I’ve just returned from a family trip to China and Japan. The great thing about travel is the fresh light it sheds on things what otherwise would be overlooked. This trip was no exception.
After a few days back home, two things stand out: Chinese competitive business practices and Japanese infrastructure policy.
China is on the way to becoming the world’s largest economy. I talked with numerous Americans, both in China and here, who have started businesses there. Here’s their collective thumbnail description of how Chinese businesses compete:
First, research carefully your competitor. Figure out his business model, target market, product strategy, pricing tactics. Everything. Then “reverse engineer” your competitor’s product; that is, work out how your competitor designs and manufactures his product, what technology he uses, what design and materials are being deployed.
Then do everything you can to reproduce your competitor’s methods and products. That certainly includes copying and, if you can get away with it, stealing his technology, plans and detailed drawings.
Figure out how to make a cheaper version of your competitor’s product, maybe by using much cheaper labor, maybe by stealing her inventions, maybe by just copying her design and promotion tactics.
Bring your cheaper product to market and let the normal forces of supply and demand have their way.
The business logic is simple. In a country with 1.4 billion people, the Chinese domestic market’s plenty big enough to make even a miniscule market slice plenty profitable. Not only that, but it makes no sense to spend money on expensive R and D when you can steal it much more cheaply from a competitor when it’s ready to use.
Several years ago, a good friend, a very capable and experienced American businessman from the west side of Michigan, opened a subsidiary in China. He pulled out within a few years. “There’s no point,” he told me. ”Once you have figured out how to do business in China, they’ve copied your systems, your products, your research.” That’s not the universal opinion of people I talked to, but it’s pretty close.
In the minds of most economists, “free trade” brings substantial advantages for consumers who benefit from comparative advantages from specialization. Maybe so. But not when “free trade” greases the skids in favor of a business model like the Chinese. So it’s naïve to knee-jerk favor international free trade agreements without very carefully understanding the fine print and making sure that bad consequences for American are mitigated.
I wouldn’t be surprised if economists are just beginning to rethink the plusses and minuses of our past policy infatuation with international free trade agreements.
The other side of the policy coin has to do with what the Japanese are doing to their infrastructure system, especially rail. While in Japan, we travelled throughout the country on the “Shinkansen”, the bullet trains that knit the landscape together with trains that speed along at a maximum of 200 miles per hour, carrying more than 150 million passengers per year. The trains are clean, the attendants and conductors polite and helpful. The trains run in near-absolute quiet, for the rails are welded together, so you don’t get the bothersome the “click-clack” of American trains.
And they’re absolutely on time. When your ticket says the train leaves at 3:47 p.m., it leaves exactly at 3:47. I learned to set my watch by checking the train departure times rather than the other way around.
The Japanese have invested plenty in their bullet train infrastructure system and that investment is paying off big time in improved productivity and citizen convenience. Why on earth we don’t make similar investments in infrastructure in our own country is beyond me, whether it’s trains, air travel, roads, shipping and ports. If one of the long-term problems with our economy is lack of jobs for ordinary non-high tech workers, an awful easy way to improve the future of folks now left out is a national program of infrastructure improvements, perhaps modeled on what the government did after the Depression.
It’s in part a consequence of our political culture that has increasingly discounted the value of a whole range of “public goods,” whether quick and easy transportation (as in Japan), or reliably safe drinking water (as in Flint), or roads that don’t tear your car up in the Michigan winters. And of course our schools, where student achievement is going down and our young people are being systematically shortchanged in international competition.
On our trip, we saw firsthand how the Chinese work to manipulate the business competitive system to their advantage and how the Japanese invest in the basic structures underlying a thriving economy, while our politicians at home remain preoccupied with who is peeing in which toilet. Somehow we’ve got our priorities messed up – and realizing that, too, is a benefit of travel.
All the same, it sure is good to be back home, to smell the clean air and see the flowering trees and play in the evening cool with my dog on the lawn.