People perpetuate this myth, and it is very common, to overstate the returns and understate the internal trappings of the Chinese internal market. Tapping into that ‘big market’ is not nearly as easy as people make it out to be. The devil really is in all the details. There are some internal and almost insurmountable ‘mount everests’ in the Chinese market. It is not just regulations, it has to do with structure. China is actually economically fragmented and essentially ‘all over the place’ on the scale. “Dual Economy” is an understatement. Because of that, and the underlying economic structure, tapping the Chinese market, even by Chinese companies is hard. Aside from a pocket here and a pocket there, China is long way off. Marketing in China isn’t nearly as straightforward as it is in America or Canada, or elsewhere. Its not nearly as profitable either.
A company's share price appreciates when its profit grows. And profit grows when the company can sell its products to a bigger market.
This is so true. Chinese companies, in order to make big profits are going to have to export. Simply put their internal markets don’t bring the kinds of returns that most of the people that apologize for China claim. As a result, what will happen is China will use its competitive edge. What is that? Price. China will more than likely make headway, but only in certain areas, just as it has been in the past. In those areas that are deemed “outsource-able” such as manufacturing, China will make money and take share. As far as getting on the other end of the ladder and really innovating, that is a whole new ballgame. THAT is where the money is made. 10 years from now China might be proclaiming a 35% share of world PC manufacturing, but when you really think about it, what does that really mean? “Cheaper” only solves a small portion of the problems. There might be one or two that work on the other end, but not most.
As far as talent goes, there are some seriously talented people in China. Even at that though it takes years to learn to be at the helm of a company and it takes A LOT to innovate. American companies are not better only because they market better. We identify and solve problems better. We create things. It is skilled labor to say the least.
Then when you take into account the actual numbers of people that are afforded the opportunity to attend university, the number really is not that great. Circles run pretty small in China. Odds are 2/3 of the engineers in Shenzhen know each other. To proclaim that China will turn out more business talent (on a global scale) than everyone else, is about like saying ‘everyone on my high school football team is going to be in the NFL’.
A lot of their stellar performers are going to be stellar for sure, but most likely within the confines of China itself. I guess you can call it big fish in little ponds. Like I said though, there are some good performers, but getting all the good performers together on one team might be a problem.
The skilled labor talent pool in America is tremendous and it was not developed in just 10 years or 20 years. We have literally been building on and learning and developing our economy for hundreds of years. For Chinese executives to experience that kind of thing, quite simply they are going to have to come to America. People come from all over to work here. It is because of our system. People are tested and tried and pushed to their very limits. China on the other hand is kind of like he describes Singapore, protectionist, etc. A lot of the bosses in China don’t want people thinking too much or rocking the boat as well as the idea that the whole place is a protectionist nightmare. People there as a whole are not in a culture (corporate or otherwise) that allows them explore their potential. As those things change, more talent will emerge.
China will most likely grow relative to itself. At the same time they grow though America is going to be growing and refining too. China is at least 75 to 100 years off, and most likely A LOT more. In the end 10 or 20 years from now, China will still be a mixed bag.
This author though seems to be talking about Chinese stock markets and their returns. In the end, there are going to be a handful of Chinese companies that ‘make it’ (make it meaning survive) for the next 20 years and turn potential profits. If you want to know which ones, look for two primary symptoms: 1. State backing/support. 2. Foreign support or partnership to supply the world with certain products. (such as companies that contract with say, Dell, that supply PC components not only to China, but all over the world). The ones that are isolated only to China, stay away from. Other than those few, mixed bag indeed.