http://universite-du-si.com/fr/conferences/6/sessions/873

Les entreprises capables de révolutionner leurs manières de faire et réinventer leur modèle d’affaires en intégrant toutes les capacités nouvelles des technologies de l’information seront probablement les belles réussites de demain.  Bien des défis demeurent à relever: technologiques, culturels (savoir gérer le temps réel!), stratégiques (qu’est-ce que je garde au sein de mon organisation vs. ce que j’outsource), des défis reliés aux marchés (la fin du “one-size-fits-all?)…  Un discours éclairant, qui soulève bon nombre de réflexions.

However, that is not my point today. I tend to agree with the view that China will achieve superpower status. Some more exotic viewpoints — intellectually interesting, but with which I disagree —- try to draw a parallel with the dawn of the Soviet Union, a parallel that would inevitably lead to a collapse of the Chinese economy. But as I said, I disagree. Instead, and this is something that is much more interesting than my personal views, the Chinese themselves seem to agree with me: all of China’s various constituents seem to have greater confidence in the country’s destiny, and I cite a number of recent examples to support this.

China’s military capabilities and armed forces are expending at high pace and Beijing is not afraid to “show its muscle”. Thus, the colourful military parade held on the 60th anniversary of communism was a show of strength by a nation that has rarely been more confident. And the figures will make your head spin: the display included 100,000 marchers, 80,000 children, 8,000 military service members and 151 planes.

Just for the month of December 2009, many signs of an increasingly self-confident China are noteworthy.

During the Climate Summit, the world’s largest emitter of carbon dioxide (China has overtaken the U.S. as No. 1 Emitter) refused to set a fixed year for peak emissions and reduction targets in Copenhagen Accord — arguing this was a violation of national sovereignty.
Also, in mid-December, Google faced a highly sophisticated and targeted attack on its corporate infrastructure originating from China. At least 20 other large companies from a wide range of sectors — including the Internet, technology, finance, media and chemical industries —- have been similarly targeted. We all saw last week the spectacular decision that Google could take to put an end to this story…

On the 29th of December, 2009, despite international calls for clemency, a Chinese court executed Akmal Shaikh —- a Pakistan-born British citizen accused of heroin smuggling. It was the first execution of a European citizen in China in over half a century.

Last, I was amazed at how quickly the Chinese authorities told the World that they were overtaking Germany as the world’s #1 exporter. For once, I felt that we kind of anticipated that one: I personally almost forgot Germany was “still” #1 a few weeks ago.

China’s rapid economic growth over the past 25 years is undeniable. Its diplomatic power is increasing as a function of its newfound influence over the rest of the world. This may be a prelude to a more ambitious China (should I say “aggressive”?), although that may be a very temporary move to display its power. It may just be that China’s soft power, and its “smile diplomacy”, may be reaching their limits.

China is strong, they know it, we know it, and they now say it.

This may sound as a warning to some — I would rather call it the beginning of a new era: the fate of the World will be decided on the Pacific coasts, not the Atlantic ones anymore. And yes, in this configuration, the European citizen that I remain is sorry to understand which power centre will have the most to loose.

I will therefore not surprise those who tend to believe there are always economic justifications for any diplomatic move by saying that this newly-affirmed confidence will be seen in the board rooms of emerging gigantic Chinese corporations, and you can be sure that we will see the following in the years to come:

• More companies in the “West” will be taken-over (aggressively or not) by Chinese companies;
• The competition in new markets will be fiercer (African, Eastern European and Latin American markets etc.);
• More decisions affecting our daily lives (employment, security concerns, etc.) will be taken in Beijing or Shanghai, or will be subject to a Chinese green light;
• More value will be generated in these markets, causing a large influx of brains to stay in or migrate to Asian markets.

And last but not least: the Chinese may be confident in their strength, they are still aware they have much to achieve; a lot of  money is spent in China to analyze the way we do things and the way we manage our companies. They know the West much better than “we” understand the Middle-Kingdom.

I would recommend we prepare ourselves to respond to this confident competitor: let us build more confidence ourselves (as far as I know, “we” are still leading the pack), and let us challenge the way we do things… by analyzing and understanding them a little more. Shall we?

The facts are clear: SE Asia is a 550-million-consumer market. Many of those consumers were struggling daily to find food for their children just 25 years ago. Now, these children are grown-ups and they want to enjoy life to the full. They have suffered enough, and have the ambition to live rewarding lives. It is a convenient simplification to say that the Asian consumers have predictable reactions: “They purchase luxury items because they like to show-off, because they want to let the world know they made it!” Yes and no: it is not that simple.

As for the “Yes” part, I have to mention a story a friend of mine told me once. My friend, once the Marketing Director of a large European car manufacturer in China, explained to me that only in China could you see people coming all the way to the Ferrari Showroom from the countryside, with two plastic bags loaded with US dollars, to purchase a car for their child. And come back the following day to buy a second one, again paid with USD carried in another plastic bag! It is probably also only in China, in Shanghai more precisely, that every year one individual presents himself at the entrance of the Shanghai International Car Show, and demands the most expensive car. It was a Maybach – you understand who now owns it.  The second year, Maybach prepared its car with diamonds! This very special car amateur liked it even more.
But “yes”, the brand is very important in Asia. It is a guarantee of quality and even more importantly, of social status.

I would emphasise, however, “No” part. First, Chinese, Singaporeans, Malaysians, Vietnamese, Cambodians, et al are not the same. You may not want to believe it, but it is necessary to underline the point. We should also underline the fact that the national identities of Hongkongese, Shanghaians and Pekinese are very different from one another. Generally speaking however, the boutiques are very different in China from those you will find in Old Europe, where many brands come from. LV has a 900 sq. meter flagship in Shanghai, within which 100 sq. meters are reserved for VIP’s. This is still much smaller than a Carrefour or a Walmart, but the average spending per consumer may be somewhat higher in these boutiques. Not only are there cosmetic differences in product presentation: tastes are different as well, which is why LV, like any other luxury brand, adapts their showrooms to these very upscale consumers.
The segmentation is slightly different as well; obviously businessmen and their spouses or businesswomen without their husbands are key targets. They are not that different than their European or North-American counterparts. But there is another interesting target: young adults. Indeed, young Vietnamese will save money for 12 months just to purchase a 2000 USD Bulgari Bag for themselves! This can easily represent a third or even half of their yearly income. By the way, it seems that the financial crisis has not impacted luxury spending very much in this emerging country: the growth was simply less strong, that’s all. Interestingly, these young adults sometimes purchase an entry-level product in a specific brand – at least they own something branded the way they like – and believe me, they can differentiate the real thing from the fakes. This said, I am indeed still sometimes surprised (and vexed) to realize that I own a cheaper Nikon camera than some (if not all) of the more junior staff working here. Things are more complex in Asia, but it seems that many brands in this universe have decided to cope with this complexity.

The cake is probably too obvious to be missed: the least we can say is that, more than ever in these times of crisis, luxury brands have their eyes on Asia!

A few interesting figures:

In 2009, sales in the luxury sector:

• Have decreased by 16% on the American continent,
• Have decreased by 10% in Japan,
• Have decreased by 8% in Europe,
• But have increased by 10% in Asia (outside Japan).
  (source: Bain and Co., 2009)

Again in 2009, out of the 300 new luxury outlets that were opened:

• 15% were located in China,
• 25% in other Asian countries,
• 30% in the Middle-East,
• 15% in Eastern Europe and Central Asia,
• The remaining 15% were in second-tier American cities (Denver, etc.) and elsewhere in the World.
  (source: Bain and Co., 2009)

And as for the number of Millionaires (in USD – excluding the value of principal residences), there are:

• In China: 414,900 people (a stunning 20.3% growth),
• … a little less than the UK: 495,000 (which grew by 2.1%),
• … but already more than France: 394,000
• India: 123,000 (grew by 22.7%)

China is now only behind the U.S., Japan, Germany and Britain in terms of “High-Net-Worth Individuals”.
(Source: Merrill Lynch and Capgemini World Wealth Report, 2008)

1. GDP is a simplistic indicator ;
2. Prospective is a hazardous exercise ;
3. I may be right. Or not.

Prolonging my recent post on G2, I wanted to make a quick projection. I may be simplistic but I tend to think that the simplest and less sophisticated methodology is sometimes the most robust.

As we can see, China will take the lead in 20 years… which is fast.  I cannot be accused to be bearish concerning the US (4% growth per year, when considering the way the US economy has evolved this last 20 years is not that bad).  I may feel awkward to be accused to be too bullish on the Chinese side: these last few years –excepted 2009- China was constantly above 10%.

At the same time, China seems not ready, or more precisely, not impatient to take on the role.  They probably know that some responsibilities will come along with, and they have domestic problems to deal with: an aging population is the main consequence of their one-child policy (pensions), their quick industrialization gave birth to an increasing level of pollution, and last, wealth disparities could put at risk the social harmony they are focusing on.  All this, by nature, does not correspond to the trendy “sustainable development” aspirations that are currently voiced throughout the World.  China will need to tackle these problems efficiently.

The United-States are not yet number 2 as well… and they could never step down to this position.  As far as I know, Harvard, MIT or Stanford are American, and Google, Apple or Facebook were developed on their Pacific side.  We should never under-estimate the Americans’ ability to constantly reinvent them.

In short and according to me, “G2” is a convenient expression… but it should be seen as a strict merger between the two most powerful (and polluting) economies in the World.  I believe we should not give too much credit to the theory that they may soon merge to lead cohesively the World, rebranding their country in a too-quickly-named “Chimerica”… even if my simplistic projections prove right… meaning they would finally box in the same weight category: indeed, they may become equally powerful, I bet Chinese will still eat with chopsticks, whereas Americans will still launch new entertainments, new companies, new stuff we will desire.

The cultural divide will always be.  Americans are young, smart, inventive teenagers.  Chinese are wise, culture-minded, and long-term sighted.  US is a few hundreds century old. China was built over thousands of years.  I may be conservative, but I would not grant much time to a wedding between an Old Confucius and his sexy Britney-wife…. US and China both know it.  As pragmatic people, I bet both will rather enjoy their engagement period.

I will let Americans judge by themselves concerning domestic considerations: I am not American and do not live in the US.  But, interestingly and a year after his election, he seems to have switched the “Old Europe” with the “Middle Kingdom” as the main partner.  The G2 expression is nowadays a favourite pick for many observers and journalists… as if it has always been the case.

As a European, I have to say I was surprised he did not make it to Berlin a couple of weeks ago.  As someone who lives in Asia, I find notable he visits China the first year he is in office… not waiting for the second year, as did his predecessors.

But yes: China fuels US’ economy more than ever, especially in this post 9-11 World.  And yes, I fear the appointment of the charismatic Monsieur Van Rompuy will not clarify the phone number the American President has to put under “Europe” in his beloved (Canadian) blackberry.

Probably Europe should rather change (fast) to avoid being permanently kicked out of this fancy G2…