The China Analyst

Reflecting on the momentous events happening in the world right now and in the last few turbulent years, it is clear that the world is changing significantly. China is a big part of this change; in fact, its emergence has become instrumental to a new era that is affecting every region of the world, yet none more so than the developing world. China is bringing unprecedented change to Latin America and Africa, and a changing business landscape brings new opportunities.

In the last edition of The China Analyst, we looked at the changing business landscape within China, focusing on certain key industries and outlining the opportunities that can still be found for foreign companies. In this edition, we shift our focus to China's impact on the wider world, and especially on the regions where China's presence and influence have been strongest, namely the developing world.

China is changing. While this simple statement could have been uttered at any time in the last three decades, in 2012, it is beginning to take on a new meaning. Although China has become the second-largest economy in the world, it has now reached the point where its ambitions are no longer satisfied with being second-best, with being merely an imitator, a follower, and a user of foreign technology. It is now aiming to be a leader in its own right, an industrial giant renowned not only for its scale but also for its pioneering spirit.

To some companies around the world this may sound odd. Many would still not even dare to mention 'China' and 'innovation' in the same sentence. There are indeed various reasons why the type of innovation that has taken root in China in the last few decades has in large part relied on imitation and reproduction. But to maintain this impression of China would be a costly error of judgement.

Today, the best way to look at China is to use a little imagination, to project current trends into the future and to imagine what such a world might be like. Farsighted individuals will do this now, not in two, five or ten years down the road. Those who delay this assessment indefinitely will at some point in the future find, to their dismay, that Chinese competitors have approached a higher level of competitiveness.

In 2012, as China transitions to new political leadership, this process is starting to go into a higher gear. The main battleground for market share in value-added industries is currently ongoing in developing markets. In countries like Brazil, South Africa and India, Chinese heavy and construction machinery manufacturers have made substantial gains in recent years. Their competitively-priced product offerings have long been a core element of China's competitive advantage, yet Chinese manufacturers are now progressively fabricating products that compete not only on price but also on quality and after sales services. It is an extended process for Chinese companies, involving years of imitation, alteration, adaptation, and innovation. Yet it is a process that is very much underway in China, progressively impacting various markets around the world.

Thus, it is essential not to underestimate the change that China is still capable of. Hence, in this edition of The China Analyst, we have undertaken the task of assessing China's current level of competitiveness and to consider the future implications of a more competitive China. We have highlighted China's leading companies that are approaching the 'technological frontier' in their respective industries, and have assessed the options that are available to foreign firms in the face of a more competitive China.

What is required is for foreign companies and observers to start changing their perspectives on China. A more competitive China will bring new challenges as well as new opportunities. It is imperative that companies be informed, the first steps towards being able to preemptively act accordingly.

I trust our readers will enjoy this edition of The China Analyst, and as always we welcome your feedback.

Kobus van der Wath
Founder & Group Managing Director
The Beijing Axis
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