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 / Winter 2008 /Issue 53(originally published by Booz & Company)


Best Business Books 2008: Globalization

As a political analyst, Mahbu­bani can get a bit misty eyed. His India has no communal violence or caste discrimination; rather, “a spirit of inclusiveness and tolerance pervades the Indian spirit.” In his pacific, progressive China, “the concept of peaceful rise reflects a carefully thought-out consensus,” as if the man on the street in Chengdu were actually asked his views. “Contemporary Muslim societies remain committed to modernization,” Mahbubani writes, despite ample evidence to the contrary in Bangladesh and Pakistan, while Sri Lanka, rent by a long-standing civil war that has destroyed its status as a development model for the rest of Asia, barely rates a mention.

Such superficialities aside, The New Asian Hemisphere offers value for the business reader by challenging the geography of the mind. Asia has fast-growing economies, yes, but let’s face it: The big attraction for most American, European, and Japanese companies is the ability to serve customers in wealthy markets with labor costs more typical of poor markets. For Mahbubani, on the other hand, globalization represents a vehicle by which Asia will move from the periphery to the center of the universe. Asians, in his view, are on their way to becoming equal, or even dominant, partners in a world in which the West — a geography that encompasses Japan — no longer has control.

Whether Mahbubani is correct matters less than whether others in Asia share his views. I suspect that many do, for he gives voice to a deep-seated resentment of the second-class status associated with belonging to a poor and dependent nation.

Up the Value Chain
Just as economic and political successes are allowing Asian governments to assert themselves in international affairs, so, too, are Asian entrepreneurs seeking far more than dependence on the multinational corporations of the West. Anonymously assembling other companies’ products or answering other companies’ phone calls is not much of a ticket to prosperity in the modern world, and the Asian businesspeople whose firms currently conduct such work are acutely aware of that. Foreign companies that source from the Asian mainland should not be surprised when their Asian partners lose interest in performing low-value, low-profit tasks. Those partners increasingly view themselves as competent and sophisticated, and they rightly expect to capture a greater share of the profits and the high-wage jobs that come from supplying high-value goods and services.

Two very different books on China agree that this shift is already well under way. At first glance, Operation China: From Strategy to Execution, by Jimmy Hexter and Jonathan Woetzel, and The China Price: The True Cost of Chinese Competitive Advantage, by Alexandra Harney, don’t seem to be talking about the same country. A more careful reading, however, suggests that their views about China are quite similar — and quite consistent with the picture of an increasingly self-confident Asia painted by Mahbubani.

Hexter and Woetzel are consultants for McKinsey & Company, and their book has all the charm to be expected of a consultant study. Their message is important nonetheless: China is starting to look a lot like a developed country. Chinese consumers increasingly share the preferences and expectations of consumers elsewhere, even if they cannot always afford the products they covet. The country’s businesses are quickly gaining technological sophistication and becoming more adept at meeting local consumers’ needs. Government agencies are becoming more transparent and less inclined to bend or ignore labor laws, environmental regulations, and property rights. China is not what it was a decade ago.

The implications for business are substantial. Hexter and Woetzel argue that the days of using China as a low-wage workshop and a dumping ground for cheap goods are waning. A company that wants to be successful globally must succeed in China, because of the sheer size of its market, but that success will require firms to adopt the same stringent performance standards for China that they use in the world’s most advanced markets. At the same time, however, China is not like other markets: Its economic and social conditions may require products and services quite different from those that multinationals sell in their home countries. The trick, Hexter and Woetzel say, is to figure out how to sell high-quality products that meet Chinese needs and fit Chinese pocketbooks while still being profitable — a point they drive home with a memorable anecdote about Haier, the Chinese appliance maker, gaining rural market share after introducing a machine designed to wash potatoes as well as clothes.

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