As I write, our Executive MBA class of 2014-2016 has just arrived in Shanghai, half-way through their 10-day Chinese residency. In my role as the new managing director I am spending a most rewarding week together with the group.
Starting the trip with 4 days in the city of Hangzhou, China, the schedule has included two of three company visits, the first lecture of the Supply Chain Management module and a full day of comprehensive lectures on Chinese business management, innovation, cultural aspects and public sector governance at our partner university Zheijiang Univeristy, one of the top-3 universities in all of China.
So, what are my impressions and reflections so far? A couple of themes are consistent throughout the interaction we have had here: China’s manufacturing cost advantage is gradually coming to an end. Salaries continue to grow 8-10% annually and the current appreciation of the USD has also appreciated the Chinese currency, the yuan (at least for companies not trading in USD). As a consequence , annual economic growth in China is falling – although from past double digit levels – to the Q1-2015 growth level of 7% year-on-year, which was officially released yesterday. This level is now being presented by the government as “the new normal”.
What is the Chinese government’s strategy to find the next growth engine? Apart from increasing the contribution from domestic consumption to fuel growth, companies are urged to transition “from imitation to innovation”. Rather than being copy cats, creating low-quality imitations of imported products, Chinese companies are now encouraged to add value through genuine innovation. Business schools are proposing a gradual process of taking on innovation in a very structured fashion, focusing initially on the huge domestic market, but with the long-term objective of competing in the global market. We should all keep our eyes very closely to how this will play out.