China machine shows no sign of slowing
China machine shows no sign of slowing
The fact that China leapfrogged Japan last year to become the world's second largest economy is a sign of just how important a role the country will play on the global stage over the coming years.
With growth averaging between 9-10% for the last decade or so, annual gross domestic product stood at $4.9 trillion in 2010 compared to $14 trillion in the U.S. But according to a report published last year by PricewaterhouseCoopers, China, which has a population of 1.34 billion, is on course to overtake the U.S. as the world's largest economy by 2020.
In fact, the country already has the world's largest automobile market and trumped Germany again last year to become the globe's biggest exporter. But it also has high ambitions in the information and communications technology (ICT) space, which is maturing fast, according to Greg Sutch, Chief Executive of Intralink, a consultancy that helps companies wanting to operate in Southeast Asia with market entry and business development activities.
"China has a huge ICT industry. It's not up-and- coming. It's up-and-come. If you own a PC or mobile phone, the chances are that it was made and developed in China. The only thing it won't have is a Chinese brand, but that will change in time," he says.
The sector, which is seen as a key area for development by the Chinese government, is being promoted heavily as a result. "There's a desire to be self-sufficient from a technology perspective and to develop innovation in China. It's a pet project of Beijing - that and renewable energy to focus on a green economy - but the two are very linked anyway," says Sutch.
incubators, science parks
This ambition has led to the creation of numerous business incubators, and science and technology parks across the country in cities ranging from Zhengzhou to Chongqing and Dalian. These specialized business parks have been particularly successful in attracting overseas investment and facilitating links between domestic firms and foreign enterprises.
Areas of particularly high growth include the manufacture of semi-conductors, but the outsourcing industry, in areas such as software design, has also started to grow rapidly over the last three years.
Patrick Li, Vice President of Sales and Marketing and General Manager of Orange Business Services in China, confirms that ICT is a key component of the country's twelfth five-year plan (2011-2015) because it is considered crucial to the next stage in the country's transformation.
"It's about using technologies in an end-to-end way to network machines, buildings and people to give everybody the intelligence to transform their lives. Such infrastructure allows things that were impossible to become possible and to deliver a wider range of services at a lower cost," he says.
As an example of innovation, the new Beijing- Shanghai high-speed railway, which aims to cut journeys in half to about four hours, will pioneer a new online booking system.
Consumers will be able to purchase e-tickets either online or over the phone using bank cards or automatic fare collection facilities, and the aim is to roll the scheme out across the entire national railway network by the end of this year.
Once at the station, customers will likewise be able to use their mobile devices to access wireless broadband Internet and 2G and 3G mobile services, with on-board coverage expected to follow based on passenger demand.
Internet use booming
According to the China Internet Network Information Center, the country already had 457 million Internet users by the end of 2010, an increase of 73 million over the previous year.
Moreover, many of them are keen social media users. Digital marketing and media researcher eMarketer estimates that, this year, 265 million people in China will access mainly home-grown social networking sites, such as microblogging platform Sina Weibo (the Chinese equivalent to Twitter), on at least a monthly basis. By 2015, the total number of users is estimated to hit a huge 488 million.
This explosion in online interest is also spawning a new generation of business owners. As Li explains: "The Chinese people are very entrepreneurial and see the Internet as an important way to cut their cost of business. For example, with property in cities like Beijing and Shanghai becoming very expensive, people are increasingly using the Internet to interact with others in the countryside. So we're seeing an explosion of Internet businesses, which is becoming the fastest growing part of the economy."
What all of this means for players from mature markets, such as Western Europe and North America, is that China presents both an opportunity and a challenge. "It's an opportunity because the market is growing very fast for foreign MNCs, and they're investing heavily in China, including research and development," Intralink's Sutch explains.
Most Fortune 500 companies and all of the big ICT players have operated in the country for a number of years now, and their presence is only set to increase as they progressively seek to gain a slice of the burgeoning domestic market - particularly as growth rates in more traditional markets appear set to remain sluggish for some time.
domestic industry's strength
But it is this very domestic growth in China that is also presenting new challenges to the established order. For example, the global ICT economy has to date been dominated mainly by large U.S. companies, but China is now starting to rely less on foreign technology in favor of developing its home-grown offerings instead.
This has already been seen in mobile telephony, which has become an increasingly important part of life in urban and rural communities. To meet these needs, the country created its own TD-LTE-Advanced network protocol for 4G communications, which has a download speed of 100 Mbps. The protocol was ratified by the International Telecommunications Union as one of six global benchmarks in October last year.
Another likely change, believes Sutch, is that large Chinese ICT companies with little or no presence outside of the country today will start expanding internationally over the next few years.
Such activity could take the form of mergers and acquisitions, the creation of collaborative supply chains and the setting up of joint ventures. But it could well mean that traditional incumbents have to start becoming more creative as they face increasing amounts of competition both on the home front and elsewhere.
"Traditionally, Chinese companies have made things for other companies, either as contract manufacturers or more lately as original design manufacturers, so they design and develop products for major brands but don't have their own. But the natural progression is for CEOs to want to establish their own brands in their own right," Sutch says.
meeting these needs
Li is confident that Orange Business Services is well-placed to cope with increasing amounts of two-way international traffic. "We're able to provide a global end-to-end solution for large companies either in China or wanting to come into the country that is consistent across the world in terms of ICT infrastructure solutions and services, service level agreements and security policies," he says.
Orange has operated in China for more than 50 years under various guises and has about 400 customers, the majority of which are large foreign multinationals, although the number of Chinese firms wanting to operate abroad has also started to rise over the last few years.
"We have a presence in 166 countries and territories, and we are familiar with local regulations and legislation. This, combined with our understanding of ICT infrastructure, means that we can help Chinese companies conduct business in either well-developed countries or emerging markets. The future success of the global economy means that they will increasingly have to compete both in China and outside," Li concludes.