IS CHINA NEXT TECH SUPERPOWER? ENTIRELY POSSIBLE
David Ticoll, The Globe and Mail, 10/28/04
China is still an up-and-coming player in high tech. Its domestic IT market, at $28-billion, is only 7 per cent that of the United States. But it's got momentum, a gigantic domestic market being pump-primed by global technology players, low labour costs, and -- most importantly -- aggressive entrepreneurialism. China could emerge within a decade as the next technology superpower. Here are some interesting figures:
- With 300 million subscribers, China is the world's largest mobile phone market.
- Its domestic market for electronic information products of all sorts leapt from $20-billion in 1999 to $77-billion in 2002.
- It makes 60 per cent of the world's DVD players.
-China builds 21 per cent of the world's PCs. This year it is expected to buy more than a quarter of the world's notebooks.
Check out the back plate of just about any high-tech gear; chances are it's made in China. But that's not good enough for the Chinese as long as the front badge doesn't denote one of their manufacturers. This will change, soon. China is tackling the problem on many fronts.
- First, human resources. In 2003, China had 337,000 engineering graduates, the largest number in the world (India was second largest, with 316,000, while the United States typically graduates a mere 50,000).
- Second, as did the Japanese in the 1960s, Chinese manufacturers are closing the quality gap.
According to an IndustryWeek survey released two weeks ago, Chinese manufacturers' on-time delivery rate is 99 per cent, compared with 96 per cent for U.S. manufacturers. Chinese manufacturers meet product specifications 98 per cent of the time on the first attempt, versus 97 for U.S. manufacturers. And 53 per cent of Chinese manufacturers provide more than 20 hours of training to each new employee, compared with only 35 per cent in the United States.
- Third, domestic firms in key IT and communications sectors control big chunks of the Chinese market. Many have global ambitions.
Lenovo (with market share of 26 per cent) and Founder Electronics (11 per cent) dominate the country's PC market. Dell pulled out of China's consumer PC market this summer, routed by competitors selling cheap machines.
Global players such as Nokia, Motorola and Ericsson created the Chinese cellphone boom. Then a couple of years ago domestic players such as Ningbo Bird Co. and TCL Mobile Communication Co. changed the rules with cheap phones and sales networks that extended into remote rural areas. In 2003 they captured 46 per cent of the market. The big global firms continued to dominate high-end, fashion-oriented, innovative markets. Now they've adopted low-end strategies to compete with the indigenous firms. But the domestics are bound to move up-market, too.
Huawei Technologies Co. is the country's $3.8-billion (U.S.) technology flagship: a challenger to global telecommunications firms such as Nortel and Cisco. It plans to spend $500-million on research and development this year -- about a quarter what Nortel spends, but enough to pay 10,000 engineers at Chinese rates.
Shanghai Automotive Industry Corp. (SAIC) wants to be one of the world's six biggest car companies by 2020 -- and what's a car these days if not a pack of computers on wheels? It's springboarding from partnerships with General Motors and Volkswagen that produced more than 600,000 cars last year. Industry analysts think SAIC will pull off its plan.
China may be the world's biggest and most dynamic market, with the most engineers -- but is this enough to become a global leader?
Consider this fourth prong of the Chinese game plan: the technology standards wars. China is trying to set the standard in areas from garden variety operating systems (a Chinese version of Linux) to next wave cellphone protocols (the 100 megabit per second, high resolution video capable 4G standard). Given the size and growth rate of its domestic market, it has the clout to succeed at least some of the time.
Owning standards makes business sense for cost-sensitive Chinese manufacturers. AVS, China's proposed audio-video encoding standard, carries a licence fee of 1 yuan (15 cents) compared with $3 for MPEG, the dominant global standard. And owning a dominant standard can lead to massive paybacks, as the histories of IBM, Microsoft, and countless others illustrate. Some standards also have geopolitical ramifications. China recently delivered crucial support to Europe on the Galileo standard for satellite positioning systems. Galileo is a response to the U.S. Global Positioning System (GPS).
Although it is capable of pinpoint accuracy, the U.S. military limits civilian-accessible accuracy of GPS measurements to within a metre or so and keeps the tighter measures for itself. Galileo, once it is operational in 2008, will solve this problem and tilt a key information balance away from the United States.
China the next technology superpower? Entirely plausible.
China is still an up-and-coming player in high tech. Its domestic IT market, at $28-billion, is only 7 per cent that of the United States. But it's got momentum, a gigantic domestic market being pump-primed by global technology players, low labour costs, and -- most importantly -- aggressive entrepreneurialism. China could emerge within a decade as the next technology superpower. Here are some interesting figures:
- With 300 million subscribers, China is the world's largest mobile phone market.
- Its domestic market for electronic information products of all sorts leapt from $20-billion in 1999 to $77-billion in 2002.
- It makes 60 per cent of the world's DVD players.
-China builds 21 per cent of the world's PCs. This year it is expected to buy more than a quarter of the world's notebooks.
Check out the back plate of just about any high-tech gear; chances are it's made in China. But that's not good enough for the Chinese as long as the front badge doesn't denote one of their manufacturers. This will change, soon. China is tackling the problem on many fronts.
- First, human resources. In 2003, China had 337,000 engineering graduates, the largest number in the world (India was second largest, with 316,000, while the United States typically graduates a mere 50,000).
- Second, as did the Japanese in the 1960s, Chinese manufacturers are closing the quality gap.
According to an IndustryWeek survey released two weeks ago, Chinese manufacturers' on-time delivery rate is 99 per cent, compared with 96 per cent for U.S. manufacturers. Chinese manufacturers meet product specifications 98 per cent of the time on the first attempt, versus 97 for U.S. manufacturers. And 53 per cent of Chinese manufacturers provide more than 20 hours of training to each new employee, compared with only 35 per cent in the United States.
- Third, domestic firms in key IT and communications sectors control big chunks of the Chinese market. Many have global ambitions.
Lenovo (with market share of 26 per cent) and Founder Electronics (11 per cent) dominate the country's PC market. Dell pulled out of China's consumer PC market this summer, routed by competitors selling cheap machines.
Global players such as Nokia, Motorola and Ericsson created the Chinese cellphone boom. Then a couple of years ago domestic players such as Ningbo Bird Co. and TCL Mobile Communication Co. changed the rules with cheap phones and sales networks that extended into remote rural areas. In 2003 they captured 46 per cent of the market. The big global firms continued to dominate high-end, fashion-oriented, innovative markets. Now they've adopted low-end strategies to compete with the indigenous firms. But the domestics are bound to move up-market, too.
Huawei Technologies Co. is the country's $3.8-billion (U.S.) technology flagship: a challenger to global telecommunications firms such as Nortel and Cisco. It plans to spend $500-million on research and development this year -- about a quarter what Nortel spends, but enough to pay 10,000 engineers at Chinese rates.
Shanghai Automotive Industry Corp. (SAIC) wants to be one of the world's six biggest car companies by 2020 -- and what's a car these days if not a pack of computers on wheels? It's springboarding from partnerships with General Motors and Volkswagen that produced more than 600,000 cars last year. Industry analysts think SAIC will pull off its plan.
China may be the world's biggest and most dynamic market, with the most engineers -- but is this enough to become a global leader?
Consider this fourth prong of the Chinese game plan: the technology standards wars. China is trying to set the standard in areas from garden variety operating systems (a Chinese version of Linux) to next wave cellphone protocols (the 100 megabit per second, high resolution video capable 4G standard). Given the size and growth rate of its domestic market, it has the clout to succeed at least some of the time.
Owning standards makes business sense for cost-sensitive Chinese manufacturers. AVS, China's proposed audio-video encoding standard, carries a licence fee of 1 yuan (15 cents) compared with $3 for MPEG, the dominant global standard. And owning a dominant standard can lead to massive paybacks, as the histories of IBM, Microsoft, and countless others illustrate. Some standards also have geopolitical ramifications. China recently delivered crucial support to Europe on the Galileo standard for satellite positioning systems. Galileo is a response to the U.S. Global Positioning System (GPS).
Although it is capable of pinpoint accuracy, the U.S. military limits civilian-accessible accuracy of GPS measurements to within a metre or so and keeps the tighter measures for itself. Galileo, once it is operational in 2008, will solve this problem and tilt a key information balance away from the United States.
China the next technology superpower? Entirely plausible.
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