China has come a long way, but opportunities galore still wait

This year's Global Competitiveness Report has just been published and, for the first time in seven years, China's competitiveness ranking has declined. China appears 29th in the rankings, compared with 26th last year.

That is only a small decline, and the methodology behind the rankings appears to favor smaller countries, so Switzerland tops the rankings for the fourth consecutive year. But it also comes as China's economy continues to slow and its companies remain conspicuously absent in international markets.

While this report and China's economic performance generally receive extensive coverage and analysis, more debate and discussion is required on how foreign companies, and even foreign governments, can contribute to a more competitive Chinese business environment. Such a contribution should not be seen as representing a danger to foreign companies but will lead to an even greater symbiotic relationship. What is good for China is good for the world economy.

In order to delve further into why China's competitiveness has declined and highlight where and how foreign companies can contribute and benefit, let's consider the key criteria used to assess the competitiveness rankings.

Institutions and institutional environment

This is particularly concerned with the administrative and legal environment within each country. For example, a transparent and fair legal system. This "pillar of competitiveness" has taken on even more importance given the recent financial crisis and the continuing fragile global economic recovery.

While China's legal system continues to mature, especially in dealing with breaches of intellectual property rights, this relative immaturity presents opportunities for foreign law firms and university law departments. Cooperation and collaboration between foreign legal experts and legal firms, especially those from the more developed legal environments such as Britain and the United States, will certainly expedite the development of China's legal environment.

Infrastructure

Well-developed and accessible transport and communications networks are also key to the functioning of a competitive market economy. China's vast land mass presents particularly severe challenges here, even though rapid and great advances can be seen in road, rail, airport and port construction recently.

Foreign construction companies are often employed in partnership with local Chinese construction operators but usually in and around first-tier cities only. Foreign companies, across all industries, are not fully aware of the huge economic opportunity on offer outside the most developed four or five Chinese cities. These areas should now be the focal point of foreign construction company strategy right across China.

Macroeconomic environment

If the business environment is asked to produce one factor considered most dangerous to a competitive environment it is usually, "economic instability". China can take great pride in its spectacular economic growth over the past 15-20 years while maintaining relatively low inflation and interest rates. Such stability has been integral to China's economic success and the attraction of foreign direct investment.

Looking around at the still beleaguered state of the eurozone and the very sluggish US economy, foreign firms should take every opportunity to expand into and across China's continuing rock-solid and stable macroeconomic environment.

Foreign firms should appreciate just how great these opportunities are right across China and not just focus on the biggest and most developed cities.

Health and primary education

In a sense, it is people, rather than products, machinery or any form of technology, that create wealth, and only the most healthy and best educated are most likely to develop into the most economically productive. Nothing matters more than health and education.

China's education system, especially at the primary level, has undoubted strengths, not least of which is the hard work and dedication of staff and pupils. However, primary education in China remains far too teacher-oriented with an authoritarian and prescriptive approach. Pupils are not encouraged to interact, let alone challenge, and written exams and rote learning dominate.

However, I have noted a desire for change in China's primary education system to a more progressive, pupil-centered environment.

China can begin the process of change by learning from the more advanced primary education industries across most of western Europe and the US. Indeed, foreign operators should seize this opportunity and seek to trigger such change with ambitious and aggressive market-entry plans. Foreign primary-education institutions will be welcomed warmly by their Chinese counterparts and will be surprised by the desire to learn and adapt to a more modern approach.

Higher education and training

Many of the issues and challenges facing China's university and training sectors are similar to those facing its primary education. The country's universities, and especially business schools, fully appreciate these challenges, and many have been working with foreign universities for many years. However, most so-called exchange programs consist of a Chinese university shipping over many Chinese university students who will continue their education overseas, often in the US, Britain, Canada or Australia. Rarely do foreign university academics work closely with their Chinese counterparts, yet this is precisely what could trigger real and lasting change in the teaching approach across China's vast university sector.

Foreign firms, and not just training firms, also rarely appreciate the opportunity of training their Chinese joint-venture partner.

Goods-market efficiency

Healthy competition across all industries, domestic and foreign, is essential in developing and maintaining consistently high levels of market efficiency and business productivity. The Chinese government has long recognized this and continues to encourage foreign business presence across China.

However, many smaller European and US firms, notably British ones, remain wary of investing in and entering the Chinese market.

Foreign firms need to make that first move toward China and the Chinese, from which the learning that often results in successful market entry can take place.

In my experience, many small and medium-size British enterprises are unaware of the many talented and foreign-educated Chinese university graduates. Employing such people represents an ideal start for an SME to build an effective competitive presence in China.

Financial market development

Economic stability is rarely maintained without a sound and stable financial sector, and just about nowhere else across the world economy can a more secure and stable financial services sector be found than in China. The recent financial crisis claimed many well-known banks across the US and Europe but China's major financial and banking institutions remained largely untouched.

China's banks now rank among the biggest in the world, with the Industrial and Commercial Bank of China proudly taking the honor of being the largest by market capitalization.

Foreign firms remain suspicious of most of the financial services sector, and for good reason, across Europe and the US. However, analysis of China's banks reveals a steadiness and risk-averse attitude that is unlikely to change.

Technological readiness

The technological intensity of most industries simply grows, but it is only those organizations whose key decision-makers possess a healthy attitude toward the adoption of, and crucially investment in, the latest technology who will continue to prosper.

Chinese business leaders all too often continue to regard investment in new technology as risky and costly, which requires a big change in attitude. Foreign firms, and not just joint-venture partners of Chinese firms, need to grasp this opportunity and work with Chinese business leaders in order to foster an environment in which investment in technology is perceived as just that.

Business sophistication

This refers to the quality of management, at all levels. Quality of strategies, tactics and operations become more and more important as a company expands and as a business environment matures and competition intensifies.

Foreign firms and training companies can work more closely with Chinese companies on all aspects of management, but particularly in the area of human-resource development and training. Chinese companies often remain uncompetitive due to their weak levels of investment in employee education and training. Foreign firms can highlight the real benefits of such investment, as can foreign universities with expertise in this area.

Innovation

The only thing that remains permanent in today's business environment is change: change in consumer tastes, change in technology. Innovation, in respect of these constant and often unpredictable changes, is becoming more and more essential to long-term business competitiveness.

Foreign firms, especially from the US, enjoy a far more successful record in this aspect of modern business, from which Chinese companies can learn.

In short, China has come a long way in a very short time but it still represents even greater opportunities for foreign business, and will do for many years to come.

China's business environment continues to develop and mature, and without substantial foreign investment and assistance, more growth could be much slower and painful.

To all foreign firms with ambition to grow: the real China is still out there.

The author is a researcher at Nottingham University's School of Contemporary Chinese Studies. The views do not necessarily reflect those of China Daily.

(China Daily 09/28/2012 page11)