> There are many large US and European companies doing business in China
The rush into China 20+ years ago forced the less willing to follow, just to stay cost competitive. And it's not like the original flood of businesses went in agreeing to give up all their IP, or expecting to wed themselves to Chinese manufacturing. They all went in chasing gold--cheaper production, access to what was to become the world's largest market. And like every gold rush in history expectations were foiled and people ended up making compromises they wouldn't have otherwise made.
I remember a graduation party I attended in 2000. A friend's parents flew in from India, where they owned several textile factories. I asked the father some questions about the direction of Indian and Chinese manufacturing, which caused him to launch into a long lament about the speculative investments flowing into China. So many investments were flowing into China they were making garments below the cost of inputs, and that's with the already low cost of labor, and without government financial aid. It made it impossible for him to compete fairly in the global markets.
The Chinese government knew what it was doing. They deliberately hyped the prospect of the Chinese domestic market to no end, holding it out as bait, and American businesses bought it hook, line, and sinker. They situated not only their most crucial industrial assets in China, but sent boatloads of cash and, more importantly, expertise on top of it. It's hard to exaggerate the irrational exuberance that played out over two decades.
Slowly, but surely, these mistakes are becoming apparent--not that any American MBA would ever admit to a personal error in judgment, or that they're prepared to make an about-face. This notion that it will all be worth it some day as the Chinese market matures still holds sway.
Of course, the potential of the Chinese market was always there, and still is. The error in judgement was believing China was dumb enough to just hand it over to the West, and to do so without exacting a price. That price is turning out to be far larger, and the first-mover advantages far more meager, than if the integration of China into the global market had occurred more organically and gradually, without American industry falling over themselves clambering across the Pacific, easy targets for industrial exploitation. Japan seems to have done a better job of it, as have many other countries. It's mostly the Americans that look like idiots.
I think we also can’t overlook the competition factor. If you main competitor is relocating production to China at 1/10 of the price then you really have no choice, but to follow.
The rush into China 20+ years ago forced the less willing to follow, just to stay cost competitive. And it's not like the original flood of businesses went in agreeing to give up all their IP, or expecting to wed themselves to Chinese manufacturing. They all went in chasing gold--cheaper production, access to what was to become the world's largest market. And like every gold rush in history expectations were foiled and people ended up making compromises they wouldn't have otherwise made.
I remember a graduation party I attended in 2000. A friend's parents flew in from India, where they owned several textile factories. I asked the father some questions about the direction of Indian and Chinese manufacturing, which caused him to launch into a long lament about the speculative investments flowing into China. So many investments were flowing into China they were making garments below the cost of inputs, and that's with the already low cost of labor, and without government financial aid. It made it impossible for him to compete fairly in the global markets.
The Chinese government knew what it was doing. They deliberately hyped the prospect of the Chinese domestic market to no end, holding it out as bait, and American businesses bought it hook, line, and sinker. They situated not only their most crucial industrial assets in China, but sent boatloads of cash and, more importantly, expertise on top of it. It's hard to exaggerate the irrational exuberance that played out over two decades.
Slowly, but surely, these mistakes are becoming apparent--not that any American MBA would ever admit to a personal error in judgment, or that they're prepared to make an about-face. This notion that it will all be worth it some day as the Chinese market matures still holds sway.
Of course, the potential of the Chinese market was always there, and still is. The error in judgement was believing China was dumb enough to just hand it over to the West, and to do so without exacting a price. That price is turning out to be far larger, and the first-mover advantages far more meager, than if the integration of China into the global market had occurred more organically and gradually, without American industry falling over themselves clambering across the Pacific, easy targets for industrial exploitation. Japan seems to have done a better job of it, as have many other countries. It's mostly the Americans that look like idiots.