SlideShare une entreprise Scribd logo
1  sur  31
Télécharger pour lire hors ligne
Upgrading the Chinese Economy
                                           The Historic Transition from “Made in China” to ”Created in China”
                                                                                                                June 23, 2010
Copyright 2010 SmithStreetSolutions. All rights reserved.                                                                   0
Table of Contents



   1. What “Created in China” Means

   2.   Why China Must Create

   3.   Enablers of Chinese Creation

   4.   Challenges to Chinese Creation

   5.   Implications of “Created in China”




                                             1
Quotes from Beijing’s 2005 China Economic Summit


           I think now it’s time for Chinese companies to build their own brands.
           I think now it’s time for Chinese companies to build their own brands.
           The Chinese government should push healthy developments of the
           The Chinese government should push healthy developments of the
           economy.
           economy.
                                 Robert A. Mundell, winner of the 1999 Noble Prize in Economics
                                 Robert A. Mundell, winner of the 1999 Noble Prize in Economics




           Unique and creative designs will give China’s manufacturing a major
           Unique and creative designs will give China’s manufacturing a major
           boost and higher technological maturity will make Chinese products
           boost and higher technological maturity will make Chinese products
           more competitive.
           more competitive.
                       Sir James Alexander Mirrlees, winner of the 1996 Noble Prize in Economics
                       Sir James Alexander Mirrlees, winner of the 1996 Noble Prize in Economics




           Japanese products completed the transition from manufacturing to
           Japanese products completed the transition from manufacturing to
           creation in over 10 years, setting a good example for Chinese companies.
           creation in over 10 years, setting a good example for Chinese companies.
           This transition is necessary for the development of China’s
           This transition is necessary for the development of China’s
           manufacturing.
           manufacturing.
                                  John Forbes Nash, winner of the 1994 Noble Prize in Economics
                                  John Forbes Nash, winner of the 1994 Noble Prize in Economics

                                                                                                   2
What Makes Creation
Four basic elements are necessary for “creation” in the industrial sense to happen.

  The difference between Manufacturing an
          iPod and Creating an iPod




                                                    I.    Sound Market Strategy


                                                    II.   Smart Product Design


                                                    III. Successful Technology


                                                    IV. Shrewd Branding




Source: SmithStreet Analysis
                                                                                      3
Moving up the Value Chain
As a country’s economy transitions from basic manufacturing to innovation and
creation, it will see its industries moving up the value chain.

Case Study: The Rise of “Made in Japan”

      In the 1970s, the image of Japanese brands in the
      international market was defined by cheap price and
      low cost
      To move up the value chain, the Japanese government
      did two things:
      – The government stepped in to increase corporate
         identity awareness among large Japanese
         companies, and helped them establish their
         Corporate Identity Strategies
      – The government spent many resources to promote
         demand for good design among consumers
      Now Tokyo is one of the world’s leading innovation
      capitals and “Made in Japan” is linked to high quality
      and superior design



Source: SmithStreet Analysis
                                                                                4
An Increasingly Important Service Sector
As an economy becomes more and more innovation- and creation-oriented, its
service industry becomes increasingly important.


    Service Sector as a Percentage of                                          Service Sector as a Percentage of
         China’s GDP over Time                                                   GDP across Countries, 2007


100%                                                                   100%
 90%                                                                    90%
 80%                                                                    80%
 70%                                                                    70%   68.9%, OECD Average

 60%                                                                    60%
 50%                                                                    50%
 40%                                                                    40%
 30%                                                                    30%
 20%                                                                    20%
 10%                                                                    10%
  0%                                                                     0%
             1982        1987         1992        1997   2002   2007          China      Korea      Germany   Japan   UK   US




Source: National Bureau of Statistics of China; OECD
                                                                                                                                5
Table of Contents


   1.   What “Created in China” Means

   2. Why China Must Create

   3.   Enablers of Chinese Creation

   4.   Challenges to Chinese Creation

   5.   Implications of “Created in China”




                                             6
The Maturing Chinese Manufacturing Industry
Since China’s opening-up, its manufacturing industry has made great
achievements and is now at the point to usher in a new era of innovation.


                                              For the past 30 years, the CAGR of China’s trade volume was higher than the CAGR of
      Player in Global
                                              China’s GDP (17.4% vs. 15.6%). Now, China is the third largest trading nation and the
           Trade                              world’s second largest exporter.




        The World’s                           China has become an indispensable part of the international division of labor, with
                                              manufactured goods making up 94.6% of China's total exports in 2008 compared with
       Manufacturing                          the 1980’s 49.7%. China is a major global supplier of manufactured goods, and is no
           Base                               longer a pure exporter of resources and primary products.




      Strong Domestic                         China’s has a huge domestic market, superior infrastructure, and the world’s largest
       Resource Base                          talent pool to match its titanic manufacturing capability.




Source: National Bureau of Statistics of China; Ministry of Commerce of China; WTO
                                                                                                                                      7
The Currency Factor
With the trade surplus China has accumulated, the Renminbi is bound to
appreciate, which in turn creates an environment allowing China to upgrade its
manufacturing sector.
                        “The China Price“ in USD   Technology Price in RMB




Source: SmithStreet Analysis
                                                                                 8
Trading Prices Down
The global financial crisis drives down the price of undifferentiated goods and
erodes the margins of low-end producers.




Source: SmithStreet Analysis
                                                                                  9
Rising Labor Costs
The new labor law introduced in China last year enhances rights for Chinese
workers and requires higher product prices to cover the raised production costs.




Source: Ministry of Labor and Social Security of China
                                                                                   10
Environmental Concerns
China’s traditional low-end manufacturing has been developed at the cost of the
deterioration of the environment, and is unsustainable given the sheer size of the
country’s capacity.




Source: SmithStreet Analysis
                                                                                     11
Table of Contents


   1.   What “Created in China” Means

   2.   Why China Must Create

   3. Enablers of Chinese Creation

   4.   Challenges to Chinese Creation

   5.   Implications of “Created in China”




                                             12
Government Support
The Chinese government has taken the upgrading of the country’s industries
seriously and industrial technological advancement has been a repeated focus of
recent government guidelines.


             “Optimizing and upgrading industrial structure” is one of the major goals in China’s
             Five-Year Plan for the 2006 – 2010 period, ratified by National People’s Congress in 2006
             The Guideline for the National Medium- and Long-Term Science and Technology
             Development Plan (2006-2020) issued later by the State Council echoes the principles of
             the Five-Year Plan




Source: Gov.cn
                                                                                                         13
China Is Building its Financial Infrastructure
China is steadily building up the soundness of its financial system, against the
background of an upgrading manufacturing sector.


                                                                                             In December of 2008, the
                                                                                             China Banking Regulatory
                                                                                             Commission (CBRC) issued a
                                                                                             guideline allowing Chinese
                                                                         Encouraging Yuan-   banks to grant loans to
                                                                         Dominated Funds     enterprises, not excluding
                                                                                             foreign holding companies or
                                                                                             Private Equity, to acquire the
   The Red Chip Model used to                                                                equity and assets of a target
   provide an exit strategy for                                                              firm
   dollar dominated funds’                               Pushing Away Dollar-
   China investments                                      Denominated Funds                  Primarily triggered by this
                                                                                             new guideline, we have seen a
   The Chinese government’s                                                                  recent hustle of foreign PE
   2006 M&A regulations                                                                      firms trying to set up Yuan-
   effectively froze approvals                                                               denominated funds in China
   for overseas listings and
   hampered the exit of foreign
   venture investors




Source: Ministry of Commerce of China; China Banking Regulatory Commission
                                                                                                                              14
Relatively Cheaper US Assets
US assets are relatively cheaper due to falling US equity and the rising value of
the RMB.

                       Falling US Equity                                                                                                 Appreciating RMB

                                                                                                 RMB/USD
                                                                                               Exchange Rate
                                                                                               0.150


                                                                                               0.145


                                                                                               0.140


                                                                                               0.135


                                                                                               0.130


                                                                                               0.125


                                                                                               0.120




                                                                                                       7/1/2005
                                                                                                                  10/1/2005
                                                                                                                              1/1/2006
                                                                                                                                         4/1/2006
                                                                                                                                                    7/1/2006
                                                                                                                                                               10/1/2006
                                                                                                                                                                           1/1/2007
                                                                                                                                                                                      4/1/2007
                                                                                                                                                                                                 7/1/2007
                                                                                                                                                                                                            10/1/2007
                                                                                                                                                                                                                        1/1/2008
                                                                                                                                                                                                                                   4/1/2008
                                                                                                                                                                                                                                              7/1/2008
                                                                                                                                                                                                                                                         10/1/2008
                                                                                                        The Chinese Yuan has appreciated
                                                                                                        The Chinese Yuan has appreciated
     Both the S&P500 and Dow Jones have
     Both the S&P500 and Dow Jones have                                                                20.9% since the RMB was unpegged
                                                                                                       20.9% since the RMB was unpegged
       fallen over 25% in the past year.
        fallen over 25% in the past year.                                                                 from the USD in July of 2005.*
                                                                                                          from the USD in July of 2005.*

*Note: Calculated based on the change from the original pegged price of 0.121 RMB/USD to 0.1463 RMB/USD on 12/17/09.
Source: Bloomberg; Oanda.com
                                                                                                                                                                                                                                                                     15
China’s Cash Holdings
China’s foreign exchange reserve has been growing rapidly in recent years.



China’s Foreign Exchange Reserves
USD Bn




 2,000
 1,800
 1,600
                                                                              %
 1,400                                                                  = 29.7
                                                                  C AGR
 1,200
 1,000
   800
   600
   400
   200
      0
               1998           1999           2000   2001   2002       2003        2004   2005   2006   2007   2008




Source: State Administration of Foreign Exchange
                                                                                                                     16
Inbound M&A Moving Toward Value-added Industries
Foreign investments in higher value-added industries are growing faster than
investments in traditional enterprises.

               China Inbound M&A 2004                                          China Inbound M&A 2007

                                                    Social
                                                Services, 3%
    Real Estate,
          5%
                                                                                                 Social
                                                                                            Services, 12%



                                                                                  Real Estate,
                   Finance &
                                                                  Finance &          14%
                   Insurance,
                                                                  Insurance,
                      28%
                                                                     1%
                                                                                                            Manufacturing, 50%
                                             Manufacturing, 64%

                                                                                  IT, 11%
 IT, 0%                                                              Retail, 2%
                                                                                             Transport &
Retail, 0%                                                                                    Logistics,
                                                                                                  10%
          Transport &
          Logistics, 0%


                             Total = RMB 4.67 billion                                 Total = RMB 10.47 billion


Source: China Mergers & Acquisitions Yearbook 2005, 2008
                                                                                                                                 17
Table of Contents


   1.   What “Created in China” Means

   2.   Why China Must Create

   3.   Enablers of Chinese Creation

   4. Challenges to Chinese Creation

   5.   Implications of “Created in China”




                                             18
Intellectual Property Protection
To boost innovation, China has to enhance its anonymous intellectual property
protection.




Source: SmithStreet Analysis
                                                                                19
Education System
China’s education system focuses more on memorization than on innovation ,
which can be a drawback in creating an innovative environment.




Source: SmithStreet Analysis
                                                                             20
Distorted Financing Channels
In spite of the high amount of bad assets in China’s banking system, Small- and
Medium-sized Enterprises (SMEs), the major driver of innovation and creation in
China, find it very difficult to get loans from banks.




Source: SmithStreet Analysis
                                                                                  21
Quality Control
China’s reputation for poor quality products and the compete-on-price mindset of
Chinese manufacturers could stand in the way of China’s moving up towards
creation and innovation.




                                           Recent product and food safety
                                           Recent product and food safety
                                            scandals have only worsened
                                            scandals have only worsened
                                             China’s reputation for poor
                                             China’s reputation for poor
                                                   quality goods
                                                    quality goods




Source: SmithStreet Analysis; Amazon.com
                                                                                   22
Branding
Chinese companies traditionally focus on increasing sales and market share, and
have been reluctant to make long-term investments in intangible areas such as
brand building.




                           While the value of luxury brands is well understood, the
                           While the value of luxury brands is well understood, the
                           mentality that a brand is only a ‘name-on-a-box’ is still
                            mentality that a brand is only a ‘name-on-a-box’ is still
                                       common among manufacturers
                                        common among manufacturers


Source: SmithStreet Analysis and Primary Research
                                                                                        23
Table of Contents


   1.   What “Created in China” Means

   2.   Why China Must Create

   3.   Enablers of Chinese Creation

   4.   Challenges to Chinese Creation

   5. Implications of “Created in China”




                                           24
Increased Outbound M&A
In 2008, China’s overseas investment doubled to $52.2 billion, a figure that has
already been surpassed this year due in large part to surging outbound M&A.


Outbound M&A Deal Value
USD Bn

60


50

                                                                        %
                                                                  = 97.3
40                                                           CAGR

30


20


10


 0
               2003                      2004         2005            2006     2007             2008



                        Outbound M&A will increase as Chinese manufacturing continues to move
                        Outbound M&A will increase as Chinese manufacturing continues to move
                            up the value chain and weans itself from price-based competition.
                            up the value chain and weans itself from price-based competition.


Source: China Ministry of Commerce; Thomson Reuters
                                                                                                       25
An Emerging Group of Chinese Brands
With Chinese manufacturers’ awareness of branding aroused and more attention
being paid to product design and innovation, we expect a group of Chinese
brands to achieve global recognition in the next 10 years.

                                                                                             More Chinese brands, other
                                  The rise of Japanese
                                                                                             than Lenovo and Haier, will
                                  brands started in
                                                                                             enter global customers’
                                  the 1970s.
                                                                                             horizons in the years to come.


      1950       1955      1960   1965   1970   1975   1980    1985   1990   1995   2000   2005   2010   2015   2020   2025




                                                              A group of Korean
                                                              brands began to take
                                                              off in the late 1990s.



 Leading Chinese Brands




Source: SmithStreet Analysis
                                                                                                                              26
The Renminbi as a Global Reserve Currency
As China’s manufacturing moves up the value chain and Chinese producers are no
longer competing on a cost basis, the Renminbi’s lack of free convertibility, a major
impediment to becoming a global reserve currency, will gradually disappear.




Source: SmithStreet Analysis
                                                                                    27
Innovation in the Last 150 Years




                                   28
What Will a Chinese Future Look Like?




                                        29
Contact Information


  Franklin Yao                                                      Shanghai Office
  Franklin Yao
  Chief Executive Officer                              20 Jinchuang Road, 10th Floor
  Chief Executive Officer
                                                            Yangpu, Shanghai 200433
  US Mobile:      +1 (917) 775 2611                               +86 (21) 6565 6533
  US Mobile:       +1 (917) 775 2611
  China Mobile: +86 134 8266 7778
  China Mobile: +86 134 8266 7778
  Email: franklin.yao@smithstreetsolutions.com
  Email: franklin.yao@smithstreetsolutions.com




  Cynthia Zhang
  Cynthia Zhang
  Marketing Manager
  Marketing Manager                                                New York Office
                                                        521 Fifth Avenue, 17th Floor
  China Mobile: +86 137 7424 8340
  China Mobile: +86 137 7424 8340                               New York, NY 10175
  Email: cynthia.zhang@smithstreetsolutions.com
  Email: cynthia.zhang@smithstreetsolutions.com                     +1 (212) 292 4420




                                       www.smithstreetsolutions.com
                                       www.smithstreetsolutions.com


                                                                                        30

Contenu connexe

Similaire à Created in China

India vs China: Trade is an Engine of Growth
India vs China: Trade is an Engine of GrowthIndia vs China: Trade is an Engine of Growth
India vs China: Trade is an Engine of GrowthAritra Ganguly
 
Trends of Chinese Outbound M&A by Seta Capital
Trends of Chinese Outbound M&A by Seta CapitalTrends of Chinese Outbound M&A by Seta Capital
Trends of Chinese Outbound M&A by Seta CapitalTanya Wen
 
Seeing the Forest and the Trees
Seeing the Forest and the TreesSeeing the Forest and the Trees
Seeing the Forest and the TreesRWVentures
 
How to benefit from Taiwan's 6 National Emerging Technology Development Initi...
How to benefit from Taiwan's 6 National Emerging Technology Development Initi...How to benefit from Taiwan's 6 National Emerging Technology Development Initi...
How to benefit from Taiwan's 6 National Emerging Technology Development Initi...Taiwan Professional Group
 
The America21 Project: Connecting Urban America to the 21st Century Innovati...
 The America21 Project: Connecting Urban America to the 21st Century Innovati... The America21 Project: Connecting Urban America to the 21st Century Innovati...
The America21 Project: Connecting Urban America to the 21st Century Innovati...ScaleUp Partners LLC
 
IVAN VERA - VALUE BUILDERS - WPTC - 08.03.16
IVAN VERA - VALUE BUILDERS - WPTC - 08.03.16IVAN VERA - VALUE BUILDERS - WPTC - 08.03.16
IVAN VERA - VALUE BUILDERS - WPTC - 08.03.16Ivan Vera
 
Next generation Manufacturing - winning through technology and innovation
Next generation Manufacturing - winning through technology and innovationNext generation Manufacturing - winning through technology and innovation
Next generation Manufacturing - winning through technology and innovationFelipe Sotelo A.
 
BCG-CII-Report-Next-Gen-Mfg-Nov-2016.pptx
BCG-CII-Report-Next-Gen-Mfg-Nov-2016.pptxBCG-CII-Report-Next-Gen-Mfg-Nov-2016.pptx
BCG-CII-Report-Next-Gen-Mfg-Nov-2016.pptxvahvah
 
Winning 30 trillion_decathlon_full
Winning 30 trillion_decathlon_fullWinning 30 trillion_decathlon_full
Winning 30 trillion_decathlon_fullPiyanush Mod
 
The Foundation of KBE
The Foundation of KBEThe Foundation of KBE
The Foundation of KBE5045033
 
Winning Through Frugal I4.0 Innovation - Way Forward for Indian Manufacturing
Winning Through Frugal I4.0 Innovation - Way Forward for Indian ManufacturingWinning Through Frugal I4.0 Innovation - Way Forward for Indian Manufacturing
Winning Through Frugal I4.0 Innovation - Way Forward for Indian ManufacturingConfederation of Indian Industry
 
Standing up to Asian Competition - JHKCBA Montreal
Standing up to Asian Competition - JHKCBA MontrealStanding up to Asian Competition - JHKCBA Montreal
Standing up to Asian Competition - JHKCBA MontrealJHKCBA Montreal
 
Indian Economy & Globalisation
Indian Economy & GlobalisationIndian Economy & Globalisation
Indian Economy & GlobalisationJamila Bano
 

Similaire à Created in China (20)

India vs China: Trade is an Engine of Growth
India vs China: Trade is an Engine of GrowthIndia vs China: Trade is an Engine of Growth
India vs China: Trade is an Engine of Growth
 
Innovation Summit 2016
Innovation Summit 2016Innovation Summit 2016
Innovation Summit 2016
 
Trends of Chinese Outbound M&A by Seta Capital
Trends of Chinese Outbound M&A by Seta CapitalTrends of Chinese Outbound M&A by Seta Capital
Trends of Chinese Outbound M&A by Seta Capital
 
The China Analyst - May 2010
The China Analyst - May 2010The China Analyst - May 2010
The China Analyst - May 2010
 
Seeing the Forest and the Trees
Seeing the Forest and the TreesSeeing the Forest and the Trees
Seeing the Forest and the Trees
 
How to benefit from Taiwan's 6 National Emerging Technology Development Initi...
How to benefit from Taiwan's 6 National Emerging Technology Development Initi...How to benefit from Taiwan's 6 National Emerging Technology Development Initi...
How to benefit from Taiwan's 6 National Emerging Technology Development Initi...
 
The America21 Project: Connecting Urban America to the 21st Century Innovati...
 The America21 Project: Connecting Urban America to the 21st Century Innovati... The America21 Project: Connecting Urban America to the 21st Century Innovati...
The America21 Project: Connecting Urban America to the 21st Century Innovati...
 
IVAN VERA - VALUE BUILDERS - WPTC - 08.03.16
IVAN VERA - VALUE BUILDERS - WPTC - 08.03.16IVAN VERA - VALUE BUILDERS - WPTC - 08.03.16
IVAN VERA - VALUE BUILDERS - WPTC - 08.03.16
 
Presentation.pdf
Presentation.pdfPresentation.pdf
Presentation.pdf
 
Next generation Manufacturing - winning through technology and innovation
Next generation Manufacturing - winning through technology and innovationNext generation Manufacturing - winning through technology and innovation
Next generation Manufacturing - winning through technology and innovation
 
BCG-CII-Report-Next-Gen-Mfg-Nov-2016.pptx
BCG-CII-Report-Next-Gen-Mfg-Nov-2016.pptxBCG-CII-Report-Next-Gen-Mfg-Nov-2016.pptx
BCG-CII-Report-Next-Gen-Mfg-Nov-2016.pptx
 
Leveraging the dragon iii
Leveraging the dragon iiiLeveraging the dragon iii
Leveraging the dragon iii
 
IndEcoSocial Framework
IndEcoSocial FrameworkIndEcoSocial Framework
IndEcoSocial Framework
 
Winning 30 trillion_decathlon_full
Winning 30 trillion_decathlon_fullWinning 30 trillion_decathlon_full
Winning 30 trillion_decathlon_full
 
Leadership in business
Leadership in businessLeadership in business
Leadership in business
 
The Foundation of KBE
The Foundation of KBEThe Foundation of KBE
The Foundation of KBE
 
Winning Through Frugal I4.0 Innovation - Way Forward for Indian Manufacturing
Winning Through Frugal I4.0 Innovation - Way Forward for Indian ManufacturingWinning Through Frugal I4.0 Innovation - Way Forward for Indian Manufacturing
Winning Through Frugal I4.0 Innovation - Way Forward for Indian Manufacturing
 
Standing up to Asian Competition - JHKCBA Montreal
Standing up to Asian Competition - JHKCBA MontrealStanding up to Asian Competition - JHKCBA Montreal
Standing up to Asian Competition - JHKCBA Montreal
 
Indian Economy & Globalisation
Indian Economy & GlobalisationIndian Economy & Globalisation
Indian Economy & Globalisation
 
China irg
China irgChina irg
China irg
 

Dernier

Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..dlewis191
 
Anyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyAnyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyHanna Klim
 
7movierulz.uk
7movierulz.uk7movierulz.uk
7movierulz.ukaroemirsr
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access
 
Upgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking ApplicationsUpgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking ApplicationsIntellect Design Arena Ltd
 
Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)
Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)
Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)tazeenaila12
 
Amazon ppt.pptx Amazon about the company
Amazon ppt.pptx Amazon about the companyAmazon ppt.pptx Amazon about the company
Amazon ppt.pptx Amazon about the companyfashionfound007
 
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...Brian Solis
 
Project Brief & Information Architecture Report
Project Brief & Information Architecture ReportProject Brief & Information Architecture Report
Project Brief & Information Architecture Reportamberjiles31
 
Personal Brand Exploration Presentation Eric Bonilla
Personal Brand Exploration Presentation Eric BonillaPersonal Brand Exploration Presentation Eric Bonilla
Personal Brand Exploration Presentation Eric BonillaEricBonilla13
 
Chapter_Five_The_Rural_Development_Policies_and_Strategy_of_Ethiopia.pptx
Chapter_Five_The_Rural_Development_Policies_and_Strategy_of_Ethiopia.pptxChapter_Five_The_Rural_Development_Policies_and_Strategy_of_Ethiopia.pptx
Chapter_Five_The_Rural_Development_Policies_and_Strategy_of_Ethiopia.pptxesiyasmengesha
 
Entrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsEntrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsP&CO
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access
 
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHelene Heckrotte
 
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISINGUNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISINGlokeshwarmaha
 
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfGraham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfAnhNguyen97152
 
Introduction to The overview of GAAP LO 1-5.pptx
Introduction to The overview of GAAP LO 1-5.pptxIntroduction to The overview of GAAP LO 1-5.pptx
Introduction to The overview of GAAP LO 1-5.pptxJemalSeid25
 
Data skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story pointsData skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story pointsyasinnathani
 
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfTalent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfCharles Cotter, PhD
 

Dernier (20)

Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..
 
Anyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyAnyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agency
 
7movierulz.uk
7movierulz.uk7movierulz.uk
7movierulz.uk
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024
 
Upgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking ApplicationsUpgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking Applications
 
Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)
Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)
Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)
 
Amazon ppt.pptx Amazon about the company
Amazon ppt.pptx Amazon about the companyAmazon ppt.pptx Amazon about the company
Amazon ppt.pptx Amazon about the company
 
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
 
Project Brief & Information Architecture Report
Project Brief & Information Architecture ReportProject Brief & Information Architecture Report
Project Brief & Information Architecture Report
 
Personal Brand Exploration Presentation Eric Bonilla
Personal Brand Exploration Presentation Eric BonillaPersonal Brand Exploration Presentation Eric Bonilla
Personal Brand Exploration Presentation Eric Bonilla
 
Chapter_Five_The_Rural_Development_Policies_and_Strategy_of_Ethiopia.pptx
Chapter_Five_The_Rural_Development_Policies_and_Strategy_of_Ethiopia.pptxChapter_Five_The_Rural_Development_Policies_and_Strategy_of_Ethiopia.pptx
Chapter_Five_The_Rural_Development_Policies_and_Strategy_of_Ethiopia.pptx
 
Entrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsEntrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizations
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024
 
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
 
WAM Corporate Presentation Mar 25 2024.pdf
WAM Corporate Presentation Mar 25 2024.pdfWAM Corporate Presentation Mar 25 2024.pdf
WAM Corporate Presentation Mar 25 2024.pdf
 
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISINGUNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
 
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfGraham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
 
Introduction to The overview of GAAP LO 1-5.pptx
Introduction to The overview of GAAP LO 1-5.pptxIntroduction to The overview of GAAP LO 1-5.pptx
Introduction to The overview of GAAP LO 1-5.pptx
 
Data skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story pointsData skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story points
 
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfTalent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
 

Created in China

  • 1. Upgrading the Chinese Economy The Historic Transition from “Made in China” to ”Created in China” June 23, 2010 Copyright 2010 SmithStreetSolutions. All rights reserved. 0
  • 2. Table of Contents 1. What “Created in China” Means 2. Why China Must Create 3. Enablers of Chinese Creation 4. Challenges to Chinese Creation 5. Implications of “Created in China” 1
  • 3. Quotes from Beijing’s 2005 China Economic Summit I think now it’s time for Chinese companies to build their own brands. I think now it’s time for Chinese companies to build their own brands. The Chinese government should push healthy developments of the The Chinese government should push healthy developments of the economy. economy. Robert A. Mundell, winner of the 1999 Noble Prize in Economics Robert A. Mundell, winner of the 1999 Noble Prize in Economics Unique and creative designs will give China’s manufacturing a major Unique and creative designs will give China’s manufacturing a major boost and higher technological maturity will make Chinese products boost and higher technological maturity will make Chinese products more competitive. more competitive. Sir James Alexander Mirrlees, winner of the 1996 Noble Prize in Economics Sir James Alexander Mirrlees, winner of the 1996 Noble Prize in Economics Japanese products completed the transition from manufacturing to Japanese products completed the transition from manufacturing to creation in over 10 years, setting a good example for Chinese companies. creation in over 10 years, setting a good example for Chinese companies. This transition is necessary for the development of China’s This transition is necessary for the development of China’s manufacturing. manufacturing. John Forbes Nash, winner of the 1994 Noble Prize in Economics John Forbes Nash, winner of the 1994 Noble Prize in Economics 2
  • 4. What Makes Creation Four basic elements are necessary for “creation” in the industrial sense to happen. The difference between Manufacturing an iPod and Creating an iPod I. Sound Market Strategy II. Smart Product Design III. Successful Technology IV. Shrewd Branding Source: SmithStreet Analysis 3
  • 5. Moving up the Value Chain As a country’s economy transitions from basic manufacturing to innovation and creation, it will see its industries moving up the value chain. Case Study: The Rise of “Made in Japan” In the 1970s, the image of Japanese brands in the international market was defined by cheap price and low cost To move up the value chain, the Japanese government did two things: – The government stepped in to increase corporate identity awareness among large Japanese companies, and helped them establish their Corporate Identity Strategies – The government spent many resources to promote demand for good design among consumers Now Tokyo is one of the world’s leading innovation capitals and “Made in Japan” is linked to high quality and superior design Source: SmithStreet Analysis 4
  • 6. An Increasingly Important Service Sector As an economy becomes more and more innovation- and creation-oriented, its service industry becomes increasingly important. Service Sector as a Percentage of Service Sector as a Percentage of China’s GDP over Time GDP across Countries, 2007 100% 100% 90% 90% 80% 80% 70% 70% 68.9%, OECD Average 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 1982 1987 1992 1997 2002 2007 China Korea Germany Japan UK US Source: National Bureau of Statistics of China; OECD 5
  • 7. Table of Contents 1. What “Created in China” Means 2. Why China Must Create 3. Enablers of Chinese Creation 4. Challenges to Chinese Creation 5. Implications of “Created in China” 6
  • 8. The Maturing Chinese Manufacturing Industry Since China’s opening-up, its manufacturing industry has made great achievements and is now at the point to usher in a new era of innovation. For the past 30 years, the CAGR of China’s trade volume was higher than the CAGR of Player in Global China’s GDP (17.4% vs. 15.6%). Now, China is the third largest trading nation and the Trade world’s second largest exporter. The World’s China has become an indispensable part of the international division of labor, with manufactured goods making up 94.6% of China's total exports in 2008 compared with Manufacturing the 1980’s 49.7%. China is a major global supplier of manufactured goods, and is no Base longer a pure exporter of resources and primary products. Strong Domestic China’s has a huge domestic market, superior infrastructure, and the world’s largest Resource Base talent pool to match its titanic manufacturing capability. Source: National Bureau of Statistics of China; Ministry of Commerce of China; WTO 7
  • 9. The Currency Factor With the trade surplus China has accumulated, the Renminbi is bound to appreciate, which in turn creates an environment allowing China to upgrade its manufacturing sector. “The China Price“ in USD Technology Price in RMB Source: SmithStreet Analysis 8
  • 10. Trading Prices Down The global financial crisis drives down the price of undifferentiated goods and erodes the margins of low-end producers. Source: SmithStreet Analysis 9
  • 11. Rising Labor Costs The new labor law introduced in China last year enhances rights for Chinese workers and requires higher product prices to cover the raised production costs. Source: Ministry of Labor and Social Security of China 10
  • 12. Environmental Concerns China’s traditional low-end manufacturing has been developed at the cost of the deterioration of the environment, and is unsustainable given the sheer size of the country’s capacity. Source: SmithStreet Analysis 11
  • 13. Table of Contents 1. What “Created in China” Means 2. Why China Must Create 3. Enablers of Chinese Creation 4. Challenges to Chinese Creation 5. Implications of “Created in China” 12
  • 14. Government Support The Chinese government has taken the upgrading of the country’s industries seriously and industrial technological advancement has been a repeated focus of recent government guidelines. “Optimizing and upgrading industrial structure” is one of the major goals in China’s Five-Year Plan for the 2006 – 2010 period, ratified by National People’s Congress in 2006 The Guideline for the National Medium- and Long-Term Science and Technology Development Plan (2006-2020) issued later by the State Council echoes the principles of the Five-Year Plan Source: Gov.cn 13
  • 15. China Is Building its Financial Infrastructure China is steadily building up the soundness of its financial system, against the background of an upgrading manufacturing sector. In December of 2008, the China Banking Regulatory Commission (CBRC) issued a guideline allowing Chinese Encouraging Yuan- banks to grant loans to Dominated Funds enterprises, not excluding foreign holding companies or Private Equity, to acquire the The Red Chip Model used to equity and assets of a target provide an exit strategy for firm dollar dominated funds’ Pushing Away Dollar- China investments Denominated Funds Primarily triggered by this new guideline, we have seen a The Chinese government’s recent hustle of foreign PE 2006 M&A regulations firms trying to set up Yuan- effectively froze approvals denominated funds in China for overseas listings and hampered the exit of foreign venture investors Source: Ministry of Commerce of China; China Banking Regulatory Commission 14
  • 16. Relatively Cheaper US Assets US assets are relatively cheaper due to falling US equity and the rising value of the RMB. Falling US Equity Appreciating RMB RMB/USD Exchange Rate 0.150 0.145 0.140 0.135 0.130 0.125 0.120 7/1/2005 10/1/2005 1/1/2006 4/1/2006 7/1/2006 10/1/2006 1/1/2007 4/1/2007 7/1/2007 10/1/2007 1/1/2008 4/1/2008 7/1/2008 10/1/2008 The Chinese Yuan has appreciated The Chinese Yuan has appreciated Both the S&P500 and Dow Jones have Both the S&P500 and Dow Jones have 20.9% since the RMB was unpegged 20.9% since the RMB was unpegged fallen over 25% in the past year. fallen over 25% in the past year. from the USD in July of 2005.* from the USD in July of 2005.* *Note: Calculated based on the change from the original pegged price of 0.121 RMB/USD to 0.1463 RMB/USD on 12/17/09. Source: Bloomberg; Oanda.com 15
  • 17. China’s Cash Holdings China’s foreign exchange reserve has been growing rapidly in recent years. China’s Foreign Exchange Reserves USD Bn 2,000 1,800 1,600 % 1,400 = 29.7 C AGR 1,200 1,000 800 600 400 200 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: State Administration of Foreign Exchange 16
  • 18. Inbound M&A Moving Toward Value-added Industries Foreign investments in higher value-added industries are growing faster than investments in traditional enterprises. China Inbound M&A 2004 China Inbound M&A 2007 Social Services, 3% Real Estate, 5% Social Services, 12% Real Estate, Finance & Finance & 14% Insurance, Insurance, 28% 1% Manufacturing, 50% Manufacturing, 64% IT, 11% IT, 0% Retail, 2% Transport & Retail, 0% Logistics, 10% Transport & Logistics, 0% Total = RMB 4.67 billion Total = RMB 10.47 billion Source: China Mergers & Acquisitions Yearbook 2005, 2008 17
  • 19. Table of Contents 1. What “Created in China” Means 2. Why China Must Create 3. Enablers of Chinese Creation 4. Challenges to Chinese Creation 5. Implications of “Created in China” 18
  • 20. Intellectual Property Protection To boost innovation, China has to enhance its anonymous intellectual property protection. Source: SmithStreet Analysis 19
  • 21. Education System China’s education system focuses more on memorization than on innovation , which can be a drawback in creating an innovative environment. Source: SmithStreet Analysis 20
  • 22. Distorted Financing Channels In spite of the high amount of bad assets in China’s banking system, Small- and Medium-sized Enterprises (SMEs), the major driver of innovation and creation in China, find it very difficult to get loans from banks. Source: SmithStreet Analysis 21
  • 23. Quality Control China’s reputation for poor quality products and the compete-on-price mindset of Chinese manufacturers could stand in the way of China’s moving up towards creation and innovation. Recent product and food safety Recent product and food safety scandals have only worsened scandals have only worsened China’s reputation for poor China’s reputation for poor quality goods quality goods Source: SmithStreet Analysis; Amazon.com 22
  • 24. Branding Chinese companies traditionally focus on increasing sales and market share, and have been reluctant to make long-term investments in intangible areas such as brand building. While the value of luxury brands is well understood, the While the value of luxury brands is well understood, the mentality that a brand is only a ‘name-on-a-box’ is still mentality that a brand is only a ‘name-on-a-box’ is still common among manufacturers common among manufacturers Source: SmithStreet Analysis and Primary Research 23
  • 25. Table of Contents 1. What “Created in China” Means 2. Why China Must Create 3. Enablers of Chinese Creation 4. Challenges to Chinese Creation 5. Implications of “Created in China” 24
  • 26. Increased Outbound M&A In 2008, China’s overseas investment doubled to $52.2 billion, a figure that has already been surpassed this year due in large part to surging outbound M&A. Outbound M&A Deal Value USD Bn 60 50 % = 97.3 40 CAGR 30 20 10 0 2003 2004 2005 2006 2007 2008 Outbound M&A will increase as Chinese manufacturing continues to move Outbound M&A will increase as Chinese manufacturing continues to move up the value chain and weans itself from price-based competition. up the value chain and weans itself from price-based competition. Source: China Ministry of Commerce; Thomson Reuters 25
  • 27. An Emerging Group of Chinese Brands With Chinese manufacturers’ awareness of branding aroused and more attention being paid to product design and innovation, we expect a group of Chinese brands to achieve global recognition in the next 10 years. More Chinese brands, other The rise of Japanese than Lenovo and Haier, will brands started in enter global customers’ the 1970s. horizons in the years to come. 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 A group of Korean brands began to take off in the late 1990s. Leading Chinese Brands Source: SmithStreet Analysis 26
  • 28. The Renminbi as a Global Reserve Currency As China’s manufacturing moves up the value chain and Chinese producers are no longer competing on a cost basis, the Renminbi’s lack of free convertibility, a major impediment to becoming a global reserve currency, will gradually disappear. Source: SmithStreet Analysis 27
  • 29. Innovation in the Last 150 Years 28
  • 30. What Will a Chinese Future Look Like? 29
  • 31. Contact Information Franklin Yao Shanghai Office Franklin Yao Chief Executive Officer 20 Jinchuang Road, 10th Floor Chief Executive Officer Yangpu, Shanghai 200433 US Mobile: +1 (917) 775 2611 +86 (21) 6565 6533 US Mobile: +1 (917) 775 2611 China Mobile: +86 134 8266 7778 China Mobile: +86 134 8266 7778 Email: franklin.yao@smithstreetsolutions.com Email: franklin.yao@smithstreetsolutions.com Cynthia Zhang Cynthia Zhang Marketing Manager Marketing Manager New York Office 521 Fifth Avenue, 17th Floor China Mobile: +86 137 7424 8340 China Mobile: +86 137 7424 8340 New York, NY 10175 Email: cynthia.zhang@smithstreetsolutions.com Email: cynthia.zhang@smithstreetsolutions.com +1 (212) 292 4420 www.smithstreetsolutions.com www.smithstreetsolutions.com 30