The International Marketplace: Product Innovation May Come Mainly From China

           Since the 2007-2008 global recession, confidence in the American model of economic development has decreased significantly. Economists are eager to draw conclusions from China’s continued economic growth even though the economic slowdown that has affected much of the developed world. Many assert that Chinese economic policy is more stable because of the government’s large role. However, it may also be the demand of Chinese consumers which shapes innovation and supply.

            The American toilet company Kohler has just released the state-of-the-art Numi toilet. This toilet, designed and marketed primarily for the US and China, has many features included especially for the Chinese market. The toilet’s feet warming system is a solution to infamously cold Chinese bathrooms. Other Chinese market features include the Numi’s music system, Skype capabilities, and a bidet. This toilet suggests that even an American company must keep the Chinese populace in mind when developing products. In an editorial in the Financial Times, Christopher Caldwell concluded that the Numi toilet suggests more than just an increase in Chinese-centered goods. He claims that this toilet “is a sign that this era of US advantage is spiraling towards its close.” 

            Caldwell is not alone in his belief that Beijing will soon begin its reign of prominence. The Numi is not the only special global product marketed for China. In 2005 GM’s luxury sedan the Buick LaCrosse was redesigned especially for the Chinese market. Joe Qiu, designer of the Chinese version of the LaCrosse, told Fara Warner of Fast Company how he created a car that would sell well in the Chinese market. The interior of the car is meant to recreate the soft, luxurious environment of Chinese nightclubs and upscale Shanghai homes. The car’s exterior is sleek and trendy, targeting the chicest Chinese clientele. Since then, sales of the LaCrosse in China have outperformed those in the U.S. In 2010, GM released the updated version of the Buick LaCrosse globally. Much to US GM’s chagrin, the car’s interior was designed by Qiu. The US team was took point on the car’s interior, but had to take into account the input and edits from the Chinese design team. This move displayed how Chinese preferences trumped American ones. As a result, China gained more clout within the powerful American company GM. 

            With the second largest economy in the world and an envy-inducing continued growth, China is beginning to rival the United States’ position as the world’s economic leader. Whether the 21st century will become the age of China will be determined over time. Right now, Chinese preferences are beginning to share the lead in the development of new global products. 

Professor Michael R. Czinkota and Sophia Berhie

Sources: Caldwell, Christopher. “Telling Lessons for the Future from China’s Bathrooms.” Editorial, Financial Times (London), June 4, 2011; Waldmeir, Patti. “The Numi Toilet: Chinese Design for a Global Market.” Globe and Mail (Toronto), May 30, 2011. Accessed June 7, 2011. http://www.theglobeandmail.com/​report-on-business/​international-news/​ asian-pacific/​the-numi-toilet-chinese-design-for-a-global-market/​ article2040064/​; Warner, Fara. “Made in China.” Fast Company, April 1, 2007. Accessed June 7, 2011. http://www.fastcompany.com/​magazine/​114/​open_features-made-in-china.html.

GM Needs A Global Strategy to Survive

The U.S. government now owns 60 percent of General Motors. Some say that the company really belongs to the taxpayers ― but just have them try to sell some of “their” GM shares ― they’ll quickly see how limited their ownership rights are. U.S. officials now have a new mandate that is familiar to business executives: meet increased sales goals in an ever-expanding sales territory. If GM is to succeed, global sales and operations, not just American, must be a priority.

In an industry that is among the most competitive in the world, GM’s future will inevitably be linked to global markets and how well it does as an Asian car company.
Of course, this is not lost on GM. Indeed, at the same time as the firm filed for Chapter 11 protection, CEO Fritz Henderson said that “China remains a key part of our business. Our ventures in China are a critical part of the new GM ― unequivocally. Our business in China continues to grow at a very fast, even torrid pace and remains a critical part of GM going forward.”
As GM pares down its presence in Europe with the sales of Opel and Saab, the company has expansive ambitions in Asia.
China is GM’s largest growth market. The firm has more than 20,000 employees, enjoys booming sales and occupies the leading position among global automakers with market share of about 12 percent in the region. The China Daily reported that GM plans to open a new factory and double sales in China over the next five years.
Another significant Asian market for the new GM will be South Korea, where it is the majority owner of GM Daewoo Auto & Technology, Korea’s third largest automaker. Elsewhere in Asia, auto markets have been more depressed by the economic crisis, yet GM has plans for growth throughout the region with emphasis on Thailand and India. In India, look for GM to engage Tata’s Nano in competition with its own version of a mini car. India should be a hot market as the country continues its strong economic growth. With 95 percent of the world’s customers living outside the United States, GM must look overseas for long-term expansion.
The growing needs of Asian markets will require adjustments in production capacity and product. Consistent with the product cycle theory, over time, established products are produced in new locations with more local advantages.
Asian production sites with lower cost structures and locally based R&D are essential for the new GM to fulfill its mission. To succeed in its post-bankruptcy life, GM will need to rationalize its global production platform to maximize economies of scale and eliminate waste.
While GM will need to temper its ambitions to avoid mistakes of the past, it must compete globally or be marginalized as a niche competitor. However, global efficiency becomes particularly sensitive if GM uses overseas production facilities to import cars to the United States
Indeed, the U.S. administration’s rescue plan for GM is contingent upon producing more cars in the United States, even as it closes factories and eliminates jobs at home. Yet, inefficient production is one of the principal reasons for GM’s Chapter 11 filing and should not be championed under the guise of protecting American jobs.
Utah Gov. Jon M. Huntsman, the designated U.S. ambassador to China, has his work cut out. He will be confronted with competitive realism while supporting American idealism. But he’s the right man for a tough job.
The Obama administration may not intend to be an active manager of the new GM but its policies on trade, foreign investment and taxation will shape the company’s future. Government policies must allow and even encourage GM to be competitive not just at home, but also abroad. Don’t expect administration officials to go on commission, but, whether they like it or not, they have a new obligation to help GM increase sales. Asia is the smart place to look.