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481Thunderbird International Business Review, Vol. 46(4) 481–486 • July–August 2004

© 2004 Wiley Periodicals, Inc. • Published online in Wiley InterScience (www.interscience.wiley.com).

DOI: 10.1002/tie.20020

bookreviewsbookreviews

Capitalist China:Strategies for aRevolutionized Economy

Jonathan R. Woetzel. 2003. Capitalist China: Strategies fora Revolutionized Economy. New York: John Wiley & Sons.250 pages. ISBN: 0-470-82108-6.

David McHardy Reid holds the Benjamin Forman Chair of International Business andis director of the Center for International Business at Rochester Institute of Tech-nology in Rochester, New York. E-mail: dreid@cob.rit.edu

retreat, yet fail to learn the lessonthat a billion-plus population is noguarantee of opportunity worth.

At the other end of the spectrumare what we might term “specialcut” books, such as China andIts Regions, edited by Mary-Françoise Renard (2002). Thisbook offers insightful chapterswith rigorous analysis on aspectsof the business operating envi-ronment, such as changes inincome inequality since China’stransition to openness and theregional distribution of foreigndirect investment (FDI). Also atthis “special cut” end of the

or those looking for books thatoffer an insight into contempo-rary China from a business per-spective, there are, thankfully, anumber of available options. Theycover a spectrum of approachesand offer different benefits.

Some are at the “broad perspec-tive” end of the spectrum, includ-ing The China Dream by JoeStudwell (2002). This book doesa masterful job of putting theChina opportunity in a historicalperspective and illustrates howmany companies have been mes-merized into making poormarket-entry decisions, often to

Reviewed byDavid McHardy Reid

spectrum is The New Entrepre-neurs of Europe and Asia, editedby Victoria E. Bonnell andThomas B. Gold (2002). Thisbook has four chapters devotedto China, one of which attemptsto map the hoary relationshipbetween entrepreneurialism anddemocratization. It flags theuncertainty in the connectionbetween the emergence of entre-preneurs and the real ideology.

In the middle of the spectrumare two editions published byPraeger, both high in rigor andedited by Ilan Alon. The first,Chinese Culture, OrganizationalBehavior, and InternationalBusiness Management (2003),provides useful insight into theculture and gives valuable exam-ples of, for instance, guanxi inthe hotel business. It extends itsremit into the management oforganizations and touches onstructural issues that characterizesome differentiable Chinesecharacteristics: property rightsand joint ventures (JVs). Thesecond book, Chinese EconomicTransition and InternationalMarketing Strategy (2003), runsthe gamut, from the experienceof foreign firms with respect totheir market-entry experience, tothe development of Chinesebrands, to even the marketing ofwines. In this way, it providesinsightful but grounded insightinto China market experience.

Let us now turn to CapitalistChina: Strategies for a Revolu-

David McHardy Reid

482 Thunderbird International Business Review • July–August 2004

tionized Economy, by JonathanR. Woetzel. It sits between the“broad perspective” side and themiddle of the spectrum. Basedin Shanghai, Dr. Woetzel isdirector and general manager ofMcKinsey in China. In his book,he has made a laudable attemptto explain and contextualize, inan industrial sense, contempo-rary China. In doing so, he isable to draw upon McKinseysources and verbatim interviewmaterials with senior executives,both Chinese and foreign, oper-ating in China.

Chapter 1 summarizes some ofthe key drivers of change, encom-passing the much-vaunted open-ing of China by Deng Xiaoping,which resulted in a massive FDIinflux. Not wishing to overem-phasize the importance of foreigninvestment, the author remindsthe reader that FDI is a mere 10percent of the total, and much ofChina’s growth has been self-financed, partly from the highsavings rate of 40 percent.

Growth and social stability areinextricably tied. An entire gen-eration has been led to expectbetterment in terms of econom-ic and social conditions. With-out a continued growth rate, hestresses, this expectation will notbe met. So, China, with a GDPequivalent to Italy and expectedto double in size by 2020,requires investment of overU.S.$300 billion per annum tosustain its rate of progress.

An entire gener-ation has beenled to expectbetterment interms of eco-nomic and socialconditions.

Because China joined theWTO, China’s state-ownedenterprises (SOEs) will not beable to rely as much on the hid-den aid of the government.Similarly, preferential dealsmade with selected foreignenterprises will be eliminated.State banks will be required tomake better lending decisionsto companies that harness sav-ings investment more produc-tively. More investment will betargeted at meeting consump-tion in the China market, with alessening emphasis on export.

Dr. Woetzel cautions that WTOentry is not a purely economicaffair; it has obvious politicaldimensions. Forces in the Chi-nese government see the condi-tions of WTO membership as anopportunity to let the winds ofmodernization blow throughChina. This view, however, doesnot meet with unanimous sup-port. If WTO membershipbrings about adverse socialimpact, then countervailingforces will attempt to slow therate of reform. Investors need tobe aware of this downside.

Chapter 2 attempts to deal with“the High-Tech Revolution.”China, as some readers will beaware of, outputs 2 million uni-versity graduates per annum andhas an abundance of relativelyinexpensive engineering talent.China’s consumer-electronicscompanies seem to be becomingthe suppliers of choice for West-

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ern brands and are also increas-ing their scale of operations byacquiring their Western rivals.

Dr. Woetzel highlights severalmajor China players, includingLegend, Haier, Kelon, andMidea. Many of them areunknown to Western executives,but these companies are steadilybuilding their positions in West-ern markets. Moreover, due toits wherewithal to leapfrog tech-nological development, China islikely to assert its market positionfaster than its Korean counter-parts did. Chapter 2 contains aninformative interview with thechairman of Legend (Asia’snumber-one PC manufacturer)and Simon McKinnon, presidentof Corning Greater China.

Long-term China watchers willbe aware of China’s poor distri-bution history. A commonmetaphor was that it was cheaperto ship milled flour from theUnited States than to delivergrain from China’s interiorprovinces. Shaw and Perkins, twosubcontributors to Chapter 3,demonstrate how the situation ischanging. Apparently, the Chi-nese government has designatedlogistics as a strategic industryand is promoting investment inregional logistical centers. More-over, retail channels are consoli-dating and modernizing in thetop-tier cities and spreading tothe next level down. Moreover,the government has invested inexpress highways to link major

Dr. Woetzel cau-tions that WTO

entry is not apurely economic

affair; it hasobvious political

dimensions.

cities, and a trucking industry isbeginning to emerge, completewith a bevy of related serviceproviders. SOEs, JVs, and foreignlogistics firms form part of thisfast-modernizing infrastructure.

Opportunities in the logisticsfield are subject to the usualwarnings: divergence of nationalversus local government agen-das, guanxi issues, capriciouspolicy shifts, and so on.

China’s voracious growth hasmade it one of the world’s largestenergy consumers (Chapter 4).The republic’s energy policy hasevolved to meet a set of balancedobjectives: increasing efficiency,minimizing waste and environ-mental impact, and maintainingsecurity of supply. There aremajor movements in three sec-tors: coal, petrochemicals (whichhas already attracted huge invest-ment), and gas, which is a majorchallenge. Gas, Woetzel avers,will test the government’s abilityto establish a regulatory frame-work acceptable to investors anddevelopers alike. Chapter 4includes an interview with one ofthe biggest investors—BritishPetroleum Group’s vice presi-dent. He maintains the Chinanatural gas arena is one of themost attractive growth sources inBP’s portfolio.

In the era of the centralizedeconomy, retail was seen merelyas a series of distribution pointsfor scarce and ill-assorted goods.

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484 Thunderbird International Business Review • July–August 2004

The current arena imposes arequirement for change. Depart-ment stores, once proud, areceding their positions to newerretail formats. Chapter 5attempts to deal with retaildevelopments but before doingso appears to divert to petroleumretailing, thus leaving the readerwith the impression that McKin-sey presumably has a greaterknowledge of the energy busi-ness than it does retailing. Thechapter then offers a suddencontrast; it swings to an inter-view with the luxury goodsgroup LMVH, followed by somepointers for saving China’sdepartment stores.

One of the newer economic sec-tors in China is the servicesindustry. Disposable incomeoffers a call to action from aplethora of service providers,including media, entertainment,and fund managers. Chapter 6discusses management of Chi-nese funds and explains how thedevelopment of the stock marketis crucial in supporting DengXiaoping’s “Getting Rich IsGlorious” goal.

Despite many positive indicators,the author maintains thatChina’s financial system isflawed. The stock market seemsto be overly dependent on retailinvestors, which make up over80 percent of China’s total stockmarket investment. They do sobecause of the absence of alter-native targets other than real

China’s vora-cious growth hasmade it one ofthe world’slargest energyconsumers.

estate. Tradable shares accountfor one-third of the total marketcapitalization, rendering individ-ual stocks vulnerable to manipu-lation. Third, Chinese stocks arefour times more expensive thantheir Hong Kong counterparts,despite achieving half theirreturn on equity. A market col-lapse is foretold and, Dr. Woetzelmaintains, a new business modelis required for the fund manage-ment industry.

Finally, Chapter 7 distills somesuccess factors for China invest-ment. Dr. Woetzel avers thatyesterday’s model may be obso-lete; maturing local companies,more accessible markets, andprogress toward a more stableregulatory environment havenegated many of the earlieradvantages of alliances. Manyexisting alliances have becomeinherently unstable. Indeed, inChina, most joint ventures arebetween competitors. On thepositive side of the equation isthe willingness of highly conser-vative Taiwanese investors tobet on China’s future stabilityby continuing the hollowingout of the Taiwanese manufac-turing industry with the relent-less transfer of capacity acrossthe straits.

Moreover, companies have final-ly begun to discern China’sadvantage as a global servicecenter. Multinational enterprisessuch as GE and HSBC are build-ing service centers to support

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customers globally. Further-more, apart from the frequentlyquoted foreign failures, theoverall performance of foreigninvested enterprises (FIEs) hasimproved. They seem to bereaping a share of the profit poolcommensurate with their domi-nant portion of investment insome arenas. The author pro-vides examples from Motorola,which has the largest share ofthe booming mobile phonehandset market.

Overall, this is an interesting,well-written, valid, and worth-while book. It offers useful strate-gic advice for foreign and Chinesecompanies—the McKinsey clientbase. The author does not over-state the importance of the Chinamarket opportunity. He balancesthe risks and does so with the sea-soned perspective of one ground-ed in China experience.

Which book to buy? Thatdepends on the need to be ful-filled. All of those mentionedhave their place. Perhaps the seri-ous scholar should invest in all.But few business executivescould be expected to read all.Given that the Woetzel bookrepresents the McKinsey schoolof thought, a wider perspectiveshould be recommended, and acocktail of the Woetzel,Studwell, and Alon books shouldbe on the bookshelves of dedi-cated business executives whoseek to understand China in itscontemporary context.

Companies havefinally begun todiscern China’sadvantage as a

global servicecenter.

REFERENCES

Alon, I. (Ed.). (2003). Chinese culture, orga-nizational behavior, and international busi-ness management. Westport, CT: Praeger.

Alon, I. (Ed.). (2003). Chinese economictransition and international marketing strate-gy. Westport, CT: Praeger.

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Bonnell, V. E., & Gold, T. B. (2002). Thenew entrepreneurs of Europe and Asia. NewYork: M.E. Sharpe Inc.Renard, M.-F. (Ed.). (2002). China and itsregions. Northampton, MA: Edward ElgarPublishing Inc.Studwell, J. (2002). The China dream: Thequest for the last great untapped market onearth. London: Profile Books.