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China: The Reawakened and Innovative Dragon

Strategy MattersTHE GREEKS, Romans, Spaniards, and, of more recent times, Great Britain had seen their worldwide influence and economic prosperity rise and fall with time. What makes a country great? How is this greatness sustained over time? Why do great countries eventually experience decline? While these are difficult and complex questions to answer, it makes one think about the United States, with the post WWII era of economic prosperity a distant memory and the increased influence of global commerce, geopolitics, and emerging technologies. Today’s fast moving economy reminds me of a line from Tale of Two Cities (Charles Dickens): “It was the US-China-partnership-imagebest of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness.” Perhaps a return to the “best of times,” the past 30 years have seen China awaken from its closed society persona to emerge as a world leader in commerce. The reawakened “Dragon” is attempting to coexist with the United States as a dominant player, both as a valued trading partner and competitor.

China is undergoing a massive transformation with impressive economic results underway to carry it well into the 21st century as a global leader. It has opened its economy to global commerce, encouraged foreign companies to set up operations, and invested in a long term vision of greater prosperity and opportunity. Sure, China has its political issues as do most countries, but they appear to be evolving and becoming more tolerant of diverging views than in the past. I have been to Tiananmen Square, observed the social landscape, and studied China’s history. However, this posting is not about politics, but rather how a country can transform itself through a focused strategy, how it can achieve economic progress for hundreds of millions citizens. As did the United States in the 19th and 20th century, a time of enormous growth, China has acted on bold visions and invested in its growing middle class. It is gradually adopting capitalism as a means to create new opportunities. Their central leadership appears to be clearly focused on a national agenda. What China is doing is similar in some respects to what large organizations attempt to do with strategic planning—i.e., organize and align efforts to achieve long-term goals. The results so far in China are impressive as are their national assets:

  • World’s second largest GDP (estimated to overtake the United States by 2020 +/-)
  • World’s largest consumer class (estimated 188M upper-middle-class households by 2022)
  • World’s largest smart-phone market with Internet access (380M devices in total as of 2012)
  • World’s largest working age population (to be overtaken by India by 2030 +/-)

In addition to its abundance of inexpensive labor, China is investing heavily in higher education, innovative technologies, and manufacturing. In fact, they recently put a rover on the moon as evidence of their scientific know-how. Chinese leadership is increasingly investing in innovation as a means to leap frog forward from its traditional past. No longer just an exporter of inexpensive products, China’s burgeoning middle class of consumers is consuming goods and services at a rapid growth rate. A recent article reveals how China’s share of the world’s high-technology manufacturing spiraled from 8 percent in 2003 to 24% in 2012. Their overall investment in R&D programs is growing at 18% per year (Wall Street Journal, “Rise of China’s innovation machine.”). According to the World Bank, during 2009 to 2013 China’s GNP grew at a weighted average annual rate of 8.9%, as compared to the United States’ 1.2% growth rate. Not only is China’s economy on a tear, it owns $1.263 trillion in U.S. securities (April 2014) used to finance programs that exceeded authorized budgets set by the United States government. This is debt owned by China that U.S. taxpayers need to repay with interest.

While critics will use China’s undervalued foreign currency rate as a reason for its success, I argue that there are greater influences at work inside China. This gap in growth may have less to do with China and more to do with the stalled U.S. economy. Looking ahead, The McKinsey Global Institute claims that Internet technology has the “potential to enable China’s economy to grow 1% faster on average each year between now and 2025.” Moreover, this growth should “enable greater Internet-based productivity growth, greater Internet based consumption, and greater innovation.” According to McKinsey, the “net net” of greater innovation through the Internet will generate more economic productivity gains than protecting obsolete jobs. While many repetitive jobs will be lost to technological innovation, the potential for new jobs, more effective allocation of capital, and potential for further incremental demand will more than make up for the loss of unskilled jobs. It is estimated that China will create 46 million new jobs by 2025 through productivity gains and opportunities attributed to technology.

The question remains as to what makes a country great in terms of economic prosperity, and how can this greatness be sustained over time. Whereas this posting is mostly about what China has done to achieve economic progress, the underlying questions are directed at the United States. As a proud U.S. citizen, this author hopes for improved economic prosperity and opportunity. Clearly there will be winners and losers as companies compete for finite market share. I argue and hope for the “best of times” for companies able to act on good ideas that contribute to innovation and delighted customers.

So I ask you, how can the United States re-energize its ability to grow and sustain itself as a dominant economic power in the 21st century? What can be learned from China in its recent ability to align national strategy to goals? How can U.S. government leadership reconcile their vast differences and work toward a common vision? Almost 50 years ago the United States was able to rally from President Kenney’s bold vision of putting a man on the moon in less than a decade when its space program was in its infancy. How can this vast ability be replicated and redirected to achieve new goals? How can U.S. national policy stimulate more economic growth opportunities and shift emphasis to domestic needs (e.g., infrastructure, energy, and education/training) while spending less on military campaigns overseas? It is estimated that nearly $2 trillion of U.S. public money has already been spent on the wars in Iraq and Afghanistan, with significant costs to continue in the future, according to a study out of Harvard University. And finally, how can we coexist effectively with our foreign trading partners, including China, so that smart companies with effective strategy and the means to implement are rewarded with greater market share worldwide?

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Dr. Robert Bornhofen
Dr. Robert Bornhofenhttp://bornhofen.weebly.com/
Dr. Robert Bornhofen is a scholar-practitioner with over 25 years of experience. As a scholar, he currently teaches strategy at Cornell University and the University of Maryland Global Campus. As a practitioner, his corporate career includes a variety of leadership roles at Fortune 500 companies IBM, Delta Air Lines, & Citibank. Dr. Bornhofen earned his Doctorate degree at the University of Maryland, a Master of Science degree from Colorado State University, and a Bachelor of Science degree from the University of Minnesota. As a conference speaker, Dr. Bornhofen presents at various industry forums. His current focus is on innovation within the water utility sector. As a researcher and author, Dr. Bornhofen published over 20 papers on topics related to innovation strategy. Passionate about change, Dr. Bornhofen embraces the creative spirit that goes into problem-solving, where smart people come together to transform great ideas into extraordinary outcomes. His articles reflect this passion and desire for continuous learning.

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2 CONVERSATIONS

  1. You posed a great question: “The question remains as to what makes a country great in terms of economic prosperity, and how can this greatness be sustained over time. ”

    My answer, based upon considerable experience working with American, European, and Chinese firms, is ATTITUDE. It is commonly held the necessity is the mother of invention. I believe this extends to innovation as well. China’s economic back is up against a wall and so they need to think and act differently. Right now they seem to be.
    China is, in every sense, a reawakened dragon. Microeconomically speaking, China is a land of entrepeneurs. The people are friendly and eager to do a great job for you. It remains to be seen whether the political structure there will nurture this “local attitude”.
    In the meantime, the U.S. has a prideful, less-than-eager business attitude especially toward customers and employees. And perhaps the political climate here is partly to blame. It is certainly not kind to small business owners.
    I think U.S. businesses have to think “entrepreneurially” in order to remain competitive in the worldwide market. We have to avoid the complacency stage of the business cycle at all cost.

    • Ron – I appreciate your comments. Indeed, the United States has changed considerably with the passing of generations. Still the land of opportunity but with a different attitude from what our grandparents experienced. Any discussion of China needs to acknowledge Confucianism, which I argue is quite different from an autocratic style of government (AKA communism). I read earlier this week that China’s most recent quarterly growth was ONLY 7.3% in the third quarter (vs. 2.6% in the United States in 2Q14). The dragon has reawakened and is already experiencing some growing pains.

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