From Overseas Press

Obstacles to becoming a superpower

(chinadaily.com.cn)
Updated: 2010-05-26 17:19
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Although China is gaining international heft, "its lack of global brands threatens its dream of becoming a superpower," said an article in the Washington Post on May 25.

Without big marquee brands, China has confined itself to being the world's factory while "designers and engineers overseas reap the profits." Fan Chunyong, secretary general of the China Industrial Overseas Development and Planning Association, was quoted in the article as saying, "We've lost a bucketload of money to foreigners because they have brands and we don't."

"Much of Apple's iPhone, for example, is made in China. But if a high-end version costs $750, China is lucky to hold on to $25. For a pair of Nikes, it's 4 pennies on the dollar."

The article further revealed that "a failure to innovate means China is trapped paying enormous amounts in patent royalties and licensing fees to foreigners."

In order to solve the problem, Chinese government has "launched a multibillion-dollar effort to create brands, encourage innovation and protect its market from foreign domination." It adopted "a going-out strategy" to "back firms seeking to buy businesses, snap up natural resources or expand their footprint overseas."

Furthermore, China has launched an "indigenous innovation" program to "encourage its companies to manufacture high-tech goods by forcing foreign firms to hand over their trade secrets and patents if they want to sell their products there," and organized seminars to educate its executives on how to do business internationally.

However, these strategies haven't gained the expected results. As the article revealed, Chinese firms, including the 34 Chinese companies on the Fortune 500 list, basically operate only domestically, making them unknown overseas.

The article explains that the total amount of China's foreign direct investment, especially to the rich countries, "still pales in comparison to smaller economies." Moreover, China also faces enormous challenges in creating globalized firms. "Studies of Chinese executives show that they spend far more time with government officials -- who in China are the key to their profits -- than with customers, who are the key to international success."

"Moving forward another 10 years, it's hard to see how viable Chinese companies will be if they just stay in China," warned Kenneth J. DeWoskin, chairman of Deloitte's China Research and Insight Center.