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China's opportunity, competition

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With increasing regularity, your colleagues-not to mention your competitors-are walking through international terminals, boarding jets headed for China. To be sure, lots of these trips are about outsourcing, moving manufacturing and other business functions from the U.S. to China's enormous lower-cost labor pool. For critics and proponents alike, outsourcing is a passionate topic, one that will likely emerge as a major flash point during the 2008 U.S. presidential election.

Last week I finished reading Thomas L. Friedman's "The World Is Flat: A Brief History of the Twenty-First Century," which declares, not very originally, that computer and telecommunications networks have enabled both global commerce and the movement of work around the globe.

While I can't possibly settle the globalization debate in this column, let me make the following observation: Some portion of the business people flying to Beijing today aren't looking to cut overhead with factories or workers based in China. Instead, they are exploring China as a market for their own goods and services. China, a member of the World Trade Organization since Dec. 11, 2001, has an economy that has seen a quadrupling of GDP since 1978. In 2004, its GDP grew 9.1%, according to the CIA's "The World Factbook."

It's also notable that although China's work force (760.8 million strong in 2003) is still primarily agricultural (49%), industry and service workers represent 22% and 29%, respectively, according to 2003 CIA estimates. Those statistics suggest higher-wage workers, with growing buying power and, we hope, a hunger for U.S. consumer and industrial products.

Friedman writes that if China can reform politically, "I think it could become not only a bigger platform for offshoring but another free-market version of the United States. ... Think about how many new products, ideas, jobs and consumers arose from Western Europe's and Japan's efforts to become free-market democracies after World War II."

On the flip side, there's a change in the air regarding the type of Chinese companies entering the U.S. market.

To be sure, there are still plenty of low-cost items-think balloons, coffee mugs and baseball hats-with a "Made in China" imprint. But now there are high-value, high-cost products, too. The poster child of this activity is Lenovo, the Chinese company that acquired IBM Corp.'s personal computer division earlier this year in a deal valued at $1.75 billion.

What's fascinating about the Lenovo story, reported by Sean Callahan on page 1 in this issue, is how many challenges the company faces as it seeks to put ThinkPad and other well-known IBM PC brands under the Lenovo umbrella. Will Lenovo become an emerging global brand? BtoB will be watching how this story unfolds in the coming years.

Also in this issue is Kate Maddox's article on how non-U.S. marketers DHL International, a German shipping company, and BT, a London-based telecommunications provider, are breaking into the U.S. marketplace.

Are U.S. companies prepared? Sadly, the answer seems to be no. In March, the CMO Council and the Business Performance Management Forum released a survey of more than 300 North American companies. The report concluded that a majority were not keeping pace with global competition. Interestingly, respondents pointed to China as a source of competition over the next two years nearly as often as they pointed to other U.S. companies.

Ellis Booker is editor of BtoB. He can be reached at ebooker@crain.com

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