almost at the same time as Alibaba successfully landed on the Hong Kong stock market, Shi Yuzhu’s gaming company “Giant Network” was listed on the New York Stock Exchange on November 1, 2007, staging a “Return of the Giant” show. From early real estate and IT to health care products and online games, Shi Yuzhu’s rise seems to have returned to the embrace of the new economy.
Although almost every company realizes that the emerging new economy will powerfully change the industrial structure and the face of wealth distribution, not all of them are successful. TCL’s struggles in 2007 are one such example.
In 2007, TCL’s Li Dongsheng was in a tough battle. In May, Li Dongsheng had to close his European factories and announced that he would shift his focus back to the Chinese market. Li Dongsheng’s setback can be regarded as a major event in the transnational strategy of Chinese entrepreneurs. Two years ago, from traditional manufacturing to IT industry, TCL’s Li Dongsheng was once a famous figure in China’s corporate world. He was first named one of the “Top 25 Most Influential Business Leaders” by Time magazine and Cable News. , and was subsequently named the CCTV China Economic Person of the Year in 2004. No one would have thought that in 2007, his name would appear on the list of “The Worst Chinese Entrepreneurs of the Year” selected by Forbes magazine.
In the cases we are involved in, the initial brilliance of the inherently deficient new economy has obscured the dazzling part of China’s manufacturing industry, so much so that business historian Mr. Wu Xiaobo commented, “It is foreseeable that in the future, In the years to come, if China wants to give birth to great companies and Chinese entrepreneurs with great reputations, the Internet may be one of the only fields.” This may be one of the inspirations left to China’s manufacturing industry by the new economy.
Epilogue
Looking back at 2007, China’s manufacturing companies were like a man selling hard work. He sold the things he worked hard to make to the rich at a low price and pocketed the profits. money to buy rich people’s bonds. However, the rich man was not satisfied. He accused him of working so hard, not paying attention to his health, causing pollution, making the house dirty and messy, and leaving others with nothing to do. At the same time, he used depreciating currency to pay the principal and interest.
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