Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
Growing Pains: the Journey from ‘Made in China’ to ‘Created
in China’ - A Recipe for Sustainable National Competitive
Advantage?
Lee Zhuang and Peter Considine
This paper reviews the journey of China’s phenomenal economic growth over the past
three decades, which was fuelled by exporting to the world with low cost products made
but not created in China. The current lingering global economic downturn coupled with
increasing competition from other emerging economies and rapid rise in production costs
at home means that the Chinese economy has reached a crucial turning point. The
country must now look for alternative sources of competitive advantage by embarking on
a new journey from ‘made in China’ to ‘created in China’. Bags of Luck and Cool-Comfort
Shoes were two amongst the thousands of small and medium sized enterprises (SMEs)
that emerged and grew as part of China’s journey of rapid economic expansion to date.
Whether or not they, and many other Chinese SMEs, can be part of China’s onward
journey to long-term sustainable growth and prosperity depends not only on their own
ability to think creatively and act innovatively but also on an appropriate macro-economic
environment. Issues and challenges surrounding the ability of China to achieve a
sustainable transition to an innovation led phase of economic growth are discussed and
possible directions discussed, using Porter’s International Life-Cycle theory, from both
practical and theoretic perspectives.
Introduction
After three decades of phenomenal growth, in 2010, China overtook Japan to become the
world‟s second largest economy just behind the US (Barboza, 2010). Although this had long
been anticipated (Goodhart & Xu, 1996; Yan, 2006; Scott, 2007; Ikenberry, 2008; Li, 2009;
Berliner, 2010), the news still sent shockwaves around the world ending years of speculation as
to when this would actually happen.
Ikenberry (2008) saw the rise of China‟s economic power as „one of the great dramas of the
twenty-first century‟ and pointed out that “China‟s extraordinary economic growth and active
diplomacy are already transforming East Asia, and future decades will see even greater
increases in Chinese power and influence”. In Li‟s book entitled “The Rise of China and the
Demise of the Capitalist World Economy” published in 2009, he even predicted that as the
Chinese economy started to rival that of the US, the current form of capitalism would come to
an end.
China‟s rapid economic growth has helped to lift „over 400 million Chinese citizens‟ out of
poverty (Rose, 2010). According to Berliner (2010), “in 1990, roughly 60 per cent of Chinese
lived on under $1.25 per day; by 2005 that number had fallen to 16 per cent. Between 1990 and
2008, Gross National Income (GNI) per capita, adjusted for Purchasing Power Parity, increased
more than seven-fold in China.” As a result, the standard of living for Chinese citizens has
greatly improved with better housing, education, health care and more disposable income.
_________________________________________________________________________
Lee Zhuang and Peter Considine
Staffordshire University, United Kingdom
Page 1
Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
Similar to the experiences of the four Asian Tiger economies of South Korea, Taiwan,
Singapore, and Hong Kong throughout the 1970s and 1980s (Kraar, 1986), China‟s rapid
economic growth to date has been fuelled by exporting low cost manufactured goods to the
West especially the US. In the first decade of the reform starting in 1979, many joint-ventures
(JVs) were set up in a small number of Special Economic Zones (SEZs) located in coastal cities
in southern China making products exclusively for export.
As the Chinese manufacturing industry grows and becomes more in tune with international
standards, contractual arrangements for surrogate manufacture have evolved over the years.
Many low-end labour intensive products under foreign labels are no longer made in JVs. A
growing number of Chinese small and medium sized enterprises (SMEs) have emerged with
part or all of their capacity dedicated to making products under foreign brands. As SMEs make
up 99% of the country‟s enterprises and contribute up to 60% of its Gross Domestic Product
(GDP) (Alim, 2009), the role of SMEs in China‟s impressive economic growth cannot be
underestimated.
This paper examines the impact of current changes and challenges in the Chinese macroeconomic environment on the country‟s manufacturing industry in the micro context of two
export orientated Chinese SMEs, Bags of Luck (BoL) (Zhuang, 2011) and Cool-Comfort Shoes
International Company Limited (CCS) (Zhuang, et al, 2014) through the birth and growth of their
business to date. Using Porter‟s International Life-cycle (ILC) model (1990), this paper also
explores how China as a country may address these changes and challenges as part of its
attempt to sustain its economic growth in the decades to come.
CASE BACKGROUND
The inclusion of BoL and CCS in this paper is to provide a micro-economic context for the key
issues examined. For reasons of confidentiality, the identities of both companies have been
disguised but the problems and issues discussed were real. Exhibit 1 summaries the key facts
about the two case companies.
Page 2
Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
Exhibit 1. Profile of Case Companies
Bags of Luck
Cool-Comfort Shoes
Form of
business
Private
Private limited
Location
South-eastern Fujian province
Beijing
Top level
management
Managed by two founding brothers
and their respective wife; none of
them had a higher education
qualification
Managed by three founders; all of them had
an overseas master‟s qualification in
business
Date started
export
manufacture
2000
1992
Possession of
export license
No; all export formalities were
handled by an intermediary
organisation
Yes
Product rights
No intellectual property right to any
products they produced
No intellectual property right to the four
international surrogate brands but full right to
their own Ace-of-Biz (AoB) brand
All products were made under US
retail labels
About 90% products were made under
surrogate brands & 10% were made under
AoB brand
Low-tech, very labour intensive
Low-tech, labour intensive
Level of
autonomy in
sourcing
materials
Full autonomy as long as the
quality standards of the end
products were met
Semi-autonomy for surrogate brands but full
autonomy for AoB brand
Markets and
marketing
All products were sold by US
retailers in the US market; no
marketing is undertaken by BoL
Products under surrogate brands were made
for the brand owners who market them
worldwide including China; all AoB products
were marketed by CCS for sale in China
Workforce
management
All factory work was undertaken by
migrant workers on flexible shortterm contract and paid weekly on a
piece work basis
About 70% of factory work was undertaken
by migrant workers on yearly contract whilst
30% undertaken by migrant workers under
short-term contract; all workers paid monthly
on a piece work basis
Product mix
Production
process
THE GROWING PAINS OF THE CHINESE ECONOMY
From Factor Driven to Investment Driven Growth
When the infamous Cultural Revolution in China (1966-1976) ended, the whole of China was
poor with most daily necessities rationed. Soon after Deng Xiaoping (1904-1997) re-emerged as
leader of the country in 1978, he initiated a programme of economic reform with the creation of
a small number of Special Economic Zones (SEZs) where the principles of market economy
were tried and a range of tax incentives introduced to encourage foreign direct investment
(FDI). Inspired by the success of the four Asian Tiger economies (Chow, 2001), China soon
applied the experiences gained from the SEZs to the rest of the country. Despite temporary
setbacks after the 1989 Tian‟anmen Square incident, the programme of reform continued with
Page 3
Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
remarkable success. According to Morrison (2011), “from 1979 to 2010, China‟s real GDP grew
at an average annual rate of nearly 10%” (p1).
In the first decade of the reform era, FDI in China tended to be in the form of Sino-foreign JV.
The foreign partner in a JV typically provided product designs with explicit standards for quality,
raw materials, components and specialist machinery whilst the Chinese partner provided land,
building, labour and energy. This form of production was originally termed as “ai liao jia gong” (
来料加工) in Chinese which can be translated loosely into English as “material processing” and
sometimes described as surrogate manufacture. Such surrogate manufacturing capability,
would, according to Porter (1990), be classified in terms of his international life cycle theory, as
initially predicated mainly upon “generalised factors” which help form the basis for the
development of more advanced and specialised factors, such as a highly skilled and educated
labour supply, both of which are necessary for economic progress (Porter 1990. p132).
Exhibit 2. Porter’s International Life Cycle Model
The successful combination of political and economic reforms in China, which contrasted starkly
with the unsuccessful economic policy led reforms attempted in Russia from the period 1970 to
1990, has been described by Harrison and Ma (2013) as being “regionally decentralised but
politically authoritarian” (RDA). The ability of China to succeed where Russia failed was
attributed in part to the hybrid structure of the Chinese government which, whilst being politically
authoritarian with “centralised control of party and government appointments, the Chinese state
is regionally decentralised” (Harrison & Ma, 2013).
This RDA structure has incentivised local officials to manage provincially as competing divisions
within the Chinese economy whilst allowing China as whole to successfully evolve as a nation
from being predominantly “factor” driven (including initially a large pool of cheap labour) to the
“investment” driven stage, with resultant phenomenal growth in economic output. During this
“investment driven” phase of the development of a nation as shown in Exhibit 2, Porter (1990)
argues that national competitive advantage is based “on the willingness and ability of a nation
and its firms to invest aggressively” (p548).
The experiences of BoL and CCS from birth to growth in early years provided micro-level
examples of China‟s economic transition. As a small private firm located in the south eastern
coast of Fujian province, BoL started as a partnership between two brothers in 1992 when they
had the opportunity to acquire a ready built factory facility within an industrial park newly
developed for JVs and Chinese SMEs. Without any technical and management know-how, they
began by making cheap uniforms for a few local schools at a time when schools had just started
to introduce them. In 1994, they started making school bags to match the school uniforms they
made as an attempt to grow their business. Their success in the years that followed inspired a
number of players to enter the market, some with better facilities and more sophisticated
distribution channels. As a result, their profit margin was significantly eroded. In 2000, an
unlikely opportunity came which enabled BoL to start their surrogate production of ladies
handbags under a US retail brand for sale in the US market. Within 24 months they
Page 4
Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
discontinued the production of school uniforms and bags to concentrate on the export business.
Their success in the local market in the 1990s and early success in the US market gave them
the finance, confidence and a sense of optimism to take on production for several more US
retail labels. In 2003, they doubled their production capacity from 4,000 to 8,000 square meters
and peak time workers from 200 to 400. In 2005, they expanded into unisex fashion backpacks
and trendy lightweight cases for laptops and later netbooks. Their export business peaked in
2006 with total sales reaching 7.6 million RMB.
CCS was a small private limited company established in Beijing in 2001. Its predecessor,
Shengli International Enterprises Limited, was founded in Hong Kong (HK) in 1992. It initially
served as the exclusive surrogate manufacturer in Hong Kong for an established international
shoe and clothing brand. As the operating costs in Hong Kong shot up in the late 1990s, the
company decided to relocate to Beijing in 2001 and changed its name to CCS, focusing on
shoe-making. CCS‟s success in the 1990s enabled them to take on three other international
brands whilst their rich shoe-making experience gave them the technical strength and
confidence to launch their own brand, Ace-of-Biz (AoB). All of the surrogate branded products
they made were sold internationally including China through the brand owners‟ distribution
channels whilst the AoB brand was sold only in China via a mixture of CCS‟s own shops and
franchised retail outlets. In 2005, they set up an in-house design centre to support their
expansion plan for AoB. Even without a sophisticated branding strategy, they managed to
achieve an average annual growth in sales of 7.7% between 2001 and 2010, much better than
the average industry wide growth of just around 3.0% over the same period.
Reaching the ‘Lewis Turning Point’
With a high export dependency ratio – total value of exports over the value of GDP – at 40%
(Price Water House-Coopers, 2008), the Chinese economy was, not surprisingly, hit hard by the
global economic recession starting in 2007 when worldwide demand for Chinese exports
plummeted. As a result, it was estimated that “9,000 of the 45,000 factories in the cities of
Guangzhou, Dongguan, and Shenzhen‟ would close before the Chinese New Year in late
January 2008, which „could mean up to 2.7 million workers facing unemployment” (Elegant,
2008). The Chinese government responded to this global economic crisis by “implementing a
$586 billion economic stimulus package” – largely aimed at infrastructure projects to soak up
the surplus migrant labour, „loosening monetary policies to increase bank lending, and providing
various incentives to boost domestic consumption‟ (Morrison, 2011; summary page). These
measures effectively enabled the Chinese economy to maintain a real GDP growth of 9.6% and
9.2% in 2008 and 2009 respectively, compared with the negative growth in many leading
economies, including the UK and US, over the same period (Morrison, 2011). The Chinese
government‟s stimulus package did help SMEs like CCS due to relatively strong internal market
demand. The same could not be said about BoL as none of its products was sold in China.
Although the Chinese exports sector as a whole recovered in 2009 many Chinese export
businesses, especially those in eastern and southern China, continued to struggle, this time
with an ironic but growing problem of labour shortage (Zhang, et al, 2011). The problem was
first highlighted on 14th April 2005, when The Economist carried an article entitled “China‟s
People Problem”. At the time, the article was referring to the shortages of people with “creativity,
of an aptitude for risk-taking and, above all, of an ability to manage – in everything from human
resources and accounting to sales, distribution, branding and project-management”. The
beginning of 2008 saw the start of the problem of cheap labour shortage, which quickly swept
across the coastal cities of China affecting most of the manufacturing facilities that have
remained in business.
Page 5
Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
For over two decades, China‟s competitive advantage of goods manufactured in coastal cities
was maintained with cheap migrant labour from the less developed regions of central and
western China as the locals had turned their back on manual work in pursuit of higher career
ambitions (Rein, 2010). With cost of living going up rapidly in the coastal cities migrant workers
began demanding higher wages and better working conditions (Garschagen, 2010). In 2010,
the worldwide media coverage of the string of suicides at the Taiwanese invested company
Foxconn in Shenzhen (e.g. Hogg, 2010) was a tipping point which triggered a wave of wage
rises of up to 20% in the coastal cities (The Economist, 29th July 2010). Wage rise movement
only served to push up production costs as the problem of labour shortage remained (Zhang, et
al, 2011), despite the fact that there were fewer places available in the locale due to mass
factory closures as a result of the financial crisis (Bradsher, 2010).
BoL was amongst the worst affected by the labour shortage. Despite a wage increase of 15% in
2010, they had to turn away orders after the Chinese New Year in 2011 because they were only
able to recruit enough workers to operate at 25% of their capacity. With relatively higher level of
automation and higher skill levels demanded by the stringent quality standards of international
surrogate brands, CCS had a more stable workforce and were not as adversely affected as BoL
by this problem.
The problem of labour shortage in coastal cities of China has continued to this day and has
been attributed to a number of factors including migrant workers deciding to stay at home for
lower cost of living, to be with their children and, more jobs available closer to home as part of
China‟s renewed „Go West‟ strategy (Li, 2010).
An analysis by the International Monetary Fund (IMF) undertaken by Mitali and Papa (2013)
confirms that China is poised to cross the “Lewis Turning Point”. This concept or model which is
named after the Nobel Prize winner Sir William Arthur Lewis, is premised upon the argument
that a “capitalistic market” develops by drawing upon the pool of labour from a country‟s less
sophisticated agricultural sector. According to Mitali and Papa (2013),
China is also on the eve of a demographic shift that will have profound
consequences on its economic and social landscape. Within a few years the
working age population will reach a historical peak, and will then begin a precipitous
decline. The core of the working age population, those aged 20–39 years, has
already begun to shrink. With this, the vast supply of low-cost workers, a core
engine of China’s growth model, will dissipate, with potentially far-reaching
implications domestically and externally (p17).
Mitali and Papa (2013) forecast that the point at which China will experience such a labour
shortage will be reached between 2020 and 2025 but the experience of BoL, CCS and many
other Chinese SMEs in recent years appears to indicate an earlier arrival of the “Lewis Turning
Point”.
From Investment Driven Growth to Innovation Driven Growth?
As the Chinese economy grows stronger and becomes more integrated with the rest of the
world, the country can no longer depend on its export of cheap manufactured goods to sustain
its growth. Internally, the rising costs of raw materials, land, labour and energy are driving up
the cost of goods made in China whilst externally, the growing competition from other emerging
economies, such as Vietnam and Laos, with much lower factor costs, the slow economic
recovery in key importing countries and the continuing pressure from the US and the EU for the
value of yuan to appreciate are making Chinese products less competitive (Garschagen, 2010;
Rein, 2010).
Page 6
Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
The Chinese economy has now reached a crucial turning point. Many export orientated SMEs
based in the more affluent regions of China must now think strategically where to go from here.
For BoL who had been running at a loss since the beginning of 2011, the situation simply could
not continue. With four members of the family taking senior positions in the company, they
needed a steady income to finance their European style villas, BMW cars and their kids‟ dream
of studying abroad. After devoting nearly two decades of their lives to the business, they had
developed a reasonable understanding of the international quality standards for their products,
a reliable network of raw material and component suppliers and a sizeable factory facility with a
range of generic low-tech equipment. But without a large cash reserve, a stable skilled
workforce, a range of products of their own, an export license, mainstream higher education
qualifications, professionally sales and marketing capabilities as well as general business
management know-how, what options could they have?
By comparison, CCS was in a much better situation. They had a large and modern production
facility with a range of specialised machinery in the capital city of China, a reasonable size of
cash reserve from their surrogate manufacture, a brand of their own with a distribution network
in China, an export licence and a sound level of Western management know-how. They moved
to Beijing with a strategic vision to create a brand of their own as they knew the advantages of
surrogate manufacture would eventually be outweighed by its disadvantages. However, ten
years on they had only managed to achieve a moderate success with their AoB brand despite
investing a huge amount of resources. What should they do with it?
CCS‟ experience with the AoB brand suggests that being able to develop products is one thing
but being able to create a strong brand identity associated with it is quite another. Despite the
growing worldwide influence of China‟s economic power over the recent decades, there is a
clear absence of instantly recognisable Chinese brands (Ille & Chailan, 2011) as surrogate
manufacture has kept thousands of Chinese SMEs such as BoL and CCS totally invisible. This
has in recent years sparked some serious debates on what has gone wrong with the creativity
and entrepreneurial skills within the Chinese population since the four ancient inventions of
papermaking, gunpowder, printing and the compass that our modern-day lives have come to
depend on.
Yu Bin, a renowned IT expert in China, published an article of considerable controversy entitled
“Why can‟t „Apple‟ and „Microsoft‟ be born in China” (2011). In it, he argued that the traditional
Chinese approach to education, its current University system, the lack of an effective legal
framework for protecting intellectual property rights, and a general lack of ability to learn from
and build on the experiences of other nations were amongst the factors that have stifled
Chinese creativity in the past 100 years (Yu, 2011). To survive the impact of the current
economic downturn and to regain growth momentum when things start to pick up, firms like BoL
and CCS need a new business formula! And China needs a new growth strategy!
According to Porter (1990), “a nation‟s industries are either upgrading and extending their
competitive advantages or falling behind”. The cases of BoL and CCS show how
macroeconomic externalities such as the global recession and related government intervention
can help or hinder such SMEs. However, Porter (1990) argues that “attaining higher order
competitive advantage in one industry often helps other industries. Part and parcel of the
upgrading process is loss of position in price sensitive segments and in products involving less
sophisticated skills and technology” (1990. p544).
In his ILC model, Porter (1990) states that, whilst the “process of moving through the stages can
take many paths”, only by also “up-grading” key elements of the Diamond model, such as
China‟s supply of advanced factor conditions by enhancing its educated labour force with more
Page 7
Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
skills and competences in creative problem solving and innovation will a sustained transition to
an innovation driven economy be realised through the supply, as an advanced factor, of an
increasingly creative labour force (p562). As such, China has now reached the point of entering
the phase of “innovation” led growth (Porter, 1990. p567), as illustrated in Exhibit 3. In terms of
such upgrading strategies and as part of China‟s 12th Five Year Plan, it is currently facilitating
local technology based firms and encouraging high tech FDI by upgrading the R&D
infrastructure in order to develop innovative and patentable technologies (Rugman and Colinson
2012. p675).
As these distinct stages are transcended, nations should attempt to avoid what Porter (1990)
describes as “the self-reinforcing downward spiral of the wealth-driven stage” (p565) and should
not pursue growth at the expense of upgrading and continuing to invest in the preceding stages.
The issue of labour supply shortage and the “Lewis Turning Point” being reached in China
Exhibit 3. China’s Stage of Economic Development
alongside issues inherent within the Chinese education system, as discussed above, whilst
located within the factor driven phase, could undermine a sustained innovation led phase if not
addressed appropriately and in time. Although these phases appear to have a level of validity in
the context of China, they are interrelated - more as a continuum.
It should also be noted that economies do not necessarily need to become innovation led to
achieve what Porter (1990) describes as “National Competitive Advantage”. With its relatively
small population Canada is an example of sustained factor driven growth based on its wellendowed wealth of mineral resources (Rugman & Collinson, 2009). As the world‟s most
populous country with a distinct shortage of key natural resources, such as oil and gas, striving
to regain its world economic dominance by the end of the decade (Harrison & Ma, 2013), a
position it once had several dynasties ago, China will not see adopting the Canadian model for
growth as a viable option.
Closing the Innovation Gap
Based on their study on the perceptions of competing Chinese firms by select Multi-National
Corporations (MNCs), Butler, Tse and Jullens (2012) suggest that “whilst Chinese companies
still have capabilities gaps, especially in branding and marketing” (p3) – as vividly illustrated in
the cases of BoL and CCS, 45% of the MNSc studied stated that they now competed with
Chinese firms who were “at least as innovative as they are” and were perceived as being
“serious innovative competitors”. Despite such reported improvements in innovative capability
evident across a range of industries, including China‟s space exploration programme,
(International Business Times, 2013; BBC News, 2013), the innovation gap is likely to remain
substantial, due to both the problem of labour shortage and pedagogical impediments inherent
within the state education system.
Page 8
Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
A lot has been written about the Chinese “teacher-centred” educational system and how it
differs from the “student-centred” approach in the UK and US with rote learning often cited as
one of its most serious short-comings (Paine, 1992; Rao, 1996; Leon, 2000; Ziguras, 2001;
Yang, 2008; Zhuang, 2009). Whilst rote learning may have its place at the early stage of one‟s
education and for certain subjects, in China, its reinforcement throughout the highly competitive
exam based system of schooling and tertiary education effectively kills creativity (Yu, 2011), a
vital ingredient for innovation.
Innovation is about doing things differently to achieve better outcomes (Bessant & Tidd, 2013).
Manufacture in essence is a process or a chain of activities that creates value for customers
(Johnson, et al, 2011. p.97) by converting a range of inputs, e.g. raw materials and labour, into
outputs of various kinds, e.g. products and services. Innovation can occur in any or all of these
areas of activities, see Exhibit 4. Modern technologies can be effectively utilised in shaping
innovation of any kind in manufacturing (Ahmed & Shepherd, 2010, p.429-70).
Exhibit 4. Potential Areas of Innovation in Manufacture
Considering the case of BoL, upgrading their facilities for higher-end products, though costly
and risky, would seem the most viable strategic option for sustainable competitive advantage,
enabling them to reposition themselves with a differentiated offering in an otherwise increasingly
unattractive and crowed manufacturing sector (Porter, 1979 & 2008). To this end, BoL must
become more creative and innovative in what they produce and how. For CCS, on the other
hand, with its investments in a level of automation that made them less sensitive to labour
supply factor conditions, could clearly benefit from a more innovative approach to marketing
their own AoB brand.
Tajinder (2012) undertook a study on Newly Industrialised Nations (NIC‟s) exploring the
relationship between innovative capability of a country and the share of high-tech products in its
exports of manufactured goods and concluded that “…innovative capability is an important
determinant of a country‟s ability to design, produce and export high-tech products”.
In a quantitative application of Porter‟s Diamond Model (Porter 1990,) Stone and Ranchhod
(2006) found that China‟s diamond is almost symmetrical about the Y-axis. This, according to
their analysis, indicated it would soon reach a developed nation status alongside the UK and the
USA as its internal demand grows faster and poverty continues to be reduced. An important
question for China is, if such a prediction comes to fruition, will it be sustainable or, more
importantly, what needs to happen to make it so?
At the macro level, it is clear that China is facing problems with lower order factor conditions, in
terms of labour supply in specific regions, which is in turn impacting on its export driven growth
Page 9
Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
(Porter, 1990; Rugman and Collinson, 2009). If China is to achieve the anticipated status as the
dominant world economic power the end of the decade making a sustained transition to an
innovation driven economy becomes a necessity (The Economist, 2013). The question is how?
For this transition to happen, Porter (1990) argues for a wide range of policy instruments
including “efforts to improve the general education system, expansion of government
investment in research, government programs to fund new enterprise” to be put in place (p619).
A further challenge to attaining this position, as identified by Harrison and Ma (2013), is the
possibility of a “complacency trap”, in which China could become complacent and potentially
“prefer political stability over continued economic modernisation” (Harrison and Ma 2013).
CONCLUSION
Despite the extraordinary economic growth in the past three decades, journeying from
widespread poverty, through factor driven stage to investment driven stage of growth, having
reached the “Lewis Turning Point”, one must not forget that China is still a developing country,
grappling with a number of serious challenges (Tubilewicz, 2006). First, in terms of per capita
GDP China only ranked 93rd in 2010 (BBC, 14th Feb 2011) and there is a growing income gap
between the rich and the poor (Moxley, 2010; Roberts, 2011). Second, there are serious
concerns about the sustainability of China‟s current development model (Balfour, 2009) and the
social and environmental costs of its rapid development as manifested in the public outcry in
China over the fatal high-speed rail crash on 23rd July 2011 (Syed, 2011) and the public disquiet
about the widespread smog covering many regions across country (Vaughan, 2014).
The next challenge for China is how to successfully progress to and sustain the innovation led
phase of growth without losing sight of the need to further upgrade its factor conditions and
inward investments, with the aim of avoiding becoming wealth driven which, as Porter (1990.
p565) argues, is the stage that ultimately leads to economic decline. With the successful
implementation of this growth strategy, the world could soon see many Chinese brands
becoming household names along with enhanced visibility of their brand owners such as the
likes of BoL and CCS.
FUTURE RESEARCH DIRECTIONS
As the world slowly comes out of the current economic recession and debt crisis, China needs
to adopt a new growth strategy that incorporates measures to reduce its dependency on
exporting low-end products, to increase the level of domestic consumption and to reform the
current education system. As such, it would be very useful for researchers with a keen interest
in the China phenomena to devote some attention to the following over the next few years:
 How Porter’s CAN model (1990) may be applied with macro-economic scenarios to explore
possible futures for China’s ability to continue with its phenomenal rise on the world stage.
 How China manages the unique relationship between government policy in respect of its
transition to an innovation led phase of economic growth and SME performance in light of
labour shortages in some regions of the country.
 How China embraces the concept of technopreneurship – combination of modern
technology and entrepreneurial skills in business (Cereijo, 2002) – to create some strong
Chinese brands that help to reshape the Chinese economy in the next decade or two.
Note: At the time of finishing this paper, BoL had sold off their manufacturing facilities whilst keeping their
loss to the minimum. Senior managers of CCS were still debating whether or not they should just
abandon their AoB brand as it had reached a point of stagnation.
Page 10
Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
REFERENCES
Ahmed, P. K. & Shepherd, C. D. (2010). Innovation Management – Context, Strategies,
Systems and Processes. Prentice Hall.
Alim, S. F. (2009). “The Proven Track of Fastest Industrial Growth”, The Financial Express, 27th
May 2009. Retrieved 19th August 2011, from http://www.thefinancialexpressbd.com/2009/05/27/67749.html
Balfour, F. (2009). “The Global Recession Slams China”, Bloomberg Business Week, 22nd
January 2009. Retrieved 19th August 2011, from
http://www.businessweek.com/globalbiz/content/jan2009/gb20090122_354571.htm
Barboza, D. (2010). “China Passes Japan as Second-Largest Economy”, The New York Times,
15th August 2010. Retrieved 19th August 2011, from
http://www.nytimes.com/2010/08/16/business/global/16yuan.html
BBC. (2011). “China Overtakes Japan as World's Second-Biggest Economy”,. BBC Business
News, 14th February 2011. Retrieved 19th August 2011, from
http://www.bbc.co.uk/news/business-12427321
BBC. (2013). China's Jade Rabbit Moon rover sends back first photos. BBC News Asia, 15th
December. Retrieved 11th January 2014, from http://www.bbc.co.uk/news/world-asia-25393826
Berliner, J. (2010). The Rise of the Rest: How New Economic Powers are Reshaping the
Globe. The Second in a Series of White Papers on the American Economy in a New Era of
Globalization, April 23, 2010. NDN.
Bessant, J. & Tidd, J. (2013). Innovation and Entrepreneurship. John Wiley & Sons.
Bradsher, K. (2010). “Defying Global Slump, China Has Labour Shortage”, The New York
Times, 26th February 2010. Retrieved 19th August 2011, from
http://www.nytimes.com/2010/02/27/business/global/27yuan.html
Butler, S., Tse, E. & Jullens, J (2012). “The New Chinese Economy”. Retrieved 6th December
2013 from http://www.strategy-business.com/article/00141
Cereijo, M. (2002). Technopreneurship. Retrieved 19th August 2011, from
http://www.amigospais-guaracabuya.org/oagmc160.php
Chow, G. (2001). “The Chinese Economy 1901-2000”, Perspectives, Vol. 2, No. 6, 30th June
2001. Retrieved 19th August 2011, from
http://www.oycf.org/Perspectives2/12_063001/chinese_econ.htm
The Economist (2013). “China Approaching the Lewis Turning Point”. Retrieved 23rd March
2014. http://www.economist.com/blogs/freeexchange/2013/01/growth-and-china
Elegant, S. (2008). “China's Worst Nightmare: Unemployment”, Time World, Friday, 31st
October, 2008. Retrieved 19th August 2011, from
http://www.time.com/time/world/article/0,8599,1855400,00.html
Garschagen, O. (2010). “Chinese labour shortage drives up wages”, nrc.nl, 4th March 2010.
Retrieved 19th August 2011, from http://vorige.nrc.nl/international/article2496895.ece
Goodhart, C. & Xu C. (1996). The Rise of China as an Economic Power. Centre for Economic
Performance Discussion Paper No. 299. July 1996.
Harrison, M & Ma, D. (2013). Soaring Dragon, Stumbling Bear - China’s Rise in a Comparative
Context. The CAGE–Chatham House Series, No. 6, March 2013
Hogg, C. (2010). “Another worker death at iPhone firm Foxconn”, BBC News Asia-pacific, 25th
May 2010. Retrieved 19th August 2011, from http://www.bbc.co.uk/news/10151626
Ikenberry, G. J. (2008). “The Rise of China and the Future of the West – Can the Liberal
System Survive?” Foreign Affairs, January/February 2008.
Ille, F, R. & Chailan, C. (2011). “Improving Global Competitiveness with Branding Strategy”,
Journal of Technology Management in China. Vol. 6, No. 1. P.84-96.
Page 11
Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
International Business Times, (2013). “Chinese 'Jade Rabbit' Space Probe to Land on Moon”.
Retrieved 11th January 2014 from http://www.ibtimes.co.uk/china-jade-rabbit-probe-land-moon530145
Johnson, G., Whittington, R. & Scholes, K. (2011). Exploring Strategy – Text & Cases, 9th
edition. Prentice Hall.
Kraar, L. (1986). “Reheating Asia‟s „Little Dragons‟”, CNN Money, 26th May 1986. Retrieved
19th August 2011, from
http://money.cnn.com/magazines/fortune/fortune_archive/1986/05/26/67599/index.htm
Leon, P. (2000). “Be Sensitive to Chinese Minds”, Times Higher Education. 23 June 2000.
Li, J. (2010). “Go West‟ Campaign Gives China One Leg Up”, People’s Daily On-line, 3rd August
2010. Retrieved 19th August 2011, from
http://english.peopledaily.com.cn/90001/90776/90882/7090349.html
Li, M. (2009). The Rise of China and the Demise of the Capitalist World Economy. Pluto Press
Mitali D. and Papa N. (2013). Chronicle of a Decline Foretold: Has China Reached the Lewis
Turning Point? International Monetary Fund. Retrieved 3rd January 2014
http://www.imf.org/external/pubs/ft/wp/2013/wp1326.pdf
Morrison, W. M. (2011). “China‟s Economic Conditions”, Congressional Research Service, 24th
June 2011.
Moxley, M. (2010). “China renews „Go West‟ effort”. Asia Times On-line, 23rd July 2010.
Retrieved 19th August 2011, from
http://www.atimes.com/atimes/China_Business/LG23Cb01.html
Paine, L. (1992). “Teaching and Modernization in Contemporary China”, Education and
modernization: The Chinese experience, Hayhoe, R. (ed.). Pergamon, Oxford.
Porter, M. (1979). “How Competitive Forces Shape Strategy”, Harvard Business
Review. Mar/Apr79, Vol. 57 Issue 2, pp. 137-145.
Porter, M. (2008). “The Five Competitive Forces That Shape Strategy”, Harvard Business
Review. January 2008, pp. 79–93
Porter, M. (1985). Competitive Advantage. New York Free Press.
Porter, M. (1990). The competitive Advantage of Nations. Macmillan Business Press
Price Water House-Coopers. (2008). The Economic Crisis Poses Challenges to China’s
Wisdom on Economic Growth, December 2008.
Rao, Z. H. (1996). “Reconciling Communicative Approaches to the Teaching of English with
Traditional Chinese Methods”, Research in the Teaching of English. 30. p.458-71.
Rein, S. (2010). “China‟s Growing Labour Shortage”, Seeking Alpha, 16th March 2010.
Retrieved 19th August 2011, from http://seekingalpha.com/article/193845-china-s-growing-laborshortage
Roberts, D. (2011). “China's Growing Income Gap”, Bloomberg Business Week, 27th January
2010. Retrieved 19th August 2011, from
http://www.businessweek.com/magazine/content/11_06/b4214013648109.htm
Rose, S. (2010). “China's Economic Model: Marxism and the Market”, Suite 101, 9th August
2010. Retrieved 19th August 2011, from http://www.suite101.com/content/chinas-economicmodel-capitalism-meets-marxism-a270574
Rugman and Collinson (2009). International Business. FT Prentice Hall
Rugman and Collinson (2012). International Business. FT Prentice Hall
Scott, D. (2007). China Stands Up – The PRC and the International System. Routledge.
Stone, H. B. J. & Ranchhod, A. (2006). “Competitive advantage of a nation in the global
arena: a quantitative advancement to Porter‟s Diamond applied to the UK, USA and BRIC
nations”, Strategic Change, Vol 15, p.283–94
Page 12
Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
Syed, S. (2011). “The price of high-speed ambitions”, BBC Business News, 28th July 2011.
Retrieved 19th August 2011, from http://www.bbc.co.uk/news/business-14321131
Tejinder, S, Jackson, F, Upchurch, L. (2012). “Role of Innovation in Hi-Tech-Exports of a
Nation”, International Journal of Business and Management. Pp?
The Economist. (2005). “China‟s People Problem”, The Economist, 14th April 2005. Retrieved
19th August 2011, from http://www.economist.com/node/3868539?story_id=3868539
The Economist. (2010). “The Next China”, The Economist, 29th July 2010. Retrieved 19th
August 2011, from http://www.economist.com/node/16693397
Tubilewicz, C. (Ed.). (2006). Critical Issues in Contemporary China. Routledge & Open
University of Hong Kong Press.
Vaughan, Adam (2014). “Nine Chinese cities suffered more days of severe smog than Beijing”,
The Guardian, http://www.theguardian.com, Wednesday, 12 March 2014.
Yan, X. (2006). “The Rise of China and its Power Status”, Chinese Journal of International
Politics, Vol. 1, 5–33.
Yang, R. (2008). “Transnational Higher Education in China: Contexts, Characteristics and
Concerns”, Australian Journal of Education. Vol. 52, no. 3. p.272–86.
Yu, B. (2011). “Why Can‟t „Apple‟ and „Microsoft‟ be Born in China?” Chinese Economics, 12th
August 2011. Retrieved 19th August 2011, from
http://www.ce.cn/celt/wyry/201108/12/t20110812_22614623.shtml
Zhang, Y., Zhang, Z. & Huang, S. (2011). „Severe Labour Shortage Continues to Trouble
Small and Medium Sized Enterprises in Eastern China”, Xinhua Newsnet Zhejiang Channel, 5th
August 2011. Retrieved 19th August 2011, from http://www.zj.xinhuanet.com/newscenter/201108/05/content_23400201.htm
Zhuang, L. (2009). “The Challenges Facing Sino-UK Transnational Education: an Institutional
Experience”, Journal of Knowledge-based Innovation in China. Vol.1, no.3. p.243-44.
Zhuang, L. (2011). “The Changing Landscape for Chinese Small Business – The Case of „Bags
of Luck‟ ”, Emerald Emerging Markets Case Studies, Volume 1, No. 1, 2011. P.1-12.
Zhuang, L., Qiu, Y. (2014) “The Beginning of the End of Surrogate Manufacture in China – The
Case of Cool-Comfort Shoes International Company Limited”. A version of the case study
developed for in-class discussions was submitted in March 2014 for consideration for
publication in Emerald Emerging Markets Case Studies.
Ziguras, C. (2001). “Educational Technology in Transnational Higher Education in South East
Asia: the Cultural Politics of Flexible Learning”, Educational Technology & Society. 4 (4) 2001.
Page 13