The Chinese Rear Entry Play

World was very busy, planning for the crash and hard landing of the Chinese economy. The symptoms were very much there. Shanghai Composite index was plunging and trading was even halted. Renminbi was losing to dollar. http://www.indussprouts.blogspot.in/2016/02/end-game-china-version-11-enter-dragon.html

Pundits were giving their analytical commentary on a day to day basis. The diagnosis was consistent. All ills of the economy were due to the famed export oriented manufacturing model. And the prescription was also in unison. ‘Now China need to focus on the domestic consumption as a theme and government should formulate policies to increase domestic consumption’.

Chinese are excellent in copying machines or reengineering technology. But coming to national policy, it does seem that they will hear all but listen to no one.

Those who have read Pearl Buck’s books will understand the Chinese public Psyche. No amount of ‘Helicopter Money’ will force spending from the Chinese. So the theme of Domestic Consumption cannot be the only tool for the Polit Bureau.

But what about the huge industrial infrastructure erected for mass manufacturing? More important what about the huge number of farm hands moved from rural areas to the newly set up industrial villages? Having produced for all world for two decades it is not easy to depend on only domestic market for utilizing those production capacities. And there is an inflection point beyond which building structures won’t help the trigger growth.

The picture became clear during a recent travel along with an Indian steel company big shot. His problem was a European heavy machinery firm which was buying steel from him suddenly stopped buying product. A bit of research told me, that company has already changed hands and now a consortium of Chinese was the majority shareholder. So, I assumed they would have shifted the procurement to the Chinese Steel.

Putzmeister another iconic German company is now only German in name and owned by the Chinese. And so is the once most respected European Ag-Chem company Syngenta.

Chinese are aggressively buying up the good companies and brands that consume industrial bulk chemistry and steel. Or wherever possible they are busy taking majority shareholdings in companies. When companies aren’t available they are buying the retired brands and making it live.

And when the successful companies aren’t yielding, the Chinese start a company from the scratch, they poach the experts from the resisting companies and replicate the competitors business in short time.

In all these cases no need to say the first right of refusal for the procurement of raw material is with Chinese suppliers.

Trade penalties are increasingly imposed on Chinese finished goods. Finished goods take away livelihood from importing countries. But when the goods come in the form of intermediary chemicals or semi-finished steel parts, they often escape trade barriers. Nations find it tough to arrive at grounds at which they can block these imports since they also want investments.

So now at the front end China is building up consuming companies and at the back end in china, factory lines assemble semi-finished materials. Slight shift they made from producing the commoditized brown goods stuff to chemistry intermediaries and industrial parts. Anyway the labor population is still getting engaged. 

And who is complaining? Many of these erstwhile legendary European companies are holed up in low or negative growth areas. World was clamoring to allow renminbi to appreciate. When world was accusing China of currency war, the Chinese allowed currency to slowly appreciate and still they were at advantage, it became easy in foreign acquisitions.

Every strategy has its shelf life. Living by mass producing already commoditized technology worked for two decades. And China knew one day it will be over. The second one is rolled out. But this time hurdles will be arriving too early. An American court allowed blocking US markets for Sany heavy cranes, a Chinese company making heavy duty cranes. It is alleged Sany recruited a US competitor experts and was building markets based on stolen expertise. Chinese would have already made a plan for the next stage, lets wait and see.

What is there for us, practicing managers to learn from the Chinese?

Every strategy has its shelf life, implement one with another in your bag to take out when the first one loses wind. Usually we differentiate a strategy and tactics with the time span in which both operate. IN this highly competitive world slowly strategies are getting reduced to mere tactics.

A successful strategist should be like a magician with many tricks hidden in his hat!!!!

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