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〃China is a threat； China is a customer； and China is an opportunity；〃 Ohmae remarked
to me one day in Tokyo。 〃You have to internalize China to succeed。 You cannot ignore
it。〃 Instead of competing with China as an enemy； argues Ohmae； you break down your
business and think about which part of the business you would like to do in China；
which part you would like to sell to China； and which part you want to buy from China。
Here we get to the real flattening aspect of China's opening to the world market。
The more attractive China makes itself as a base for off…shoring； the more attractive
other developed and developing countries competing with it； like Malaysia； Thailand；
Ireland； Mexico； Brazil； and Vietnam； have to make themselves。 They all look at what
is going on in China and the jobs moving there and say to themselves； 〃Holy catfish；
we had better start offering these same incentives。〃 This has created a process of
competitive flattening； in which countries scramble to see who can give companies
the best tax breaks； education incentives； and subsidies； on top of their cheap labor；
to encourage offshoring to their shores。
Ohio State University business professor Oded Shenkar； author of the book The Chinese
Century； told BusinessWeek （December 6； 2004） that he gives it to American companies
straight： 〃If you still make anything labor intensive； get out now rather than bleed
to death。 Shaving 5％ here and there won't work。〃 Chinese producers can make the same
adjustments。 〃You need an entirely new business model to compete；〃 he said。
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China's flattening power is also fueled by the fact that it is developing a huge
domestic market of its own。 The same BusinessWeek article noted that this brings
economies of scale； intense local rivalries that keep prices low； an army of engineers
that is growing by 350；000 annually； young workers and managers willing to put in
twelve…hour days； an unparalleled component base in electronics and light industry；
〃and an entrepreneurial zeal to do whatever it takes to please big retailers such
as Wal…Mart Stores； Target； Best Buy and J。C。 Penney。〃
Critics of China's business practices say that its size and economic power mean that
it will soon be setting the global floor not only for low wages but also for lax labor
laws and workplace standards。 This is known in the business as 〃the China price。〃
But what is really scary is that China is not attracting so much global investment
by simply racing everyone to the bottom。 That is just a short…term strategy。 The
biggest mistake any business can make when it comes to China is thinking that it is
only winning on wages and not improving quality and productivity。 In the private；
non…state…owned sector of Chinese industry； productivity increased 17 percent
annually…I repeat； 17 percent annually…between 1995 and 2002； according to a study
by the U。S。 Conference Board。 This is due to China's absorption of both new
technologies and modern business practices； starting from a very low base。
Incidentally； the Conference Board study noted； China lost 15 million manufacturing
jobs during this period； compared with 2 million in the United States。 〃As its
manufacturing productivity accelerates； China is losing jobs in manufacturing…many
more than the United States is…and gaining them in services； a pattern that has been
playing out in the developed world for many years；〃 the study said。
China's real long…term strategy is to outrace America and the E。U。 countries to the
top； and the Chinese are off to a good start。 China's leaders are much more focused
than many of their Western counterparts on how to train their young people in the
math； science； and computer skills required for success in the flat world； how to
build a physical and telecom infrastructure that will allow Chinese people to plug
and play faster
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and easier than others； and how to create incentives that will attract global
investors。 What China's leaders really want is the next generation of underwear or
airplane wings to be designed in China as well。 That is where things are heading in
another decade。 So in thirty years we will have gone from 〃sold in China〃 to 〃made
in China〃to 〃designed in China〃 to 〃dreamed upin China〃…or from China as collaborator
with the worldwide manufacturers on nothing to China as a low…cost； high…quality；
hyperefficient collaborator with worldwide manufacturers on everything。 This should
allow China to maintain its role as a major flattening force； provided that political
instability does not disrupt the process。 Indeed； while researching this chapter；
I came across an online Silicon Valley newsletter called the Inquirer； which follows
the semiconductor industry。 What caught my eye was its November 5； 2001； article
headlined； 〃China to Become Center of Everything。〃 It quoted a China People's Daily
article that claimed that four hundred out of the Forbes 500 companies have invested
in more than two thousand projects in mainland China。 And that was four years ago。
Japan； being right next door to China； has taken a very aggressive approach to
internalizing the China challenge。 Osamu Watanabe； chairman of the Japan External
Trade Organization （JETRO）； Japan's official organ for promoting exports； told me
in Tokyo； 〃China is developing very rapidly and making the shift from low…grade
products to high…grade； high…tech ones。〃 As a result； added Watanabe； Japanese
companies； to remain globally competitive； have had to shift some production and a
lot of assembly of middle…range products to China； while shifting at home to making
〃even higher value…added products。〃 So China and Japan 〃are becoming part of the same
supply chain。〃 After a prolonged recession； Japan's economy started to bounce back
in 2003； due to the sale of thousands of tons of machinery； assembly robots； and other
critical components in China。 In 2003； China replaced the United States as the biggest
importer of Japanese products。 Still； the Japanese government is urging its companies
to be careful not to overinvest in China。 It encourages them to practice what Watanabe
called a 〃China plus one〃 strategy： to keep one production leg in China but the other
in
a different Asian country…just in case political turmoil unflattens China one day。
This China flattener has been wrenching for certain manufacturing workers around the
world； but a godsend for all consumers。 Fortune magazine （October 4； 2004） quoted
a study by Morgan Stanley estimating that since the mid…1990s alone； cheap imports
from China have saved U。S。 consumers roughly 600 billion and have saved U。S。
manufacturers untold billions in cheaper parts for their products。 This savings； in
turn； Fortune noted； has helped the Federal Reserve to hold down interest rates longer；
giving more Americans a chance to buy homes or refinance the ones they have； and giving
businesses more capital to invest in new innovations。
In an effort to better understand how offshoring to China works； I sat down in Beijing
with Jack Perkowski of ASIMCO； a pioneer in this form of collaboration。 If they ev