Faster than everyone expected
We have compared the rise of industrial China with the development of the US a century ago. But in today’s China, with the speed of communications and the mobility of cutting edge technology and infrastructure, the changes from third world to first world are taking place much faster than they did in the America of the early 20th century. WSJ:
A 1998 survey by consulting firm A.T. Kearney found more than one-third of multinationals were losing money in China, and an additional 25% were barely breaking even. In 1999, when the American Chamber of Commerce in China polled its members on how long it took their local operations to post a profit, many of them responded by writing humorous notes on their forms…
This year, China for the first time will contribute more to global economic growth than any other country, including the U.S., according to estimates by the International Monetary Fund. With its economy expanding at a rate of more than 11% this year, China is on track to surpass Germany as the world’s third-largest national economy by dollar value, although its annual output is still less than one-quarter of the U.S.’s at market exchange rates.
“People were not sure how fast this could happen,” said Sam Su, China division president of Yum Brands Inc., which gets nearly 20% of its revenue from its Pizza Hut and KFC restaurants in China. Although Yum Brands, of Louisville, Ky., has been in China for 20 years, longer than most Western companies, it is no longer exceptional in reaping significant revenue in China.
And that growing revenue is increasingly translating into profit. In surveys by the U.S.-China Business Council and the European Union Chamber of Commerce, more than 80% of respondents said their China operations were profitable last year…
– AstraZeneca expects sales to increase 25% this year and for China to be its third-largest market within five years. China “is an emerging market, but it’s also a market of huge scale. It’s a mixture of two worlds. So it gets a very high level of management attention,” said David Smith, AstraZeneca’s London-based executive vice president of operations.
– Yum Brands also has changed how it runs its business to reflect China’s clout. With the KFC and Pizza Hut restaurant chains having taken off in the current decade, China is now, by far, Yum’s most important growth market…Yum would have reported an operating loss if not for the $65 million in operating profit from China…
– Intel Corp. has made similar changes, as China’s share of its total revenue rose to 14% last year from 6.4% in 2000, the first year it started reporting China sales separately. This year, it made China a separate business unit, one of five globally that reports directly to headquarters in Santa Clara, Calif. “China is the only country outside the U.S. with such an extensive and full operation” for Intel, said Wee Theng Tan, president of Intel China.
Those who say that we ought to stop importing from China, or that Chinese companies should not be able to buy American companies, often have no idea of the Pandora’s box they are trying to pry open. Having said that, there is no excuse for the US not to get its current account deficit under control.