Scale, China and the US
For some time, I have pointed out to clients that the rapid growth of the Chinese economy calls into question a fundamental assumption of American business advantage - scale.
Historically, one of the reasons that American businesses did well was because of the sheer size of the American market. It was typically the case that American companies could achieve economies of scale, and descend learning curves faster than companies operating out of smaller markets.
Even internationally scale of US multinationals mattered. In the 1960s, Servan-Schreiber wrote in his book, Le Defi Americain or The American Challenge in English that American companies were exploiting the integrating European market to achieve superior scale to nationally oriented European competitors. Scale matters.
The rapid growth of the Chinese market and the emergence of a large Chinese middle class raises for some industries concerns about scale. For example, the current policy of the Chinese national government is to build over 300 million units of housing in order to handle the migration from rural to urban locations. Put that in context, this figure is equivalent to the population of the US. But the plan is for building over ten years. Whether achieved or not, the consequence will be the emergence of local suppliers in hurry and potentially large internationally competitors.
The same has happened in technology. Lenovo, admittedly with a minority IBM ownership is now the third largest PC vendor in the world, primarily based upon its strong sales in China. In January 2013, IDC reported that Huawei and ZTE and Huawei arethird and fourth in mobile phone shipments, after Apple and Samsung. (http://www.informationweek.com/mobility/smart-phones/huawei-becomes-third-largest-smartphone/240147003).
Many companies see China as an opportunity for growth. Apple in its latest announcements broke out China as a separate business for the first time. But there are another reasons for being in China - to preempt unchallenged growth by potential Chinese competitors, to track their progress and product development, and to make sure that a Chinese competitor does not surprise the international competitor.
