Global Manufacturing and Secondary Innovation in China. Xiaobo Wu
Opportunities brought by globalization:
● Tremendous changes have taken place in the international manufacturing landscape. Global resources are facing a restructuring of reallocation and integration.
● An evolving new global market and a potential overseas market are developing and to be developed with the implementation of the Belt and Road Initiative.
● Opportunities for technological catch-up are enabled by the deep integration of information and manufacturing technology.
● The huge consumption demand brought by the sustained growth of domestic market and urbanization process will be the internal growth driver and strong support for the overseas expansion of China’s manufacturing industry.
● Governments actively participate to issue supporting policies to incentivize companies’ independent R&D and overseas expansion.
Specifically, the new globalization that is sweeping the world now brings about two major opportunities to China’s latecomer companies to accelerate technological innovation.
Firstly, the urbanization and consumption upgrading have brought the rapidly growing domestic market demand. In 2015, the urbanization rate in China reached 56.1%, and the urban population increased by 20 million people①. By estimation, consumer demand will increase by more than RMB 10,000 yuan when a rural resident is converted to urban resident. Hence, 20 million of rural residents entering the cities would create a consumption demand of RMB 200 billion yuan. On the other hand, with the increase of residents’ income, the consumption structure has been upgraded with an orientation to advanced consumption of food, use, housing and transportation, increasing from RMB 100 yuan level, RMB 1000 yuan level, to RMB 10,000 yuan level and even RMB 100,000 yuan level. The consumption policy in China is also steered to encourage greater consumption. Therefore, China’s manufacturing industry can tap into this massive and growing billion-level market. It’s an unprecedentedly huge opportunity that no country has ever met in the process of modernization. With this vast marketplace, China’s manufacturing industry is more likely to produce scale economy effect, lower R&D costs and achieve industrialization.
Secondly, this new round of scientific and technological revolution has provided China’s manufacturing industry with a strategic opportunity to catch up and accelerate the structural upgrade. Currently, the world has entered into an era of intensive innovation and rapid development of emerging industries. A new round of scientific and technological revolution is being actively incubated. In the past three revolutions of science and technology, China had always been a follower. However, China is now actively leading the technological innovations dominated by new energy, information science and biomedicine. Based on the matured conventional technologies accumulated over the past 30 years of development, China’s manufacturing industry is closer than ever to becoming a world leader in terms of technological foundation and R&D capabilities. If China’s manufacturing industry can seize this technological revolution opportunity, it will be able to catch up with developed countries in a number of important areas and become a leader in industrial development.
1.4.2 Challenges
At the same time, the highly complex and uncertain situations at home and abroad, plus the status quo of industry development, pose three major challenges to China’s manufacturing industry.
Firstly, international financial crisis has shattered the original consumption patterns of developed countries and imposed structural constraints on the export demands of China’s manufacturing industry. After the financial crisis, major changes are seen in the old consumption patterns and the export models of developed countries and developing countries: The existing high-consumption and high-debt model in the US and Europe is no longer sustainable. This makes it necessary to reduce China’s long-term reliance on export to drive the growth of manufacturing industry, which imposes great constraint on China’s exports. The long-lasting pattern of strong consumption driving the manufacturing growth in developed countries is difficult to be restored. Global trade pattern will also change accordingly. Trade barriers will be in various forms and occur at high frequency.
Secondly, the developed countries have started the journey of manufacturing’s “return”. At the same time, powered by the cost advantages in labor and resources, the new-type developing countries have squeezed into the low and mid-end manufacturing markets, posing double threats to China’s manufacturing industry. In the post-financial crisis era, western developed countries witness setbacks of missing real economy. They advocate the “re-industrialization” strategy and vigorously develop emerging industries such as new energy, information and biology industries to revitalize the manufacturing industry and seize the high ground of high-end manufacturing industry. Besides, with the gradually climbing labor and resource costs, China’s demographic dividend is fading away. ASEAN countries, Latin America and other countries are gradually eating into the world’s low-end manufacturing markets. China’s manufacturing industry has to deal with the double pressure from accelerating the adjustment of economic structure and promoting industry upgrading.
Thirdly, low independent innovation capabilities lead to excessive dependence on the foreign core technologies in some key component and part manufacturing processes. With a “big but not strong” industry, manufacturing products exports will face not only increasingly unfair trade barriers, but also the constraints of increasing factor costs and environmental resources, limiting the enhancement of international competitiveness.
1.5 Research intention and structure of this book
Manufacturing industry has played a key role in the four decades of high-speed economic growth after the Reform and Opening-up. In the accelerated globalization of recent years, a number of “tide riders” have sprung up in China’s manufacturing industry. They stand out in both the domestic and international markets and have changed from merely “catching-up” with the leading companies to “surpassing” and “taking the lead” to a certain extent. But at the same time, due to the rising cost of production factors, the international financial crisis and the lack of independent innovation capabilities, etc., China’s entire manufacturing industry is facing a daunting test. To secure the competitive advantages of China’s manufacturing industry in the new competitive global environment and compose another brilliant chapter is the key to China’s sustainable economic development in the new century.
Powered by the torrents of globalization, multinational corporations have adjusted their strategies. Based on their existing business strength, multinational corporations reinforce their innovation efforts and implement globalization strategies to realize their values. This may aggravate the polarization of the rich and the poor. Facing such daunting test, companies of developing countries must recognize that innovation is the fundamental driving force behind economic globalization. In the context of globalization, the innovation process presents new features. It is necessary to explore the innovation issues through analyzing the current initial capacity inadequacy of the latecomer companies in developing countries in the context of economic globalization. In the globalized environment, how can China’s manufacturing industry establish, maintain, consolidate and develop competitive advantages? This is an urgent question that has caught the attention of Chinese scholars and entrepreneurs. It’s also a question pressing for early solutions.
This study aims to apply the theory of technological innovation based on China’s actual situation and the recent findings of international management academia. In view of the new challenges posed by the manufacturing globalization to Zhejiang’s manufacturing companies, studies were conducted on the non-linear relationship and dynamic suitability between the dynamically evolving rules of “secondary innovation” and corporates’ organizational learning modes. Analysis was made on the internal mechanism adopted by Zhejiang’s manufacturing companies to win the “latecomer’s advantages” in globalization process. Such analysis can establish a strategic management framework focused on improving the international competitiveness of China’s manufacturing industry.
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