Source: Peking University Development Institute, Caixin
Zhou Qiren: Seeking the right node in the global network - an optional path for enterprises to break through
This article is a speech by Professor Zhou Qiren of the National School of Development of Peking University at the 14th Caixin Summit.
In 2017, the author had a "breakthrough theory", which means that the economy is surrounded and faces the challenge of whether it can break out of the encirclement. At that time, looking at the global market competition pattern from a distance, I felt that it was very much like a "sandwich" - the top has original technology and products, and the control is unique; the bottom is the late-developing economy in emerging markets, and the cost advantage is more competitive; sandwiched in the middle, it is difficult to get up and down, that is, we have a large number of enterprises and industries here, the reform and opening up is earlier, the rapid growth for many years, the cost advantage is no longer there, it is difficult to compete with the new low-cost forces downward, and the unique nature of scientific and technological innovation cannot be won by the upward struggle.
As a result, high-speed growth is not sustainable. In recent years, the international trade war and technology war, coupled with the plague of the century, have not only made the "economic siege" worse, but also sharply increased many non-economic pressures. As far as I can see, quite a number of regions, industries, and companies are suffering from pain that they have not experienced for many years. Of course, this is a real problem.
In the face of real problems, I know that my scholarly views are useless. However, I have always believed that if anyone is really uncomfortable, some of them must do their best to alleviate the discomfort and get out of the predicament. This means that if the siege is true, the breakthrough will also be true. As for the final game, it depends on which of the forces is stronger and which is weaker, and also depends on the strategy of using power. Only afterwards did Zhuge Liang come out.
For me, economic observation and research in the past few years is nothing more than searching for and seeking, observing the breakthrough of enterprise practice everywhere, comparing the intention and effect, and experiencing the ups and downs, successes and failures. Over the past few years, we have also seen several possible directions for economic breakthrough. Today, I would like to present to you a topic on the topic of "Choosing the Right Node in the Global Market Network".
The first thing that made me pay attention to the trend of manufacturing going overseas was Midea Group. We came to the door to ask for advice, and Mr. Fang Hongbo asked Wang Jianguo, who is in charge of international layout, and his two colleagues to introduce the situation. There are many "Fortune 500" companies in China, but there are not many overseas revenues like Midea that account for more than 40% of total revenue. What's even more special is that 20% of Midea's total export sales (i.e. 25 billion yuan) are manufactured overseas. In the company's strategy presentation, there is such a sentence, "From China to the world, to the region for the region." "Interesting, the "world factory" sells all over the world, isn't it selling well, why should it turn to overseas manufacturing, to "regional supply region"?
Coincidentally, Shenzhou International, located in Ningbo, has also been manufactured in Southeast Asia as early as possible. When I visited the company's headquarters, the global knitwear OEM giant had a much larger factory in Vietnam alone. When asked the reason, CEO Ma Jianrong said that it started with the persistent requirements of international customers. That's around 2010, far from Trump's trade war, why do those big customers not let Shenzhou International, which is getting better and better in Beilun District, go to an unfamiliar country to rebuild factories?
Let's go and see it live. In the past two years, the author has visited a number of manufacturing projects in Vietnam, Cambodia, Egypt, Turkey, East Africa, Indonesia, etc., and also visited multinational R&D centers in Finland, Denmark, Sweden and other places this summer. While looking and asking, I understand, and the breakthrough route of "layout to a wider place in the world" is becoming clearer and clearer.
One of the first epiphany I had was in a manufacturing workshop in Vietnam. It should be at the overseas manufacturing base of Foshan Cheetah Company, and the picture is as follows: in front of the newly installed machine, a female worker wearing a hat is walking to the station. Peasant workers came from peasants and turned from peasants to peasant workers, and their incomes increased several times. Only when the number of peasants who have been transferred to workers is large enough can the market capacity for manufactured goods be large enough. Migrant workers are then turned into urban citizens, urbanization supports industrialization, the division of labor deepens, and efficiency is improved, and the energy hidden in the traditional economy can be stimulated.
This is also the path that China itself has taken. If the "Pearl River Delta" will always be a mulberry fish pond and the "Yangtze River Delta" will always be the land of fish and rice, then no matter how dense the population of the two places is, how much purchasing power will they have for industrial products? Can they still upgrade consumption from clothing to building materials, from household appliances to mobile phones, from bicycles to motorcycles to automobiles, and drive round after round of product upgrading? No? The reason is that the income of traditional agriculture is intermittent, and after farming and sowing, the crops are exposed to the sun, and the peasants are also exposed to the sun. Why is it that when young people in traditional rural areas hear about factory recruitment, they are all eager to try it? Income has increased several times, which is the last word. In the 40s of the last century, the predecessor scholar Zhang Peigang's doctoral dissertation "Agriculture and Industrialization" at Harvard University, the theme was the industrialization of agricultural countries, and the interpretation was the universal economic development logic of "industrialization cannot be surpassed".
The traditional economy is not easy to generate industrial technology, machinery and equipment, knowledge and skills spontaneously. Therefore, in industrialization, openness is far better than closure. Agriculture is often tied to settlement, but manufacturing is inherently "nomadic", moving from cost advantage to emerging markets, especially the institutional cost advantage that the author values most. Experience says that the "factory of the world" has never been in a corner of the world. The industrial revolution first occurred in Britain, but once upon a time, the manufacturing industry traveled from Britain to Western Europe, North America, Central Europe, and then to Japan, South Korea, the "Asian Tigers", and then in Chinese mainland, especially to the "Pearl River Delta" and "Yangtze River Delta". The name of "the world's factory" is very popular, but if it is manufactured in one place and sold all over the world, it will not be sold one day. The "world factory" can be popular anywhere, but "the world factory goes to the world" is common sense. The transfer of industries on the earth will never stop at any country or place.
Everywhere I went, I always asked the newly called local workers what they did? The vast majority of the answers were that they had never worked as industrial workers. It is not a small number, such as Shenzhou International recruiting 80,000 people in Vietnam, 14,000 people in Cambodia, Jushi Group recruiting 2,187 people in Suez Canal Industrial Zone, C&D Company recruiting 7,000 people in Rwanda, and Jiangsu Delong (formerly Iron Company, still led by Dai Guofang) recruiting 40,000 employees in VDNI in Sulawesi, Indonesia, almost all of them are newcomers to the manufacturing industry. In the long run, a large number of farmers will increase their incomes and local demand will start to kick in, which is a proper increase in demand for the global economy! It is clear that only large-scale job transfers will those farmers, street vendors and handicraftsmen have more purchasing power to increase demand for their domestic and foreign-made products!
Everything is difficult at the beginning, and manufacturing to the sea is no exception. Tanzania, Uganda and Rwanda in East Africa have a population of nearly 100 million, but their per capita GDP is less than $1,000. With the new market being so "big and two thin", what should enterprises doing to make it easy to cut into, and develop sustainably, so as to grow together with the economy that has grown from thin to thick?
The streets are full of "TECONA" advertisements and mobile phone booths, which give people inspiration. At the stage when the average Chinese are 1,000 US dollars, mobile phones will never fly into ordinary people's homes. However, contemporary technological advances have dramatically lowered the threshold for new categories of consumption in the global late-developing economy, and even if incomes are low, they can gather the starting capacity to support the development of new industries. It's a pity that the schedule for visiting East Africa is too tight, except for watching advertisements and shops on the street, I didn't have the opportunity to visit the famous Transsion Company. After returning to China, I went to Shenzhen to have the opportunity to listen to the founder Mr. Zhu and several of his colleagues.
Transsion's African tactics are classics. Their first focus in entering the large and thin market is not to sell mobile phones, but to build a local after-sales service network. The locals understood: this company does not sell low-priced and low-quality goods and then run away. The starting price of Transsion mobile phones is not high, but the cost performance is by no means low. At that time, the average price of feature phones was 62 yuan, and not only did the standby time be long enough, but also required multiple cards per machine (due to the large number of telecom operators in Africa, it was necessary to change the card in another place). In addition, the localization of mobile phones should be done to the extreme - hot and sweaty should be non-slip, loud speakers should be loud, and the appearance should be in line with the aesthetics of the locals! Turning to smart phones, Transsion is different from other "big brands" such as Samsung, and is precisely customized for local customers, such as the camera algorithm that can shoot African brothers and sisters at night, ensure ultra-long standby in areas with insufficient power supply, and even set up a booth with solar silicon panels to charge mobile phones!
The most remarkable thing is that after Transsion opened the African market for sales, it quickly started to move the manufacturing end forward, first shipped parts to local assembly, and then drove the supply chain to go overseas to develop local manufacturing. This is a long-term way to increase the income of local people and create incremental local demand. Transsion's experience is clear: Raising the level of industrialization in Africa has helped the large and thin local market to gradually thicken, and allowed its start-up to thrive in an increasingly thick and large market. In 2022, Transsion will sell 156 million mobile phones annually and earn 46.6 billion yuan, making it a legend of "African mobile phone king".
For entrepreneurs with a strong entrepreneurial spirit, the market is suitable for small business start-ups. We visited a motorcycle tire factory in Uganda, the founder Chen Fan is from Chongqing, started as a motorcycle parts trader, and then focused on tires, and became the earliest and only motorcycle tire manufacturer in Uganda, which currently accounts for 90% of the Ugandan market, and has built factories in many places in East Africa. Mr. Chen said that he was determined to "do the same thing in many different places", which means that small water can be raised in many places. Mr. Gong Wu, the guide who accompanied the Foshan enterprise delegation to visit East Africa, entered the steel structure industry at the turn of the century. In 2008, the Rwandan National Immigration Bureau built an office building and ordered their factory products at the Canton Fair. Unexpectedly, after the delivery, the other party asked to send someone to provide after-sales service. Mr. Gong Wen, the chief engineer of the company, led his staff to Africa for the first time to experience the local welcome for industrial products and "extreme respect for technical labor". Subsequently, the company led by the two brothers won the bid for local construction projects one after another, and successively established manufacturing bases in several countries in East Africa, from Zhaoqing manufacturing to African manufacturing. These kinds of stories are popping up all over Africa. I believe that over time, the former grassroots companies will have the opportunity to grow into towering trees, and the small fish in the past will also have the opportunity to produce big fish and giant fish.
Of course, it doesn't happen overnight for the market to go from thin to thick. As early as 2015, it joined hands with Guangzhou Senda Company to create a ceramic manufacturing company in Africa, and drew a beautiful second growth curve. Success sparked competition, and another Wangkang group also invested heavily in the manufacture of ceramics and glass in Africa. Unexpectedly, before the two companies could let go, the market sales were flat. In the final analysis, the thin market is still thin, and it is difficult to allow the head enterprises to show their strength. As mentioned above, Transsion is "growing with the African market", and with the penetration of mobile phones in Africa exceeding half, the sales growth rate has also flattened. When asked about the future development, Mr. Zhu said in Shenzhen, "Transsion wants to go to sea from Africa."
In contrast, C&D, a clothing company in Rwanda, was not enough to recruit 5,000 workers, and when we visited, it was about to recruit 2,000 workers. Director An is a capable female general who has not returned to China for several years. "In the past few years, because of the epidemic, the orders have been so good that it is too busy to expand production capacity. "Originally, the company was mainly engaged in export, manufacturing clothing in Africa for export to Europe. The interview coincided with the company's chairman Gu's visit to the factory, and after the conversation, the company's earlier model was to receive foreign orders in Hong Kong and manufacture in the mainland. With the dynamic change of cost advantages, we moved the manufacturing base to Rwanda as we went. Mr. Gu said, "Rwanda has no foreign exchange control, but the country is extremely short of foreign exchange, if you help him earn foreign exchange, can he still support you?" In fact, manufacturing based on a thin market and exporting products to a thick market has always been the secret of the take-off of the "Asian Tigers", the "Pearl River Delta" and the "Yangtze River Delta".
The so-called "thick" market here refers to developed markets with high per capita income and strong consumer purchasing power. Where the water body is deep in the physical world, the buoyancy is always relatively large. The same is true of the economic world. It is not only the most desirable target market for labor-intensive products, but also the ideal target market for advanced manufacturing. However, experience has proved that the first focus of leading enterprises going overseas is not to immediately export products, but first to extend their R&D tentacles to those nodes that gather global high-end scientific research, technology, design and talents, and take the lead in absorbing and integrating overseas.
A visit to Deltamarin in Helsinki was very inspiring. This world-renowned professional ship design company is engaged in the design, technology research and development, project construction consulting and management services of various marine and offshore engineering products. With 400 engineers, the company has provided feasibility analysis and customized innovative concept design for more than 5,000 marine and offshore projects to clients around the world, as well as design and management services throughout the project execution process. The Deltamarin brand is rooted in high-end customers in the global shipbuilding industry, and many projects have won international awards and the world's best titles. The company was acquired by AVIC International in 2012, which in turn was acquired by China Merchants Industry Group in 2019. Ms. Zhong Chunmei, a technical executive of the company, worked as an engineer in a domestic shipyard for 10 years before being hired to work in Helsinki in 2007. I asked Ms. Zhong how to participate in the management of a well-known European design company as a naval architect? She replied that shipyards are the basic customers of design companies, and it is only by being able to raise pain points and difficulties from the manufacturing side that design companies can provide a higher level of service. On the other hand, without the support of high-end technical services, manufacturers can not meet the high-end needs of their customers - shipowners and shipping operating companies, and can only fall into low prices and occupy the commanding heights of global shipbuilding.
Located on the west coast of Sweden, Gothenburg is a beautiful harbor city. Located in the geographical center of Copenhagen, Oslo and Stockholm, the three Nordic capitals, within a radius of 300 kilometers, covering the most industrially developed areas of the three Nordic countries, it is the hub of Nordic industrial connectivity to the world. Since Geely's acquisition of Volvo in 2010, it has become an important node in the automotive market network with Ningbo, Shenzhen, China and Southeast Asia. During our trip to the Nordic region, we focused on the sequel to the successful acquisition – what is the significance of Geely's R&D tentacles from the shores of East Asia and the Pacific to the northwest corner of Europe.
According to Wei Gang, the local CEO of Geely, the first thing to value when he set foot in Gothenburg is this "Silicon Valley of the automotive industry" - Gothenburg and the surrounding areas have gathered tens of thousands of car people, including nearly 98% of Swedish passenger car companies and 50% of truck companies, and is a well-deserved high-quality town in the global automotive industry. Geely's China-Europe Automotive Technical Center (CEVT) in Gothenburg grew much faster than expected, and soon found that space was running out. In 2015, considering whether to build a Swedish home for Geely, Li Shufu decided not only to build a R&D center building, but to build a science park composed of a group of architectural complexes! Today, five modern buildings are erected on the banks of the Jota River, and Mr. Wei takes us on a tour of UNI3, which has opened to introduce that in addition to the hardware and software research and development of mobility, this beautiful science park also includes an incubator jointly established by Geely, the city of Gothenburg and local enterprises, providing a multidisciplinary innovation base for talents from many local industries and well-known companies (Volvo, Ericsson, Hasselblad cameras, SKF bearings, etc.), and two prestigious European universities (Chalmers University of Technology and University of Gothenburg). Overlooking the vibrant harbor from Mr. Wei's office, thinking that it was from here that the Gothenburg sailed to Guangzhou 300 years ago, I couldn't help but admire Li Shufu and his Geely leadership for being a great "eye of the future" at the northwest tip of the Eurasian continent.
In developed places, mergers and acquisitions, R&D, and paid to share scientific experiment platforms, many leading companies have already done something. However, more companies are still discouraged, and the reason is obvious - "too expensive". Yes, how can employees with an annual salary of tens of thousands of euros be afforded? After several discussions on the way, I thought that the algorithm might be wrong, and the main point was that it was not possible to compare the level of wages in isolation from productivity. Yes, it is absolutely expensive to see the labor, plus the productivity together, how afraid to say otherwise. Zhang Shaoxian, who had studied, worked and started a business in the small city of only 250,000 people in the south of the Netherlands, provided a set of thought-provoking data: ASML, which is now famous all over the world, has a total of 39,000 employees, with an average annual revenue of 534,000 euros and a profit of 143,000 euros, and an average of 1,600 hours of work per employee per year, and a profit of 90 euros per person per hour. When I asked me what the average hourly wage was, I said it was about 35 euros, and 50 euros with social security benefits. See clearly: for every 50 euros increase in labor costs, 90 euros in profits, is this expensive or cheap? That is the way to do business in a thick market, using very expensive production factors to create higher output and profits. It's not easy to climb to the sky in one step, isn't it good to stretch out your tentacles to test the water, practice your hands, and change your breath first?
Visit enterprises to go to sea, and look at the world map from time to time. The world on the map, the different countries are marked as blocks of different sizes, with clear borders and different coloring. However, in the real world, people's activities are not all enclosed in any administrative block. From ancient times to the present, human beings have come and gone and crossed borders. The more modern it is, the wider the scope and the higher the frequency. If all the trajectories of commerce, investment, tourism, migration, academics, culture, and information exchange are projected on the map, the world of countries with clear distinctions will be covered by layers of network lines. Looking at it this way, the size and population of any administrative block on the map are still secondary, and whether they are connected with the world in terms of science and technology, investment, trade, culture, and other aspects, and whether the quality and density of comings and goings are high enough, are more important. The market economy is based on enterprises, and enterprises are different from administrative institutions, and they do not need and should never be cocooned and drawn as prisons. Choosing the right node in the global market network, daring and being good at laying out in a wider place, is an optional path for enterprises to break through in a highly uncertain environment.