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Article Excerpt
Introduction
[T]he main competition comes from Chinese megaplants that sell directly to U.S. retailers and can get a new design into mass production in two months. The new Chinese factories of suppliers such as Lacquer Craft Furniture, Markor, and Shing Mark, some of them Taiwanese-owned, employ thousands.... 'American industry has never encountered [such] competition' (Engardio and Roberts, 2004).
China's rising competitiveness in the global marketplace has inspired imitation from developing countries and, as the above quote from Business Week's December 2004 cover story on China suggests, anxiety in the developed world. China's economy has been growing at a real rate of about 9.5% over the last 25 years and has recently become the world's sixth largest (CIA, 2005) and second in terms of purchasing power parity (World Bank, 2006). Fueling this growth is a relentless rise in China's exports, which have grown at rates in excess of 20% per year over the past decade (Enright, 2005), and in foreign direct investment (FDI) (Gilboy, 2004). That same Business Week cover story also declared "The three scariest words in U.S. industry" are 'the China price,' enabling firms in China to displace the exports of country after country, monopolize inward foreign direct investment (FDI), and drive down wages and prices in markets everywhere (Engardio and Roberts, 2004).
China's low-cost exports are sparking the concern because they force prices down in other countries. The gap can be so large that firms are finding the only way to compete is to move production to China (Engardio and Roberts, 2004). Riots have broken out in Spain over China's low-cost shoe exports, with shoes often selling for about $3.50 per pair. In 2005, the United States and the European Union imposed trade restrictions on Chinese garments, the imports of which had surged by six fold in some categories after trade liberalization.
China's FDI has also has created anxiety in many quarters. In Washington, the multibillion dollar attempt by China's oil firm CNOOC to buy Unocal, a Californian rival, was widely portrayed as a de facto seizure of strategic U.S. assets (Krugman, 2005). As a result, some have represented the Chinese state as a monolithic, rational decision-maker that, like Japan, has developed an elaborate plan to reclaim China's "rightful place" at the center of the world through low-cost exports and aggressive FDI. In this view, China's indigenous firms are thought to be tools of an expansionist policy promulgated by Beijing's leadership. It has even been argued that Chinese firms are seeking control over U.S. firms and their technology, and therefore present a more serious challenge than Japanese firms ever did (Krugman, 2005). At the very least, Chinese organizations are viewed with trepidation for their ability to enter markets and deliver low-priced goods on very short notice, driving out competitors (Engardio and Roberts, 2004; The Economist, 2005b).
From inside China, however, the picture is different. Although comparisons with Japan are appealing, there is little evidence that Beijing is directing its firms in some well thought-out master plan to take over the productive assets of competitors and rival countries (Gilboy, 2004; Huang, 2003). Rather, much empirical evidence suggests that China is a rather chaotic developing economy, competitive only in narrow sectors and highly dependent on foreign direct investment for growth (Enright, 2005; Gilboy, 2002, 2004; Huang, 2003; Restall, 2006). In spite of the continuing solid growth of the economy, China is still a lower-income country, with a per capita GDP similar to that of Columbia and Venezuela (The Economist, 2006), and ranks 49th in the world in competitiveness of its industry (Enright, 2005).
How can this paradox be reconciled? Is China an economic juggernaut that should inspire both awe and apprehension, or a developing country facing numerous challenges in global competition? And how should managers in developed economies such as the U.S. respond to the opportunities and challenges posed by China's impressive growth and export capability? This paper addresses these questions by first examining China's strengths in exports and FDI. Second, weaknesses in those areas are also examined with respect to China's inbound and outbound foreign direct investment and explained in terms of theory to understand the weakness from a strategic management point of view. Third, the paper shows that China's growth has been predominantly through foreign direct investment and exports that are in high-visibility products. Finally, the paper summarizes how China's export patterns illustrate certain...
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