Labelled as World Factory and a Millennium Century Market, China has stirred up the world with its unmatchable capacity in manufacturing and unprecedented desire of consumption. Today, 32 years into its opening up to the western world, China has evolved to a new phase where there are emerging drives and pattern to strengthen its position as both world manufacturing base and a fastest growing market.
Emerging Drives for Manufacturing in China
Many Australian companies see manufacturing in China as offering advantages as a low-cost, manufacturing-for-export location, however many are also pursuing broader strategic objectives. While reducing costs of production remains an important objective, more and more companies are capitalising on China as a key world centre for production and to tap the huge Chinese domestic market.
China represents a strategic opportunity for businesses to position themselves nearer to the source of rising future global demand and production capacity, which is especially driven by the need to seek new customers as the Australian market matures. Businesses also outsource manufacturing to China or set up their own manufacturing bases in China due to the inability to source products at the right quality and price point in Australian or even from some of frequently talked about emerging manufacturing regions, and the need to respond to structural changes in their industry as a result of globalisation.
As an example, a well-known Australian textile company started sourcing from China as production of textiles moved from Europe into Asia, initially to Japan, South Korea and Taiwan, and then to China. As this happened, designers and retailers slowly started dealing with fabric mills and garment producers directly, a factor which slowed the business’ growth. In responding to this development, the company started importing and sourcing from China directly and added to its offerings as an intermediary organisation between top end designers in Australia and fabric and garment producers in China.
New Pattern of Micro-multinationals to Work with China
While opening up the market to small and medium enterprises has been made possible by China’s new ethos of “free market communism”, a greater influence at the individual firm level is enhanced communications, and specifically the internet, allowing access to information, contacts and know-how that has previously not been available. With this new level of information, SMEs are empowered to engage in the Chinese market, and more importantly to control, to a certain extent, their destiny there.
It is likely that this pattern of SME engagement with China will only continue and grow. It is also imperative for Australian companies, in order to be competitive, to look at different business models and push their thinking to leverage China to do business globally, though they are defined as “small and medium” by capacity.
In fact we are witnessing a new pattern of global business engagement which is giving rise to the ‘small global enterprise’ or micro-multinational. These are a new breed of small businesses, enabled by internet-based communication tools, that manages production, delivers services and directs resources, employees and clients in more than one country. The rise of such small global enterprises is due to technological advances in the use of the internet, cheaper telephony and lower travelling costs that allow the implementation of unique business models and the capture of new business opportunities.
To quote Roya Ghafele, the economist with the World Intellectual Property Organisation in a 2006 article, SMEs or Micromultinationals?
When looking at the internationalisation of business operations, size matters less and less. SMEs equally take their share in the global market. Rather than critical mass and the necessary budgetary backing, smart business strategies, a high degree of flexibility and the ability to grasp new business opportunities drive success in worldwide markets… Soros argues in his book on Globalisation that the revolution in information and telecommunication technology, not only impacted the speed at which interaction takes place, but also brought the most remote corners of the world closer together. All this, at incredibly low cost. Access to the global community at low entrance fees has opened doors for new players and provided new market opportunities for small and big companies alike.
Australia, positioned as it is in Asia and with evidence of small businesses successfully operating in China, needs to understand this emerging trend of small ‘virtual’ global enterprises and strengthen its capabilities to capitalise on it for the China market.
The article is contributed by Sara Cheng, Manager-Greater China region, Australian Business. Email: firstname.lastname@example.org