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8/4/2019 Asia Business Letter
1/11
Box 240, SE-101 24 Stockholm, Sweden (World Trade Center, Klarabergsviadukten 70) Tel: +46 8 588 660 00 Fax: +46 8 588 661 90
[email protected] www.swedishtrade.se www.swedishtrade.com
Asia
Business LetterThe Swedish Trade Councils newsletter about your business in
Asia. The headlines o this issue are as below.
Asia Business Letter, No 3
China: Chinas cost-innovation challenge
Vietnam: WTO or bust
India: India - a hub or rugal engineeringChina: Chinas design revolution
Thailand/Taiwan/South Korea: East Asia Changes Costume
Contact
Are you interested in starting or developing your business in Asia? Please contact Mattias Berg-
man, Vice-President Asia, [email protected], +46 8 588 660 09.
You can also nd the contact details or all our Swedish Trade Council oces at
www.swedishtrade.se
Taipei City Government
8/4/2019 Asia Business Letter
2/11
Box 240, SE-101 24 Stockholm, Sweden (World Trade Center, Klarabergsviadukten 70) Tel: +46 8 588 660 00 Fax: +46 8 588 661 90
[email protected] www.swedishtrade.se www.swedishtrade.com
China
Chinas cost-innovation challenge
Author Peter J Williamson oers his opinions on how Chinese companies attitude o doing more
with less are poised to shake up global markets.
For Peter J Williamson, co-author (with Ming Zeng) o Dragons at Your Door: How Chinese Cost
Innovation is Disrupting Global Competition, within ve to 10 years globally expanding Chinese
companies will have transormed the global playing eld, and it will not be, as most people think
to be the case, simply by oering more o the same at cheaper costs. Williamson argues the trans-
orming actor will be cost innovation.
Most people think that cost advantage is just about lower prices, says Williamson. But what we
have ound is that many Chinese companies are looking at cost innovation, moving high technol-
ogy to lower prices, achieving mass variety o products at lower costs, and taking niche marketsand exploding them into mass markets.
One o the most striking examples o cost innovation through moving high technology to lower
prices, says Williamson, is digital direct X-ray technology. Philips and GE, among other compa-
nies, applied this to heart scans that could be transerred to a computer network using machines
that cost around US$400,000. What the Chinese did - a company called Zhongxing - was to
apply this technology to everyday applications such as chest X-rays at a much lower cost, with
machines that cost around US$50,000.
Another area that Williamson thinks Chinese companies will use cost innovation is producing ahuge variety o products through low-cost cost engineering, thus oering consumers or industries
aordable and wide-ranging choices.
The third example o cost innovation, says Williamson, is taking a niche market and exploding
it into a mass market. Chinese white-goods manuacturer Haier Group provides a good example
o how this can be done, he says.
Haier took specialist rerigerators designed to store wine and started selling them at US$790
versus prevailing prices o US$1,600. It gained 60% market share in the US and Korea within twoyears. In other words, because their break-even price is lower, Chinese companies can produce at
higher volume, and the only reason you think your product is a niche is because your prices are so
high.
For Williamson, this is an example o how Chinese companies, which have emerged in a ercely
competitive market, target what he calls the loose bricks in the walls companies have built up in
their markets.
8/4/2019 Asia Business Letter
3/11
Box 240, SE-101 24 Stockholm, Sweden (World Trade Center, Klarabergsviadukten 70) Tel: +46 8 588 660 00 Fax: +46 8 588 661 90
[email protected] www.swedishtrade.se www.swedishtrade.com
Williamson is quick to point out that the claim in Dragons at Your Door is not that the Chinese
companies that are gearing up to create tectonic shits in the global economy are superhuman.
Rather, he says, theyre simply using their cost advantage in innovative ways.
Countering arguments that Chinese companies lose their cost advantages when they make oreign
M&As and take their business abroad, Williamson maintains that Chinese business investment isollowing a unique trend.
One o things we ound is that Chinese companies are keeping their manuacturing and even
R&D in China, he says, so as to maintain cost competitiveness, and most o the money that they
spend on oreign investment and acquisitions is spending on technology and brands. The diculty
or oreign companies is that they are oten not in position to make that kind o investment on
design centres and engineering and hiring in China, or that they do not have the local expertise to
do so.
Williamson agrees that the China cost-innovation challenge is not an absolutely new phenomenon.
The so-called Asian economic miracle that began in the 1950s in Japan and gathered momentum
through to the crisis o the late 90s through the combined industriousness o Taiwan, South Ko-
rea, Hong Kong and Singapore was achieved by similar strategies.
However, Williamson maintains that while there is no substantial dierence between the current
threat rom China and what the previous emergent dragons in Asia achieved, he says the scale and
speed o what is happening is unprecedented.
He notes that in the car industry, or example, companies such as Toyota and Honda were ableto create huge shits in the landscape, but they did so at a relatively slow pace, starting rom the
1960s on their domestic market, and not penetrating oreign markets in a wrenching way until the
1990s.
The point is that globalization is allowing Chinese companies to eect cost innovation at a much
aster rate, he says. It took countries like Japan and Taiwan a long time move away rom being
the producers o cheap products, but in a globalised market the Chinese are able to move much
more quickly.
For Williamson, the scale o Chinas cost-innovation challenge to the global economy is something
that has never been seen beore. With its 1.3-billion strong population supplying a near endless
supply o low-cost labour or the oreseeable uture and its vast geography, among other actors,
Chinese companies attitude o how can I do more with less will create a ar greater shake up
than the little dragons did in the 1980s and 1990s.
China has a much bigger resource base, so the shits it causes will be much bigger, says Williamson.
Swedish Trade Council
8/4/2019 Asia Business Letter
4/11
Box 240, SE-101 24 Stockholm, Sweden (World Trade Center, Klarabergsviadukten 70) Tel: +46 8 588 660 00 Fax: +46 8 588 661 90
[email protected] www.swedishtrade.se www.swedishtrade.com
Vietnam
WTO or bust
It may not be happening tomorrow, but there is no turning back or Vietnam now it has joined
the WTO, and Vietnam will allow wholly oreign-owned enterprises to control their own sales
and distribution rom early 2009, says Hkan Ottosson.
It took some 11 years o negotiations, and protracted bargaining with the United States, but in
January o last year Vietnam nally became the 150th member o the World Trade Organisation
(WTO), oering the promise to oreign businesses that the Communist Southeast Asian country
will open its markets to wholly oreign owned companies.
Hkan Ottosson, head o Swedish Trade Council in Vietnam, or one is condent that that is
exactly what is going to happen, even i he cautions that some patience is required. Vietnam is
not poised to immediately fing open its doors, particularly when it comes to allowing oreign-owned subsidiaries operate their own sales and distribution within the country.
Whats happening here is that with Vietnams accession to the WTO, we expect the market to
open up by early 2009, says Ottosson. Ive talked to a lot o companies, and at the moment
theyre sitting around waiting, but we want to let them know that its happening.
The main hurdle to Vietnams WTO accession was the US, which put strong pressure on Viet-
nam to provide deep market access or US businesses, and also pressure on issues such as subsi-
dies, intellectual property rights, trading rights, with some observers suggesting that the US
played hardball ater learning rom its experience o having welcomed China into the WTOwith insucient pressure on it to make binding commitments on certain trade issues.
All the same, despite its ormerly tightly state-controlled economy, the interest in Vietnam is
understandable. The country has seen average economic growth o 7.25 per cent over the past
hal decade, and while that lags behind Chinas double-digit growth rates, some analysts are pre-
dicting that when Vietnam ully implements its WTO commitments, oreign trade and capital
infows will boost its growth to a aster clip than the worlds astest-growing economy.
Also attractive to oreign businesses is an industrious workorce in a country with lower averagemonthly wages than in southern China and the Yangzi River region, Chinas much-touted ac-
tory o the world.
But the transition rom a state-controlled economy to a ree-market economy will bring a host
o challenges, and will likely be a wrenching aair, posing a serious threat to the majority o
Vietnams state-owned industries, which account or nearly 40 per cent o the countrys gross
domestic product (GDP).
8/4/2019 Asia Business Letter
5/11
Box 240, SE-101 24 Stockholm, Sweden (World Trade Center, Klarabergsviadukten 70) Tel: +46 8 588 660 00 Fax: +46 8 588 661 90
[email protected] www.swedishtrade.se www.swedishtrade.com
Some major oreign companies had already taken the plunge and set up shop in Vietnam beore
the countrys WTO accession, notably US technology colossus Intel, which is building one o
the biggest chip oundries in the world in southern Vietnam. Ford Motor already has an auto-
assembly plant in northern Vietnam, while Canon decided last year to build the worlds largest
laser- and bubble-jet printer actory in Vietnam.
However, while the WTO accession and the presence o major international players is sure to
raise condence in Vietnam as an investment destination, inrastructure remains creaky, and as
Ottosson concedes, companies investing in Vietnam are best served by exercising as much con-
trol as they possibly can over sales and distribution.
I you really want to control marketing, says Ottosson, you need to control it yoursel. The
same applies or ater-sales service. You need to have your own technicians, and i you dont
control your own stock there will likely be problems with the availability o spare parts. Out-
sourcing is not an option, because Vietnamese companies are unproessional when it comes to
ater-sales and marketing.
Ottosson also points out that control is important when it comes to logistics. I you use local
distributors, he warns, you will probably have problems with payments and meeting delivery
deadlines. There are many fy-by-night operators in Vietnam, but i you control your own stock,
you can control its fow.
But Ottosson is condent that by early 2009, in the great majority o industries, oreign busi-
nesses will be able to set up their own enterprises or distribution and sales.
Ater all, according to its ercely negotiated WTO agreements, Vietnam has committed itsel to
even allow oreign organizations and individuals with no investment or business registration in
Vietnam to apply or trading rights, though Decree 23 o the WTO agreement does require that
oreign investors apply or a separate sales/distribution license. This, according to analysts, will
create a host o opportunities or sales o industrial products as well as consumer goods.
Basically, with the WTO accession, says Ottosson, or Vietnam, theres no turning back, or at
least that going back is not an option. The timeline is the beginning o 2009, and even though
there may be some delays, its time to get the word out.
Swedish Trade Council
8/4/2019 Asia Business Letter
6/11
Box 240, SE-101 24 Stockholm, Sweden (World Trade Center, Klarabergsviadukten 70) Tel: +46 8 588 660 00 Fax: +46 8 588 661 90
[email protected] www.swedishtrade.se www.swedishtrade.com
India
India - a hub or rugal engineering
Frugal Engineering is a concept o how to engineer cheap products. Business developers rom
industries all over the world have their eyes set on the rapidly growing automotive industry in
China and India, where the masters o rugal engineering make their home.
The Tata Nano is here! The worlds cheapest car, developed and produced by Indian car manu-
acturer Tata Motors, was launched in early January 2008 at Asias largest car show, AutoExpo,
in New Delhi. The Tata Nano will cost less than US$2,500 and is predicted to have the same
proound eect on the world as Henry Fords Model T did almost 100 years ago. Both cars are
excellent examples o rugal engineering, a sector in which India has proven to be the ront-
runner.
Were here to learn about rugal engineering, said Carlos Ghosn, president and chie execu-tive o Renault and Nissan, when they launched their new model, the Logan, to the rapidly
growing automotive market in India in April 2007.
Once again, it is in the mature, global and highly competitive automotive industry that a new
business development concept has been initiated. The industry is the same, but the geography
has changed. Concepts such as Industrial Design and Business Process Reengineering have
their origin in the US, while Total Quality Management and Lean Production were devel-
oped in Japan. Now, business developers rom industries all over the world have their eyes set
on the rapidly growing automotive industry in China and India, where the masters o Frugal
Engineering make their home.
Frugal Engineering is the practical concept o how to engineer cheap products that neverthe-
less have sucient unctionality. The use o rugal engineering has oten allowed a product to
target new markets, thus boosting a companys growth. A ew examples o rugal engineering
over the past century are the PC, bringing industrial computers into our homes; the Volkswagen
Beetle, allowing European middle-class amilies to own a car; and Skype, giving anyone with a
broadband connection ree international telephone calls.
Two o the latest rugal engineering projects are MITs US$100 laptop, which will be pro-duced by Taiwan-based Quata Computer, and now Tata Motors 1 lakh car. A lakh is Hindi
or 100,000 and indicates the Rp100,000 price o the car, which is equivalent to US$2,500.
This is 50% less than the QQ3 model by Chinese car manuacturer Chery, which, until recently,
was the cheapest car in the world. To be able to achieve this price, the engineers at Tata Motors
have had to radically challenge the conventional way o engineering a car. In the process, Tata
Motors led 34 new patents or the car itsel and about 200 other patents or various other in-
novations to create the cost-ecient new technology.
8/4/2019 Asia Business Letter
7/11
Box 240, SE-101 24 Stockholm, Sweden (World Trade Center, Klarabergsviadukten 70) Tel: +46 8 588 660 00 Fax: +46 8 588 661 90
[email protected] www.swedishtrade.se www.swedishtrade.com
India has three actors that make it interesting rom a rugal engineering perspective. First, it
has a strong tradition o producing highly skilled engineers. The worlds rst university was
started in Takshila in India about 700BC, and India is where the number system, the zero (0),
and the value o pi were invented. In 2006, about 450,000 engineers graduated rom Indias
250 universities. Secondly, the size and characteristics o the Indian domestic market make it
interesting to develop products or; these products can then be taken global. Thirdly, Indiasmanuacturing sector has grown in size and capacity to be able to cater to the global market.
During the period 2000-2006, the sector grew by 13% and the number o high-quality manu-
acturers is growing concurrently. For example, Indian manuacturers have earned 15 Deming
awards and two Japan Quality Medals.
Today, more than 100 companies on the Fortune 500 list have R&D acilities in India. In addi-
tion to Swedish companies with such acilities in India, including AstraZeneca, Ericsson, ABB
and Sony Ericsson, are such companies as General Motors, Honeywell and Microsot. It is in-
teresting to note that Chinese companies have also set up R&D acilities in India, among them
Huawei and ZTE, two o the worlds largest telecom network producers.
Thanks to the increasing number o R&D acilities in India, the countrys importance as a home
or patents is growing. In 2005, India was the 11th largest patent ling country in the world
and, during the period 2000-2005, was the 6th largest ling country o origin or multiple pat-
ents rom the same invention.
Nokias successul model 1100 shows that rugal engineering does not always have to include
cutting-edge research and development, but rather that smaller product modications that cut
costs can provide sucient unctionality. The low-cost model eatures an anti-dust keypad ordirty roads, anti-slip grips or use in the heat and a one-button fashlight in case o power cuts.
With this model, Nokia built its unquestionable market leadership as the worlds astest-grow-
ing telecom company, with over 8 million new subscribers each month.
In the same manner, Tata Motors is now targeting the ast-growing automotive market o global
emerging markets. We have simply designed the cheapest possible car to meet the demands o
the people, said Ratan Tata, Chairman o the Tata Group, at the launch o the US$2,500 Tata
Nano.
We dont even know how to design and manuacture a US$5,000 car, says Ghosn, who contin-
ues: Indian companies are doing a great engineering job, and why should we reinvent the wheel
when we can simply partner with and learn rom companies that have already done so.
8/4/2019 Asia Business Letter
8/11
Box 240, SE-101 24 Stockholm, Sweden (World Trade Center, Klarabergsviadukten 70) Tel: +46 8 588 660 00 Fax: +46 8 588 661 90
[email protected] www.swedishtrade.se www.swedishtrade.com
The fve cheapest cars in the world
1. Nano. Produced by Tata Motors in India. Price: US$2,500 (1,250)
2. QQ3. Produced by Chery Automobiles in China. Price: US$5,000 (2,500)
3. M800. Produced by Suzuki-Maruti in India. Price: US$5,200 (2,600)
4. Merrie Star. Produced by Geely Automobiles in China. Price: US$5,500 (2,750)
5. S-RV mini SUV. Produced by Geely Automobiles in China. Price: US$5,780 (2,890)Sources: Reuters; Business Standard Motoring (India); Chinese auto websites (US$1=Rp39.3)
Fredrik Fexe
Swedish Trade Council in India
China
Chinas design revolution
Chinas sizzling economy, growing consumer market and the global aspirations o its biggest
companies is resulting in a design boom, says Charlotte Rylme.
Fuelled by Chinas double-digit-growth economy, ahead o the Beijing Olympics, some o the
worlds coolest architectural rms are transorming Chinas ormerly drab city skylines. Just
take Beijing, where Dutch architect Rem Koolhaas is bringing the unique loop-like 230-metre
CCTV Tower into existence, and French architect Paul Andreu is responsible or the egg-like
titanium- and glass-girded National Theatre.
For Charlotte Rylme, who as head o Swedish Trade Council in East China helps Swedish archi-tects compete in the bidding or new architectural projects in China, architecture is not the only
area in which China is witnessing a design boom. Apart rom a surge in the numbers o Chinese
students graduating in design, she also points to Chinas ast-growing consumer market and the
push by homegrown Chinese companies to take their products global.
There are around 400 schools and universities in China oering design, and together they are
producing around 10,000 graduates annually compared to about 1,500 in 2000, says Rylme.
She points out that these graduates will play a role in both taking Chinese products to oreign
markets and also help oreign companies that are setting up design centres aimed at adjustingtheir products to the Chinese market.
From a relatively recent start in 1982, when Hunan University opened Chinas rst school o
design in Changsha, says Rylme, design has now become one o Chinas most popular majors.
She also notes that Chinese designers are even starting to win prizes abroad. A Chinese student
rom Hunan won the top prize in the biennial Nagoya Design Do! competition, and a gradu-
ate rom the Tianjin Academy o Fine Arts studying in Germany was one o the nalists or the
prestigious Braun Prize.
8/4/2019 Asia Business Letter
9/11
Box 240, SE-101 24 Stockholm, Sweden (World Trade Center, Klarabergsviadukten 70) Tel: +46 8 588 660 00 Fax: +46 8 588 661 90
[email protected] www.swedishtrade.se www.swedishtrade.com
Many such students will likely nd themselves working with oreign companies that are look-
ing to adjust their products to the Chinese consumer market. The Electrolux Design Centre,
which was inaugurated in November last year, or example, is staed with people who have close
contact with the local market, says Rylme, who thinks this is growing trend.
More and more Swedish companies have been setting up design centres in China, so as to adjusttheir products [to local market needs], she says, also noting how some oreign automobile mak-
ers are modiying their vehicles or the China market.
BMW, or example, she says, has extended their car to give more space or people sitting in
the back seat o the car, and Volkswagen, has used articial wood in their cars or rst time ever
in China because Chinese consumers want them to stand out.
Rylme explains that, when designing products in China, it is essential to bear in mind that the
Chinese consumer likes to appear rich, and have products that stand out and impress. Some
luxury brands, such as clothes and bags, says Rylme, have or example developed special prod-
uct lines or the Chinese market, where the brand and the logo is more visible compared to other
markets, where people want to hide the brand logo.
With its surging middle class, Rylme calls China probably the most dynamic consumer market
in the world, and points out that a growing number o Swedish businesses are coming to China
to participate in the boom.
We support Swedish companies to set up in China, and there are currently around one every
our days doing so. Between the summer o 2006 and the summer o 2007, 92 Swedish compa-nies set up in China, and an important thing to note is that around 40 per cent o them are not
only ollowing old customers rom Europe, but are also looking or new customers in China.
To highlight Swedens growing infuence, the Swedish Consulate General has produced a cata-
logue o Swedish design in China. Rylme calls it a good marketing tool or showing people
what Sweden is good at, and also a way o sending a signal back to Sweden that shows people
there what is going on in China.
An additional argument that China is undergoing a design boom, according to Rylme, is the
recent launch in Shanghai o Shenet, a emale network started in Stockholm in 1999. One o
the core Shanghai Shenet members, says Rylme, is Ewa Kumlin, who ounded Tokyo Style and
Swedish Style in Tokyo, and who is now manager o Svensk Form.
The launch was attended by a lot o Shanghais elite, brand consultants, designers and so on,
and there was a ashion show with Chinese models wearing Swedish and Chinese-designed
clothes, says Rylme, adding that Swedish and Chinese designers got to meet and exchange
ideas through seminars and discussion groups.
8/4/2019 Asia Business Letter
10/11
Box 240, SE-101 24 Stockholm, Sweden (World Trade Center, Klarabergsviadukten 70) Tel: +46 8 588 660 00 Fax: +46 8 588 661 90
[email protected] www.swedishtrade.se www.swedishtrade.com
But, i Chinas sizzling economy is creating a growing swell o consumers with money to spend
on smart design, and both local and oreign designers are seizing the opportunities that are aris-
ing, the other equally signicant aspect o Chinas design boom is that Chinese companies are
looking to take their products abroad.
The best companies know design is crucial, and they all want to be the next Samsung, saysRylme. More than a decade ago, this Korean company was a second-tier brand, but then they
ocused on design and today they win a lot o design awards and is one o the worlds most valu-
able brands.
Swedish Trade Council
Thailand/Taiwan/South Korea
East Asia Changes Costume
Over the past month, there have been three interesting elections in East Asia, each o them indi-
cating movement towards becoming more open and investment-riendly countries.
Samak Sundaravej, Ma Ying-jeou and Lee Myung Bak were the three winners in the recent elec-
tions in Thailand, Taiwan and South Korea even though neither Mr Thaksin nor Mr Ma were
themselves on the ticket and they have more than a winning attitude in common.
In December, Thailand held its rst election since the military took over in September 2006.
The reincarnation o the disbanded Thai Rak Thai (TRT), the Peoples Power Party (PPP), ledby Samak Sundaravej, is once again taking steps towards democracy.
Analysts expects that the new government will strengthen investors condence and that Thai-
land will get back on track, reinstating the strong annual economic growth o 5% that the coun-
try experienced beore the military took over.
The PPP has announced a more investment-riendly approach compared to the military gov-
ernment and changes to the Foreign Business Act (FBA) are expected to increase oreign direct
investments, says Tomas Dahl, head o Swedish Trade Council in ASEAN region.
Henrik Bystrm at the Swedish Trade Council in Taiwan continues the same goes or Taiwan,
there could be many new business opportunities arising in the near uture as there will undoubt-
edly be several important changes.
With its election to the Legislative Yuan, the Koumintang (KMT) enjoyed a landslide victory,
securing 81 seats in the 113-seat chamber. The ruling DPP, or Democratic Peoples Party, won
only 27 seats.
8/4/2019 Asia Business Letter
11/11
Box 240, SE-101 24 Stockholm, Sweden (World Trade Center, Klarabergsviadukten 70) Tel: +46 8 588 660 00 Fax: +46 8 588 661 90
[email protected] www.swedishtrade.se www.swedishtrade.com
The KMT advocates better relations with mainland China, including direct fights and tourism
rom the mainland. It also advocates massive investment in inrastructure, such as rail and mass
transit systems. In March, Taiwan will hold presidential elections and, i the KMT candidate Ma
Ying-jeou wins, this will mean that the same party will control both the legislature and the ex-
ecutive branches o the government, which has not had a majority in the legislature since 2000,
hampering many reorms.
In South Korea, Lee Myung Bak is the rst president with a background in business. He was
previously vice president or a construction business in the Hyundai Group and said during the
elections that he plans to run South Korea like a business. The new conservative president won
with the biggest margins seen since South Korea became a democracy. It is not yet said that he
is becoming the next president since corruption accusations is still ollowing him.
The worries about the economy dominated the election campaign and Lees promise to broker
aster growth, reduce regulations and create better conditions or oreign investors made him the
winning candidate says Tarras Delin at the Swedish Trade Council in South Korea.
The new president is also bringing an end to 10 years o a liberal government that has given
large amounts o aid to neighboring North Korea.
Swedish Trade Council