With its economic achievements, China has managed to surprise the whole world
Manufacturers of more serious goods, say household appliances, also understand that this segment is subject to competition from China and other countries trying to leave the low-profit production zone. And if you produce durable goods, your company likely operates only by moving all production to China, or by ordering Chinese components. But perhaps you are simply sticking your own brand label on a product "Made in China".
But even if your business has nothing to do with China, perhaps soon a supplier will take care not to be pushed out by a Chinese competitor, and a buyer will consider not forgetting about some suppliers from their own (or a third country) to protect themselves from supply disruptions from China.
The "first consequences" of China's rise were more felt in some countries and less affected others (say, more in the US, less in the EU). This was more noticeable in labor-intensive and low- or medium-tech areas. In the United States, China leads in categories such as shoes, toys, and wooden home furniture. And after the expiration of the Multi-Fiber Arrangement and the country's entry into the WTO, China will also become a leader in textile and clothing production. Three years ago, after the removal of restrictions on artificial fiber products, the unit price of goods fell by half, and China's share of the world market increased fivefold. In the same period, US imports of bags from Mexico halved, leading to the closure of several factories. Exports from Thailand and the Philippines also sharply declined.
China's advance in labor-intensive industries will not have a significant impact on the United States, which long ago left this area of production. For example, a study conducted by the Association of American Rubber and Plastic Footwear Manufacturers showed that only 17 types of rubber/fabric and protective/plastic footwear are produced in the country, accounting for only 5% of the footwear sold in the US.
However, the consequences will affect developed countries that have protected their products through a combination of subsidies and trade protectionism. This especially applies to developing countries relying mainly on cheap labor and proximity to the market. This, in turn, will be reflected in developed countries that supply a significant portion of added value in their mass production, provide assistance to the weak economies of such countries, and accept their immigrants. As the radius of influence expands across various industries and product groups, developed countries will increasingly be drawn into the "China debate" about its social and political consequences.
In business, the rise of China will call into question fundamental definitions regarding the nature of competition between states and companies, the importance of geographic proximity, and the cost of market entry and exit. The location advantages that have ensured the survival and prosperity of companies for decades, and sometimes centuries, will be questioned, and the global mobility of production factors will increase thanks to the global supply chain. As with previous cases of huge economic shifts, the coming changes will test both external and internal alliances. Players will play by new rules, new winners and new losers will emerge.
How can global business prepare for the era of Chinese leadership? Many are already starting to search for manufacturers in China. Preparation begins with understanding the nature of the coming changes and assessing their impact on the industry, the company, and each employee. It is important to have the desire to reassess the meaning of the organization, to revise not only routine work but also the fundamental concepts underlying the enterprise model.
Materials prepared for the US Department of Commerce and the US Trade Representative state that several tanneries in the United States have survived by shifting to complex production for the automotive and furniture industries; however, China's advance into more complex market levels is happening at such a pace that this strategy is being called into question. Moreover, approaches like "business as usual" will no longer yield results. Companies must rethink the entire value chain, which may lead either to creating a new production model or to inevitable market exit.
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