Globalization has created enormous economic opportunities, but also increased the ferocity of competition. How should economic globalization be understood and dealt with? How do Chinese enterprises deal with these trends? Cheng Siwei, vice chairman of the National People's Congress, China's top legislative body, summarizes four major stages in the process of economic globalization.
Firstly, financial market connections are growing closer and closer. Financial globalization is incompatible with economic globalization. World financial globalization means world currency can only be measured by its purchasing power after breaking away from the gold standard. The exchange rate in various countries has become a policy tool for competition. World capital floats much faster than before. According to data from the Bank for International Settlements, in 2005 the surplus value of the world's financial products reached 325 trillion dollars, about 7 times the world's GDP. The scale of world finance has expanded while the world financial market are so heavily interdependent that no matter where there is a problem, shockwaves are felt everywhere.
Secondly, a knowledge economy has become the foundation of globalization. Such an economy is based on knowledge; it is the major element in the industrial mix. The knowledge economy plays an important role but China still relies primarily on investment to drive economic growth. Knowledge is also significant in production; management has become the "software" of production as it is responsible for the organization and optimization of labor and machinery.
Thirdly, information technology has become a precondition of development. Cheng Siwei says information technology has made regional distances smaller and improved efficiency in terms of time. Information technology will play an important role in enterprise management in the 21st century.
Finally, economic globalization is based on multinational corporations. Multinational companies are the leaders of economic globalization. The behavior of some corporations, such as intervening in countries' internal affairs, influencing the local economy or evading taxes has been criticized, but most try hard to regulate their company at all levels.
Cheng Siwei says that in terms of world economic development, most countries go through four stages: trade in raw materials, trade in ready products, capital exports and knowledge exports. The biggest gap now between China and developed nations is knowledge. Due to lack of independent innovation and original patents, China's reliance on western technology is high.
"Currently only half of the products we make were invented or created in China. We rely on imported technology for the other half," he said.
Knowledge includes standards, brands, technology and patents, and their value is hard to compare with material goods. Using standards as an example, whoever owns standards is at the highest point in the technology chain. The brand can significantly influence the added value of a product. Cheng used ties as an example.
"The best tie in China is produced in Zhejiang and Chinese ties have a large share of the world market. But the prices of China-made ties range from 288 to 588 yuan or US$33 to US$73 while any ordinary brand in a western countries will sell for between 888 and 1288 yuan.
Cheng Siwei calls for a Chinese management theory
Cheng believes that in this world there are two kinds of countries, "brain countries" and "trunk countries". The "brain countries" that he refers to produce and export knowledge while the "trunk countries" accept and apply that knowledge. Cheng Siwei says that developed countries control a lot of knowledge and during the globalization process, they export their knowledge. Consequently the government is pushing for independent innovation. "Without independent innovation, it is impossible to realize the great revitalization of China. Without a ��brain', with only ��limbs', this dream cannot be realized. Chinese enterprises must devote themselves to independent innovation and develop standards, brands and technology," Cheng Siwei says.
Cheng Siwei also says that China should develop its own multinational companies. Chinese companies should be able to invest in other countries, but they must learn the local laws, culture and history as well as establish local contacts. There is a lot of work which needs to be done. "Our enterprises have not yet been able to find representatives to establish offices and build up factories elsewhere. But there are still fewer truly transnational companies operating," claims Cheng.
A transnational company must develop a global strategy and establish its profit and operation model at a global level.
Some Chinese companies already want to purchase foreign enterprises �C this is another development model �C but they should pay attention to the market and cultural differences.
"Some people think Chinese enterprises don't have much management expertise. I disagre. I think Chinese enterprises have contributed a lot to China's fast development. The problem is that we haven't seriously studied our enterprises to find out how they work. We should send our professors into companies to summarize their experiences so that those experiences can be developed as a theory."
Cheng Siwei stressed that it would be impossible for domestic enterprises to abandon their Chinese characteristics; they cannot avoid the situation in China, its industrial and business culture. Simply copying foreign businesses will not be enough to make Chinese enterprises the best in the world.
By People's Daily Online