As a 36-year veteran of the global trade wars I have come to accept that the spoils of economic prosperity inevitably go to those companies, and the GDP’s they contribute to, that create the greatest value with the least input, however each of those variables is measured
There are many ways to create value, of course. You can design a better mousetrap or produce the same mousetrap for a lower cost. You might provide after-market support for the mousetraps that you sell or you might find an acceptable way to eliminate the need for mousetraps altogether.
Value, of course, is ultimately defined by the consumer and only truly exists to the extent the consumer, be it a person or another business, is willing to pay for it.
The challenge for all businesses lies in the fact that all sources of value-added are vulnerable to competition. Much of the effort of business, therefore, goes into sustaining competitive advantage. It is often fleeting.
Perhaps the most fleeting source of added value is price. Or, more to the point, cost, since anyone can sell for a loss in the short term. And it’s particularly fleeting if your product or service is labor intensive, doesn’t spoil, doesn’t require a lot of scarce knowledge or equipment to make, and is relatively small and lightweight. Think shoes. Or blue jeans. Or toys.
China, of course, became the factory to the world largely on the basis of low wage costs, a hospitable investment climate, a well-developed infrastructure, and 1.3 billion people who wanted to lead a better life and were willing to work hard for the chance.
In the process, however, China has pushed its environment to the limit and is beginning to feel the social strain that inevitably accompanies a rapid surge in wealth, since it is extremely difficult to insure that everyone shares in the wealth creation equally. And in the midst of it all China faced a declining market for its exports as the United States and Europe demonstrated just how fragile economies could be when they rely too heavily on the mere creativity of their bankers and financiers.
Now, with a new administration at the helm, China is reinventing itself, committing its considerable resolve and resources to cleaning up the environment, raising wages across the board, and consuming the vast majority of what it produces.
And I wouldn’t bet against them. That’s not to say, however, that it will be an easy road. They have many hurdles to clear.
First up, the government will be the first to admit, is corruption, which the government appears genuinely committed to stomping out. And China, of course, is not alone in this regard. Corruption is endemic to poor and developing countries around the globe.
In the 2012 Corruption Perceptions Index compiled by Transparency International China ranks 80th in the level of perceived corruption, well behind Denmark, Finland, and New Zealand, the three highest scoring (least corrupt) countries. The United States, however, scores only 19th, and Italy is just 8 places ahead of China. China is, in fact, 25 places ahead of Mexico, a key U.S. trading partner, and 53 places ahead of Honduras and Russia. All told, in fact, China places in the upper half of countries assessed.
Another hurdle is the environment. Despite the new government’s apparent resolve (They are actively forcing companies to relocate away from high-density population areas and enacting and enforcing some of the toughest environmental regulations in the world.) they admittedly are starting from a very difficult position. And some of it, such as the air pollution that bedevils Beijing, much as it does many global cities with similar topographical profiles, will be difficult to reign in given that the primary contributor, automobiles, is high on the list of consumer priorities in the race to prosperity.
The biggest challenge China faces, however, is the same challenge that every business and every country that relies on them to propel its GDP faces. It’s not wages; it’s not work ethos; it’s not a business-friendly regulatory and investment environment. These things are all important, but none of these things, of and by itself, drives long-term value creation.
It’s the same economic engine that the United States owned after the end of WW II. And its erosion, in my opinion, explains much of the decline of the American manufacturing sector and the general malaise that has bedeviled the American Middle Class for a generation.
That engine, I believe, comes down to one simple word – curiosity.
A lot of business pundits talk about the importance of creativity and note with great confidence that China is a long way from producing its own Apple. And they might be right, although there are a whole lot of Chinese hell-bent on proving them wrong.
In my experience, however, creativity is too hard to define and far harder to harness over a long period of time. It just doesn’t lend itself to sustainable reinvention. Creativity, like great art and music, exists within a context, and that context is in perpetual motion. Sure, there is such a thing as timeless design. There is clearly such a thing as timeless beauty. There is not, however, such a thing as timeless creativity, any more than there is such a thing as a timeless style or an athletic achievement that will never be surpassed.
Curiosity, however, can be timeless. It requires only the relentless pursuit of knowledge, although I prefer to think of it as awareness, since knowledge tends to sound so dry. Curiosity is the infatuation to know what it is we don’t know; to understand what it is that we have yet to understand; to mentally ‘get’ what it is that we don’t yet ‘get’.
It can exist at every level of society, government, and business. It is not just the passion to send men to the moon, although such big passions inevitably spur curiosity at all levels of society. Where it really drives economic vitality, however, is at the local level, the level of the individual.
My Uncle Burt owned a very small vending machine business in northern New Hampshire in the 60’s and 70’s, mostly catering to the small bars and restaurants that dotted the countryside at the time. He had little education and the ways of Wall Street were well beyond his sphere of interest much less influence.
But he was a curious man. When stopped at a traffic light he would notice the wires hanging down from the second floor of the local family-owned drug store and wonder out loud what the problem might be or what improvements the owner had in mind. When he witnessed a traffic accident he was curious to know what happened, not out of any infatuation with other people’s tragedies, but out of natural curiosity as to the events leading up to the unfortunate situation.
While the Chinese seem exceedingly curious about people, on the other hand, they show surprising little curiosity about the world around them. When I ask colleagues what they think the new building being constructed on X Road might be, knowing that they drive by it every day, they often seem to have little awareness that there is any new construction on X Road.
And while our mechanics can fix machines as quickly as any of their counter-parts around the world, we often remind them that a truly great mechanic doesn’t stop there. They ask why. Why did this machine break down in the first place and what can I do to keep it from doing so in the future?
Yes, our sales are down in Y province. Why? And let’s not stop at the usual superficial answers. Let’s dig further and find out what’s really driving whatever change we believe we’re witnessing
One of my mantras to my team: Watch, listen, understand why.
And if curiosity is always important, it’s mandatory in the time-lapse swirl of change that envelopes China today. (I believe that China has changed more in the last six months than at any time in the six years I have been here. Until now, the change was easy to appreciate. Just watch the skyline. Now, however, the change is occurring below the skyline, in the offices and apartment buildings that have risen in such dramatic fashion over the last two decades.)
I believe there are three factors that inhibit curiosity in China.
The first is the holistic worldview of Chinese culture. “Wherever you go, there you are.” (Confucius) When the world is defined by the engagement of opposing forces, there is a natural tendency to simply accept things the way they are.
The second is the cultural emphasis on personal relationships. Anything outside of the relationship is delegated to secondary importance, suppressing the desire to truly understand the context and the environment in which relationships exist and function.
The more fundamental reason, however, and the one most easily corrected, is the education system. As my Chinese colleagues consistently tell me, “In China, students are taught that teachers teach what the student needs to know.” There is no need for interaction. Just listen and learn. And that works if the primary purpose of your education is to perform well on a standardized college entrance exam, the results of which will have profound impact on your life path. It is less effective, however, in helping students learn to defend their ideas, or work collaboratively, or to ponder the unknown of the physical world.
The problem is that rote learning leads to rote living. Once you have succeeded at the leading university what will you do with the knowledge you have gained? Will you become a rote scientist or a rote industrial titan?
And will you survive the next Steve Jobs who struts down the path in your field of endeavor puzzling over the origins of the universe and the meaning of life, conjuring up answers to questions that others do not yet know exist? (In 1943, Thomas J. Watson, the head of IBM, predicted with confidence, “I think there is a world market for maybe five computers.”)
Will China succeed in igniting genuine curiosity in its citizens and thus pave the way for the economic and social restructuring they need to continue on their path of global emergence? That’s yet to be seen. But they may win by default.
For the developed countries, like the United States, built on the back of the simple curiosity epitomized by my Uncle Burt, seem to be losing it at the speed of electrons. While technology should be the great engine of curiosity it appears to be more an engine of communication and occupying precious time with little precious contribution to knowledge. The next time you are a passenger on a highway look at the other passengers in the vehicles around you. Are they looking for hanging wires or texting their friends about the type of coffee they just picked up at Starbucks?
It will be interesting to watch. And I, for one, will be curious to see how it plays out. Curious, indeed.
Copyright © 2013 Glassmaker in China
Notice: The views expressed in this post are strictly those of the writer acting in a personal capacity. They are not in any way endorsed or sanctioned by his employer or any other individual with which he may be personally or professionally affiliated.