Chapter 2
East and West: The Current State of Affairs
The opportunity of defeating the enemy is provided by the enemy himself.
—Sun Tzu, The Art of War
In this chapter we will highlight where the West is, where it was, and how it got to this point. As we look at the evolution and progression of the East and West, understanding the journey is important background as you determine your globalization strategy.
The Western World Has Dominated with a Position of Strength
The West, and specifically the United States, has been in the upper echelon of the global economy for the past several decades. Innovation and rapidly increasing consumption have fed this growth at exponential rates—perhaps faster than at any other time in the history of global commerce. As king of the hill, the West had (and still has) great innovative ideas—and a ready and willing market of consumers.
Technology and an insatiable society in which enough is never enough have facilitated this growth. The desire for more of everything has been fueled by the affordability and accessibility of more-for-less because of the exceptionally low cost of manufacturing in the East in general and China in particular.
While we have often wondered how they could afford to produce and supply us with goods at such a low cost, we have neglected to delve deeper and have just taken the status quo at face value, taking advantage of the short-term gains stemming from the low cost of goods.
Let's back up a bit and expand upon the factors introduced earlier in the chapter that have made the West, and particularly the United States, so successful and strong during the last 30 to 50 years.
Bedrock of Innovation
The United States is known as an innovation expert worldwide, and this has been its key differentiator and primary success factor. The true revolutionizing innovations still tend to come from the United States and other Western countries. In particular, Silicon Valley—with its unique combination of elite academia (e.g., Stanford, Berkeley), venture capitalists, and entrepreneurialism—sets a high standard for fostering creativity and the commercialization of innovation. Part of this comes from the American culture itself and the type of education it encourages: expansive, creative, and free thinking.
At times the media may understate these differentiating advantages and Americans may take them for granted. Moreover, the confidence stemming from these characteristics and the self-assurance that comes with such success may also make Americans more complacent and less competitively driven.
Meanwhile, the Chinese are catching up and are focusing significant effort on developing expertise in innovation and the skill sets that foster it. China is interested in working with Americans and other Westerners, and there are many opportunities to do so (through joint ventures, for example).
However, some people caution against such partnerships for fear that the Chinese will learn so much that they will surpass the West, as occurred with the United States and Japanese in the semiconductor industry in the 1980s and 1990s. Others suggest that the innovative spirit of the United States and the expertise in execution of China may be a great combination.
Entrepreneurial Spirit
Entrepreneurialism is part of the culture in the United States—a way to achieve the American Dream. People come from all parts of the world to the land of opportunity, the place where they can make it. Government barriers and interference are minimal, although some argue that in some instances there is still excessive bureaucracy and overregulation.
Education System
Freedom of thought and of speech, the encouragement of capitalism, and reward systems for alternative thinking have made the United States a unique producer of innovative talent. Education builds confidence, which allows for exploration and openness to take independent paths.
Consumerism, Brands, and Differentiation
The need to acquire and to consume has skyrocketed over the last few decades. This was partially enabled by low-cost manufacturing, which allowed products to be available at affordable price points. The decision to “just get it” was made easier for consumers. There was also an element of domestic competitiveness—the desire to keep up with the Joneses.
However, while goods became more affordable, people also became increasingly indebted because of their desire for more and more. Status and labels became more important for all classes and income levels. Brands came to convey status, sending a message about one's position in society and bestowing a stamp of success or social rank.
Access to Low-Cost Suppliers Overseas
A significant contributor to growth and high consumption levels in the United States is access to very low-cost manufacturing in China (and other countries). This is a key factor in fostering the creation of new products quickly and at profitable price points. Ease of access and the can-do attitude of the Chinese (and other Asian manufacturers) have made anything possible.
Attitude of Growth
Contributing to the state of continuous innovation is the insatiable desire for more, for bigger, for better. Even though many people have a computer, there is always room for another version—a faster, lighter, or sleeker one.
The (Perceived) Role of the East: Areas of Strength and Specialization
Meanwhile, as the West has boomed and played leader in global trends and economics, the East has been perceived to be composed of market followers and enablers of the bigger operation. Its perceived areas of specialization and success are delineated next.
Execution Expertise
China and the East have been the go-to place for getting it done—they are the execution experts. With minimal barriers to the execution part of production, they always say yes—and figure out how later. They also have gotten things done speedily. Their rapid time-to-market and time-to-completion are impressive, along with their quick time-to-change. China has become the manufacturing hub for the West. Their factories can replicate a prototype and have large volumes manufactured in record times. One of the reasons that manufacturers have been able to get things produced so quickly is China's tight networks. Factories are connected not just to subsupplier networks, but also to other manufacturers. They share information, contacts, and resources.
Manufacturing Expertise
Over the past few decades, China has reemerged on the global economic scene due to its “yes we can” attitude about manufacturing goods for insatiable Western consumers. Its cost-effective manufacturing models have allowed Western companies to produce more products at better price points, thereby improving margins and/or increasing quantities purchased, which in turn has amplified consumption. One could argue that the Chinese have also further enabled Western entrepreneurship by allowing for the creation of more products or variations thereof.
However, China's manufacturing edge is becoming dull as labor and other costs increase due to its domestic growth; it now has competition from its lower-cost neighbors, such as Bangladesh, in the production of textiles.
Masterful Replication
While China has not been known as a primary source of innovation or creativity (characteristics denied by communist practices) it has been very good at replicating the creations of the West. In fact, replication is an art form that was rewarded by rulers in centuries past. They let the West do the thinking, the strategizing, and the designing, and once they determined it was a good idea through the market testing of the West, they made good reproductions and sold them directly or indirectly to various markets.
Inherently Driven
An inherent drive to grow and succeed has contributed greatly to China's high performance and success. The Chinese have become known as suppliers who deliver—not only meeting but exceeding expectations and delivering the impossible. This innate drive and hunger is demonstrated in the story about the emergence of the farmers mentioned in the next chapter, as well as historically throughout the Chinese empire.
The West thought little of China in terms of being a significant threat or competitor. After all, communism did not espouse capitalism, and so the West thought it was safe. The West partnered with China and the East in order to obtain the cost efficiencies that it needed to grow and thrive, paying little attention to the fact that it was feeding a rapidly developing dragon that would soon be a formidable challenger.