Takeaway – Established Western brands will continue to defend their global leadership positions for a while yet, but Chinese corporates are taking control of growing niches and new categories. Look for Chinese entities to disrupt industries through enforced localization and substitution – not head-to-head competition.
Welcome to the Multiconomy
Phase 1: Frenemies on a Glass Bridge
The status quo of US – China commerce can best be described as frenemies who need each other more than they like each other. Up until now, both Chinese and Western commercial systems have been multi-faceted and opportunistic. National policies have been one of many inputs in business decision-making.
This situation can be characterized as brittle, but not necessarily fragile. Think of our existing system as a strong glass bridge. It’s very stable – right up until the moment it starts to crack. Then it can no longer support its own weight, but is very difficult to repair.
Market observers who look at the global system don’t see the cracks in the bridge yet, because Chinese brands have done a poor job of penetrating major international markets. The threat to incumbents (i.e.: Apple, GE, Boeing) is on the margins. China isn’t going global in the near term – but it will go regional. OBOR (one belt, one road) is an effort to revive and revitalize the old Silk Road trade network, and will take Chinese businesses into Central Asia, the Middle East, and South East Asia. The 9 Dash Line formulation is already projecting PRC influence across the South China Sea – and intensifying its connections with the vital ASEAN economy.
The assumption has been that the US and, to a lesser degree Europe, would continue to dominate markets, technologies, and entire industrial categories. In the near future, the global market will become more fragmented & polarized. The idea of “global brands” has been tested over the last decade or two, but going forward the concept of regional brand will become more common. Chinese corporates will benefit from national policies as African, Middle Eastern, and Asian consumers become more comfortable with emerging substitutes to traditional systems. Boeing and Airbus will continue to dominate the aircraft market, but entire regions will shift over to high-speed rail systems designed and operated by Chinese corporate/state hybrids.
Look for a world economy characterized by different industrial standards. Americans will fly; Africans & Mid Easterners will ride. In NY and LA, Apple will compete with Google to control mobile payments. Beijing and Bangkok consumers will weigh the benefits of Alipay vs. Tenpay.
In the near term, the biggest threat to global brands will be substitutes – not competitors. US and Europe won’t necessarily set industrial standards or be the natural brand leaders in all categories. The US will maintain leadership and unify specific markets such as services, media, and semiconductors – but will gradually lose ground to Chinese innovators that have local government support (both within China – and PRC client states).
Phase 2: Deglobalization and Enforced Localization
Beijing will accelerate the development of the multiconomy by fragmenting and controlling categories where it can. We have been witnessing this process for over a decade. Chinese consumers have already grown accustomed to:
- Alibaba, not Amazon
- Baidu, not Google
- WeChat (Tencent), not Facebook
- DiDi, not Uber
Chinese companies, shielded from global competition in their home markets, are already expanding regionally on the heels of government officials negotiating FTAs and economic aid packages. Look for Beijing to extend this “fragment & localization” process to more and more product categories.
Phase 3: Systematic Substitution
China will define or lead other categories – especially those ignored or rejected by the US. As many leading members of AmCham and European Chambers have been warning for years, this is a concerted effort on behalf of policy-makers, regulators, state-owned enterprises, and private Chinese corporates. Now that they’ve achieved critical mass within PRC’s own borders, the same coalition is finding it very effective to export this economic system to neighboring countries and recipients of Chinese foreign aid.
China’s state-private partnership are already making progress at exporting their standards in the following categories:
- Maglev & high speed rail
- Drones (for consumer use)
- Green energy production
- Stem cell & genetic research
- Quantum computing
China isn’t likely to displace Disney or Ford or McDonalds or Nike in the near term. But a new generation of global consumers may very well ride in Chinese rail cars along Chinese-built roads to a Chinese owned mall, where they’ll use Chinese payment systems to buy their Happy Meals and watch their fairy tales.
Next: How international millennial workforce can profit from the multiconomy.
Written by an American for Westerners negotiating in China, “The Fragile Bridge” dispenses with politically correct euphemisms and ivory tower pseudo-psychology. Knowing which 1,500 year-old philosopher uttered what esoteric phrase won’t help you safeguard your assets or keep your JV operating, but learning from the lessons of dozens of successful Westerners who have survived the China challenge just might.