How are Immelt and Liu Chuanzhi Different?

Cover Issue 477, July 12
Translated by Tang Xiangyang
Original article: [Chinese]

CEOs of transnational companies seldom criticize the Chinese government. However, earlier this month, Britain's Financial Times quoted Jeffrey Immelt, CEO of GE, as saying, "The Chinese government is increasingly unfriendly toward foreign transnational companies," and, "GE is facing its toughest business conditions in China in 25 years."

Chinese counterparts believe that the views expressed by foreign companies show their ignorance of the Chinese market. Liu Chuanzhi, chairman of Lenovo Group, said in an interview with the Financial Times, "Apple has not taken the Chinese market seriously, or else Lenovo would be in trouble."

Business is business, and businessmen only speak words that are to their advantage. The resentment Immelt portrays towards China shows the great expectations he had about the Chinese market. On this point, his view is not that different to Liu Chuanzhi's: The Chinese market holds vast opportunities.

The only difference is: Immelt is pessimistic while Liu Chianzhi is optimistic and confident. They are both facing the same market, why are the judgements of the two entrepreneurs so different?

It is doubtless that Immelt is not alone in his feelings about China. During the past few months, more and more foreign companies have been criticizing China's investment environment; another area of complaint has been that foreign companies are being gradually forced out of the Chinese market and Chinese companies are increasingly well received.

During the past, the high-end market in China was controlled by foreign investors while local enterprises were famous for their low prices. But now, as shown by the increasingly intense conflicts, the former pattern which has lasted for over ten years is being broken. Chinese enterprises are gaining more shares of the high-end market which used to be only occupied by foreign companies.

No matter what role the often-criticized Chinese government has played during this process, the entrance of Chinese enterprises into the high-end market shows that they have the strength and potential to expand. That is to say, the conflicts between Chinese enterprises and their foreign counterparts is undoubtedly an important indicator that the upgrading of Chinese industries has accelerated.

All enterprises live in a industrial circle and have their own food chains. Each of them is one link in the chain. It is impossible for companies not to desire to reach their value-added peak, thus the upgrading of industrial structure is a shared concern among all enterprises.

Upgrading is not as simple as increasing the quality of products since consumers might not need that type of improvement. For example, if your product already satisfies the needs of its customers, it is not worth spending an extra amount of money to improve it slightly to make a few people only a bit more satisfied without providing an overall improved customer experience.

For enterprises, the most direct way to upgrade their products is to choose a new target market and develop new high value-added products, this is fundamental.

However, the process of producing higher value-added products is intensely competitive and is not just a distribution process. As mentioned above, each enterprise is living in a circle. Upgrading one's products means having direct conflict with the original high-end manufacturers. At the same time, why should consumers start buying your goods rather than continuing buying the other companies? And will the original high-end manufacturers look the other way when you begin to take their market shares?

So Immelt's words were a counterattack to Chinese enterprises' taking over more market shares. He attributed the responsibility of the loss of market shares to the Chinese government while Liu Chuanzhi's comments express his confidence with competing with Apple and his determination to maintain a position of dominance in the Chinese mobile market.
 
Therefore, the essence of industrial upgrading can be partly viewed as an issue of contradictions. Be it the view of Chinese enterprises threatened by foreign counterparts or foreign enterprises discriminated against by the Chinese government, they are both derived from contradictions. Viewing it from this perspective, we may be able to discard the politicizing criticism, no matter whether it is targeted at foreign enterprises or the Chinese government.
 
A successful industrial upgrading will surely defeat foreign enterprises while a failure to upgrade is equivalent to defeat for Chinese enterprises. This is the essence of Immelt's complaints and the source of Liu Chuanzhi's growing aggressiveness. A dominant position in the Chinese market is what they are both after.
 
This article was edited by Rose Scobie