Pacific Perspective
Pacific Perspective
Is China approaching
the tipping point?The tipping point is a physical phenomenon that we all have experienced. As the roller-coaster transitions from a slow clicking pull up the tracks to the steep plummet down, there is that exhilarating lift, stomach-in-your-throat feeling that leaves the passengers screaming and gasping for breadth all the way down.
This dramatic change creates a thrill that most youngsters and a few adults fine irresistible.
The beefy workers at Island Movers understand the tipping point in terms of weight and leverage as they deftly jockey their hand trucks under refrigerators and the like, carting them away with uncommon ease.
The central character of the tipping point is rapid change -- slow to fast, high to low, heavy to light.
Tipping points also occur in social interactions. The epidemic spread of a disease appears to have a tipping point where it rages, seemingly out of control, until corrective social behavior and medical science can push back.
The tipping point can also be observed in a country's economic development. It is the point where the constellation of government policy and regulation, technology, and the spirit of entrepreneurship converge in ways that propel the economy toward a period of rapid economic growth.
For a complete discussion see "The Tipping Point: How Little Things Can Make a Big Difference," by Malcolm Gladwell.
There are indications that China is on the verge of a tipping point that will create a sea-change in global markets. For example, just last year China began to loosen its grip on the cable TV market.
A change that makes Hawaii's own entrepreneur, Steve Case, and his colleagues at AOL Time Warner move with strategic focus on the China market.
Already the Chinese government has permitted News Corp. and AOL Time Warner to distribute to a Chinese language channel in the Guangdong cable market. Premium cable TV is on its way to the China market. China's famously out-of-date state-owned broadcasters are modernizing their approach to cable TV. Foreign media companies hope to be the program suppliers for the premium cable market.
Along with telecommunications modernization will come dramatic advances in consumer advertising, which is a requisite component for a mass consumption society.
Recently, I traveled to Nanjing, China, to attend a conference on multinational management, and was impressed by China's modern transportation systems. Landing in Shanghai's new airport, I paid $2.50 for a modern air-conditioned bus ride into central Shanghai. I missed the last train to Nanjing so I employed my MBA negotiating skills and hired a car and driver for the three-hour trip to Nanjing ($110).
Downtown Shanghai with its towering skyscrapers felt like Manhattan. The ribbons of concrete expressway unfolded from the bustle of the city into the June day full of lush green farm country.
I could have been in Indiana, except for the fields of rice rather than wheat. Nanjing with its tree lined streets, numerous new buildings and transport systems is modern in every way.
Automobile manufacturing is a leading industry associated with economic modernization. Famous for peddling bicycles as a primary means of mobility, the Chinese domestic market is signaling a period of rapid change in personal transportation.
According to a Toyota Company report, motor vehicle sales in China increased 159 percent from 1991 to 2000. Passenger cars comprised 30 percent of the vehicle market as compared to the United States, where passenger cars were 49 percent of vehicle sales in 2000. China is the 11th largest automobile market in the world behind Canada and ahead of India, Netherlands, Mexico and Australia.
As reported in the Asia edition of Business Week (June 17), for the year 2002 passenger car sales in China will approach 1 million units and are forecasted to grow 15 percent annually over the next several years, reaching 2.5 million units by 2010.
Many of these passenger cars have foreign manufacturers' names like Toyota Charade, Buick Sail and VW Jetta. Geely Motors, a privately owned Chinese company, started manufacturing autos in 1998, selling just 200 units.
This year Geely's sales will reach 60,000 units and $300 million in revenues, commanding a 20 percent share of the economy car market. The VW Jetta is the leading model in China with 12 percent market share and sells for $12,500. However, two local Chinese manufacturers with brand names Chery and Merrie are undercutting the Jetta price by $3,600. These cars appeal to price sensitive Chinese consumers, who are anxious to purchase their first cars and want a good deal.
While economy priced cars are selling briskly in China, the premium car market is also beginning to emerge. Bentley Motor Car vehicles were a popular attraction at the Beijing Auto China 2002 car show. As crowd pleasers, the attractive models were on display with a $2 million price tag.
While the auto show attracted thousands of people who will never own cars, let alone luxury models, there is a small but growing nouveaux riches class in China that is buying.
They are mostly successful entrepreneurs. The British sports car manufacturer Lotus plans to sell five units of its popular Esprits at $203,000 and 50 units of the Elise at $45,000, according to Oh Kah Beng, deputy general manager of Lotus Group Asia.
While import duties for high-performance autos are 50 percent, China's recent entry into the World Trade Organization will put some downward pressure on these tariffs.
The tipping point of China's economy can also be observed at higher levels in the supply chain. General Electric's plastic division's recent relocation of its Asian headquarters from Tokyo to Shanghai is a case-in-point.
As reported in the Wall Street Journal, GE sees its greatest future growth potential in the China market. It is simply a matter of being where your customers are. High-end thermo-plastics are used in automobile parts, cell phones and computers.
Companies such as Ford, Sony and Motorola have a growing number of manufacturing facilities in China. In addition, many privately owned Chinese manufactures are springing up.
GE has validated its commitment to China by establishing one of only two R&D facilities outside the USA.
Growth is always difficult and many challenges need to be overcome. Nonetheless, Hawaii's business strategists must factor in China's tipping point as they plan for the future or risk the loss of China's growth potential.
James R. Wills Jr. is associate dean and professor of marketing at the University of Hawaii at Manoa College of Business Administration. Reach him at Wills@cba.hawaii.edu.