During the late 80’s China was a country that still lived in isolation while the world was dominated by Russia and the U.S. In the meantime, China had followed the path of self-reliant development for a long period and allowed itself to grow from a country dominated by agriculture into a more industrial economy. At the beginning of the ’90s opened itself up to global trade. What happened is that the self-reliance that was honed by the Chinese people catalyzed foreign direct investment.
The opening of the Chinese borders for many foreign companies led to the outsourcing to Chinese factories, resulting in a growth of GDP and a trade surplus. With this surge in trade, the development of military safety systems improved and allowed China to stay self-reliant. The Chinese government slowly went from being a strong autarky to a slightly more interdependent economic modus, which is the basic foundation of the capitalist world. In becoming more open, China tied itself slowly to the U.S created global order, allowing more dependency on the global market.
The main distinction has been the use of governmental instruments in China, whereas the U.S dominated the global market uses as little government intervention as possible. China opened up government-owned enterprises designed to regulate and promote foreign trade. It also established a joint venture law that would limit the ownership by foreign entities to 50%. It only opened up trade in certain regions and applying a zone-by-zone development into different regions. Hence, control was still in the hands of the government for a major part.
During the 1980s to 2007, global trade skyrocketed from 4 trillion$ to 27.5 trillion$. It now seems that China took the right moment to surf the wave of globalization. The success of the foreign trade strategy Lifted 90% 250 million people out of poverty and due to the green revolution, most farmers went from agriculture into the dreadful factories. To invest in advanced knowledge, over 700.000 Chinese students were sent abroad, and 75% of them never came returned to their homeland. Because of the open borders, a shift in culture was inevitable. Christianity was introduced among citizens, old values were lost and gradually the western consumeristic culture got adopted by the more demanding middle-class in China.
On a global scale, everything changed. Even though getting access to the WTO took 15 years and covered over 800 pages of specifics about the economic measures, China was already establishing trade all over the world. Asia, Latin America, Africa, and the middle east became the main suppliers for raw materials and in doing so improved the economies of previously ignored nations. China did not involve in politics but praised stability over instability in regions that proved essential to them. China’s assurance strategy included more control over the essential raw materials that allowed its industrial rise.
What can the curious executive learn from this?
Having power in an industry, region or value-chain means you can do things differently. Like China, you can become a rule-shaper or reset the norms. What China did was changing the economic position of many third-world countries, not that it necessarily cared deeply about the well-being of these citizens but because stability and prosperity was a strategic target for the Chinese government.
Another interesting learning that we can take is growth through the value of self-reliance. Without having to worry about global chains for the supply of food and other basic commodities China could be strategic about choosing the right mode for global trade. Besides being self-reliant, you need a little bit of luck. The international business had already grown from 38.5 in 1980 to 54 percent of global trade in 2005. This signals that catching the right economic wave can have a huge impact on the outcome of your strategic choices.
Another key learning is the condition of interconnectedness and mutual vulnerability. This will put a business in a position where it is less fragile than standing alone. However, the whole value-chain might grow more complex and face its fragility. With COVID-19 we see that happen at a huge scale. Most of the shortages in medical supplies that we see in the western world today are due to outsourcing to cheap-labor countries that might need it to serve their citizens.
Another thing we have witnessed is that quick changes can be made when you don’t have a status quo that is hardwired against change. China often gets critiqued for pollution, often those critiques ignore the fact that most Chinese factories work to supply the west with end-products. Hence, most of these factories are polluting to serve western demands. Because of the innovative capacity, China developed in this period of time it is now focussing on clean technologies and AI at a pace very hard to follow for most Western countries. Here we can learn that what is essentially a minimalist economy provides you with much more agility then if you are carrying too much weight.
Globalisation has put forward problems that humans have rarely faced before. Disruption because of environmental degradation and climate change. Health and disease risks that have put the global economy to a halt because now a few infected bats suddenly impact everyone. With the Internet and other developments in IT, you can continue your job without having to switch locations. Your body is essentially a brain-carrier. And that is a problem in itself when you see that those who struggle with their health are being put to the test first by this new and nasty virus.
But it also proves that we as humans are capable of cooperation and innovation on a high level, and on short timelines. For that reason, we should strengthen the international position of our small and medium enterprises which account for most jobs and arguably the best position to be agile, and part of a larger value-chain. Bringing some of the production facilities closer to home should become a priority, not a luxury.
Full credit goes to Andrew J Nathan and Andrew Scobell as the author of the original paper. This article oversimplifies some of the original content to create quick and easy understanding. The one-and-only aim of this paper is to further promote it’s content to a wider audience. For the original paper please visit:
https://www.researchgate.net/publication/264481899_Globalization_as_a_Security_Strategy_Power_and_Vulnerability_in_the_China_Model
About:
Bram van Kleef is an international business consultant @ VanKleef/Andersson and is located in Amsterdam. He holds an MSc in Business Administration: International Business & Marketing from Kristianstad University in Sweden. For inquiries: Bram@vankleefandersson.com
