Tuesday, January 03, 2006

The Nerve of Those Chinese—and Everyone Else Too!

Last week, Chinese automaker Geely announced within three years it would be prepared to export a five-passenger family sedan to the U.S., one that met all American emissions and safety regulations-- for under $10,000. A few months ago China’s Chery Automobile Co. announced similar plans to sell 250,000 mainland-made sports utilities, sedans, and sports coupes in the U.S. starting in 2007.

Can you believe those Chinese???? Not only do they have the nerve to export way too much to us (yeah, I know nobody is forcing us to buy their stuff, but still…..), and not only is the stuff they export cheap, but doggone it-- it’s not bad. Rich Walker, the CEO of American Architectural Manufacturers Association, tells me that what’s particularly distressing is that window product in his industry that comes in from China underprices American-made goods by at least a third, and the product is good quality. That’s totally unfair. Everyone knows that if you export cheap stuff to the U.S., it’s gotta be junk.

But here’s the deal. If it’s not China, tomorrow it’ll be Indonesia, Viet Nam and the Philippines, three countries where Toyota already has assembly facilities. And if it’s not those countries, it’ll be any other developing country, and there’s plenty of them out there with lower labor costs than ours (Just consider half the world subsides on $2 a day).

There are two implications for U.S. companies: The first one is a non-negotiable reality of a global marketplace. Whether they like it or not, American companies must now capitalize on the technology, work ethic, and lower labor costs available in developing countries by partnering with companies there, and by offshoring the commodity work that can be done at a fraction of the cost spent here.

The second implication is that the strategic focus of U.S. companies ought to be about getting to the top of the food chain in first-to-market product innovation, design, features, style, applications, customization, speed, business solutions and customer service—the kinds of higher-margin things that are less likely to be commoditized and imitated by companies in developing countries. That strategy demands a fresh look at your business, and an even fresher look at investing in people. To get to the top of the food chain, you need to hire and train smart people in the U.S. for more complex, higher paying jobs, and create a fast, innovative environment where their talents can flourish.

To thrive, you'll have to seriously consider both implications simultaneously. Companies in the U.S. will not survive, much less thrive, if all they do is copy the cheap copiers.

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