Chapter 4
The West No Longer Rules
If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.
—Sun Tzu, The Art of War
Melding of Positions
Although the West has dominated economically for the past several decades, the competitiveness of the West, and of the United States in particular, is threatened with the rise of China. And the two economies—East and West—are stretching and growing in new ways. The global economic playing field has changed and will continue to transform, shifting and challenging the advantageous position that the West has enjoyed thus far.
In true competitive fashion, each player—the U.S. and China—is evolving and acquiring the advantages and strengths of the other. For example, the United States is trying to bring some manufacturing (and jobs) back home and China is driving toward becoming more innovative.
China Today
China has done a fine job of climbing the economic ladder and is looking to sharpen its expertise in areas where it has traditionally been weaker and they continue to acquire know-how.
They will not settle for simply being the gurus of manufacturing that they are right now. In fact, their neighbors (for example, Bangladesh and Vietnam) are taking over much of this area. The Chinese want to become innovators and are learning from the best by partnering with the West and by sending their young people to study at the best U.S. schools. They have also created start-up incubators to facilitate innovation and help entrepreneurs grow their businesses by providing workspace, seed funding, mentoring, and training.
The West Today: What's Wrong?
The West is feeling the pain and is worried. Its innovation advantage, which has been a key differentiator, is under threat. The West does not hold the same position that it did in the past. It is losing its global competitiveness and its domestic economies are suffering. Jobs are being lost to overseas suppliers because the West has a manufacturing disadvantage due to higher labor costs and onerous labor laws.
The West has not only been shaken by the looming doom created by its erratic economic situation and recurring financial crises, but it is also being challenged by the Chinese government's financial strength in a number of different ways.
Another reason for the West's declining competitiveness is its more passive approach to competition. When you are the industry leader, with brand recognition, brand equity, and strong market share, it is easier to be complacent and to have a halfhearted approach to competition, particularly in the more challenging emerging markets.
Furthermore, neglecting to pursue emerging markets with full commitment and investment will only add to the West's decline in global competitiveness. Emerging markets require a patient, long-term commitment and the acceptance of low—or even no—returns in the short run.
The West (especially the United States) also lack a customer-centric approach, particularly in new markets. The selling and marketing attitude is more often push than pull. Product preferences are dictated as opposed to solicited from the target customer base. This alarming situation was highlighted in the Harvard competitiveness report, in which perhaps the most surprising of the results was total absence of the customer.
There are also questions as to the extent to which Western governments currently play a role and how far they should go in supporting, pitching, planting, and presenting their companies abroad. What is clear is that United States and other Western governments have not done what the Chinese government has done for its own enterprises as they expand globally. There is definite growth potential in this area for the West.
But It's Not Game Over Yet for the West…
Despite the aforementioned list of shortcomings and challenges of the West, it still has a strong foothold and in the meantime, China still has some of its own growth hurdles to address.
China Still Has Some of Its Own Challenges to Overcome
Despite the previously mentioned strength that China has garnered, it still has some challenges to overcome.
While China is breeding more talent than the West (especially engineers), it is simply not an ingrained part of Chinese culture (yet) to think creatively or innovatively. The Chinese are still acquiring and developing the talent for innovation that is prevalent in the West. They also come up short on having their own sought-after brands. However, they realize they need to be more innovative and are trying to learn from the West—replicate first, innovate next—and they are making some inroads. The Chinese also lack the skills to run a business outside of China; they lack the capability and experience required for overseas investments in sophisticated markets. One example of this deficit is their poor accounting practices, which impact their credibility.
On the domestic front, much of China is still poor and job creation is a concern.
Additionally, corruption is still prevalent (despite the progress that it's made) and remains one of the biggest challenges to China's stability.
From an economic perspective, China is experiencing a cyclical slowdown; many pundits say it grew too quickly. Further adding to its slowing growth is lessening demand from Europe and the United States, as well as national security screenings and politicization in host countries.
The United States and the West: Strengths and Key Differentiators
Despite their challenges, the West in general and the United States in particular are innovation champions and have set the international bar high. They are world leaders in technology creation and innovation, with Silicon Valley being a showcase for observers worldwide.
Another primary strength and differentiator for the United States is its talent: the creative thinkers, the innovators, the risk takers. China and other countries poach this experienced and sought-after talent from the United States, seducing them with opportunities that are hard to resist.
The entrepreneurial spirit in the United States also sets a global standard, as people flock from all corners of the world in order to experience the American Dream—the notion of a social, economic, and political system that makes success possible for every individual. American culture values risk, challenge, competition, ambition, and independence, all of which are valuable fuel for the entrepreneurial fire. The term disruptive entrepreneurialism has also been used to describe Western capabilities and potentialities.
Will China Stay, Stall, or Fall?
There are those who say that China's explosive growth is short-lived, that it is not sustainable and is just a fortuitous blip. It is argued that growth is slowing (of course, this is natural if you are working from a much larger base) and the government cannot afford to continue its aggressive financing programs in the long term. Some say also that the middle class may have grown too quickly, causing many domestic challenges, including higher labor costs, which takes away one of China's key economic advantages.
Another element to mention is China's ethical standards, which some countries might call unscrupulous or unfair business practices. The excessive drive and determination of the Chinese pushes them to the outer limits in testing the boundaries with other players in the same space.
However, what might be a less ethical or unfair way of doing business to the West may simply be the way the East gets it done. Who's to say who is right? The WTO is the ultimate decider, based on its international trade rules.
Others confidently state that China is here to stay, that it is already a superpower. Reinforcing this sentiment is the belief that China has a strong economic hold on the United States given its dominant holdings of U.S. dollars, outstanding loans and debt, and imbalanced trade deficit with the United States.
The Bottom Line Is That It Doesn't Matter…
The bottom line is that, despite all the speculation, it doesn't matter—the West still has to change its game. The true new reality is likely somewhere in between. It is no longer the old world but a new world.
The world we've had for the last 50 years is never coming back. The only question is who are we going to be sharing the stage with and how are we oriented towards them.1
—Ian Bremmer, president and founder of Eurasia Group
This is the intention of the rest of the book—to heighten your awareness of the competitive strategies and tactics of new entrants and to sharpen your abilities and mind-set as you protect your still-very-strong innovation and entrepreneurial differentiators, while also identifying powerful potential modifications to your own strategy.