February 19, 2013

Welcome to the Asian Century: China

barnaclesTwo Strategies for Australian Business to leverage Opportunities in China

Margaret Manson | Chief Inspirator, InnoFuture

Beyond traditional models, there are some quirky pockets in human knowledge that can have a profound impact on business. One such area is biomimicry, a revolutionary new science which observes nature’s best ideas and adapts them for human use. In its most literal sense, biomimicry takes natural elements, as diverse as spider silk and sea shells to brain cells, and analyses their relevance for our daily lives. Harnessed at a commercial level, biomimicry can be applied to developing new products, technologies, transport, and business strategies, from collaboration to competitive tactics.

When thinking about the potential economic relationships between Australia and China, two marine concepts come to mind: tidal waves and barnacles.

The former refers to global megatrends, when the direction and source of economic power shifts over a period of time, and on a large scale. It cannot be stopped, and requires those at risk of being swept away to think differently to withstand the impact.  The latter term refers to how small organisms can use their unique abilities to survive and prosper by clustering together for protection and rapid growth to access new opportunities.

The tidal wave – the essence of business in China

Change is a constant, and we must embrace it and learn to harness the wave. Some thirty years ago western companies began the manufacturing exodus in search of price advantage, but today the price advantage has eroded for both sides. While western countries have devastated their own production as well as the innovation muscle, Chinese companies have been building new capabilities which they are now ready to leverage to win global consumers directly.

The dragon hatching season is on. From state-owned giants and privatized corporations who have embraced branding and now compete head-to-head with multinationals; to ‘innovators’ who are rapidly developing unconventional business models to engage customers through innovative solutions – it is an economy on the move and, like a tidal wave, the only way is forward.

Picture this: informal social networks developed in crowded tea houses and restaurants connect local business ecosystems to locate suppliers in the same city, which helps mobilise appropriate specializations. This relationship-based connectivity is the paradigm for the ‘Silicon Valley’, with its entrepreneurial atmosphere that gave birth to Apple, Intel, Google, Agilent and Cisco.

Zooming in! This is Chongqing, central China; an industry cluster with vibrant new ways of designing and manufacturing motorcycles. Chongqing is a prototype for disruptive innovation: there are no detailed design drawings, just a product’s key modules outlined in rough design blueprints, specifying only broad performance parameters, such as weight and size. The suppliers (assemblers) are “free to improvise within broad limits”. They take collective responsibility for the detailed design of subsystems, able to rapidly cut costs and improve the quality of their products.

China-flagChina’s enterprises operate in a unique ecosystem. While size matters, it is also the legacy of the central economy, coupled with a few thousand years of cultural tradition, invention and entrepreneurship. For better or worse, business leadership in China is inextricably linked with government leadership. This drives business direction and welfare of the society as a long term vision. Chinese CEOs are likely to forego short term profit in favour of long term advantage to keep the factories buzzing and prevent the threat of famines that have plagued the nation in the past.  In contrast, Australian business leaders have a short term focus on profits and ‘shareholder value’, resulting in risk aversion and reactive decisions. Australia needs to develop and nurture a long term vision as a country.

The barnacle effect – swarming and rapid growth

Barnacles, due to their size, are vulnerable to many predators. They apply two survival strategies: swarming or clustering together in large numbers to gain protection; and rapid growth, which gives them access to new food sources. This is a ‘nature’ model for small countries and businesses, like Australia  To put it in a numbers’ perspective, 95.9% of all Australian businesses are small enterprises, with fewer than 20 employees, contributing approx 35% to the overall industry value added. Interesting enough also 95.8% of all businesses in China are also small businesses. But here, ‘small’ here means up to 300 employees* and turnover of less than AUS$4.6 million. In China’s terms, these businesses are not only small, but many of them also have low assets and weaker profitability.  To join the game in this country of magnitudes, Australian businesses have to master two key abilities: collaboration and agility to extend their own size horizontally and vertically.  

Chinese companies, are hungry for raw resources but also for knowledge to fine-tune their capabilities to compete globally. The  attractiveness of their products and services, developed for the purse of emerging economies, and combined with branding efforts, can only increase, further pushing un-innovative, un-competitive business models, out of the market.

But China also faces the long term challenge of food security and lifestyle demands of a more prosperous population. As Prime Minister Julia Gillard, said at a Global Foundation conference earlier this year that  “Australia must be ready to act as the food bowl of Asia”. Well, perhaps not a ‘food bowl’ but a valuable, sustainable fresh produce and fresh lifestyle market for China. It’s not about reverting to an agricultural economy. It’s about innovation and leveraging our competitive advantage.

Here is a clue: trimming product or service features will not do. Australian companies must redesign their products, services and processes from scratch, to amplify their distinctive capabilities and build new business models that cater for the developing economies.

Those who travel alone will fail. Australian business leaders need to see the bigger picture and master collaboration: forming alliances, based on trust and specialization, to leverage the resources and capabilities of others. The crucial lesson for Australian business leaders is that we need to understand our unique competitive capabilities and build collaborative networks to leverage emerging global opportunities, especially in China.

The key to success for Australian businesses is to have a clear long term vision, unconstrained in finding solutions, and to be nimble and adaptive in execution. This must be underpinned by rapid co-learning across networks to create a virtuous improvement cycle that reinforces shared purpose and trust.

Threats and opportunities are two sides of the same coin in a connected world. The future of Australia will be created by courageous, visionary business leaders who are prepared to build win-win-win relationships when and where it matters.