Wake up, America. We're getting soaked.
http://www.businessweek.com/technology/content/jan2006/tc20060119_322122.htmJANUARY 19, 2006
Learning from China's Export Boom
By Oded Shenkar
China has replaced the U.S. as the world's top tech exporter. While no cause for panic, it's a wake-up call for the complacent
According to the Organization for Economic Cooperation & Development (OECD), China has overtaken the U.S. to become the world's largest exporter of information- and communications-technology goods. Crossing the largely symbolic threshold should put to rest outdated notions of China as a manufacturer and exporter of cheap T-shirts, though the country won't give up its thriving garment exports as it steps up production of laptop computers and memory chips. Advertisement
Indeed, China's ability to hold on to the labor-intensive segments of the global marketplace as it climbs the technology ladder is one of the unique features of the country's ascent -- and a remarkable source of resilience for its economy. It's also a factor in the country's $100 billion-plus trade surplus with the rest of the world and double that figure with the U.S.
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{China is} gearing up to become a producer of indigenous technology and a global knowledge player on the scale of Sony (SNE) and Samsung. If this sounds far-fetched, think of Sony in the 1960s and Samsung in the 1970s, except that this wave is coming much faster.
BUILDING INFRASTRUCTURE. To achieve its goal, China is undertaking a number of strategic measures. It's transforming its educational system, upgrading the capabilities of the 200,000-plus engineering students it graduates every year, and enlisting the help of foreign enterprises in developing a solid link between academia and production. At the same time, it's enticing Chinese students (many of whom are graduate students specializing in science and engineering) and scientists to return home with a plethora of programs and incentives (see BW Online, 1/6/06, "A Chinese Welcome for Entrepreneurs").
To make sure foreign investment translates into indigenous capabilities, the Chinese government continues to give preference to companies that are willing to transfer technology. The deeper the transfer, the higher the incentives. In a typical arrangement, the value-added tax (VAT) on integrated circuits was brought down to 11% from 17% for those willing to manufacture on Chinese soil, and 3% to 6% for those doing both the design and the manufacturing locally. And while this particular deal was shot down at the World Trade Organization, others are alive and well, often orchestrated by local authorities under the radar.
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Shenkar is Ford Professor at Ohio State University's Fisher College of Business and author of The Chinese Century (Wharton, 2004)
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