Made in China: The Evolution of Design

What are the design elements and principles that have emerged from over 1,000 years of producing products sought by the world?

China wants to be more than just the “factory of the world”. While China’s economic strength for decades has been built on the might of its manufacturing sector, policy-makers are currently attempting to steer the economic ship away from the production of low-cost goods. Amid this massive paradigm shift, Chinese enterprises across industries have realized the importance of design in bringing their companies, and the economy writ large, up the value chain.

China has a rich tradition of domestic design capability and has exported design concepts to the rest of the world for centuries. Yet, historical and cultural factors disrupted this process and Chinese designers today find themselves playing catch up with their Western counterparts. However, there are encouraging signs that Chinese design may soon change the identity of the “Made in China” brand.

Many Chinese factories for decades operated on an OEM (original equipment manufacturer) model, in which they produced goods based on foreign designs. Companies have now recognized that the next frontier for China will be the establishment of strong domestic brands, which will necessitate a shift to an ODM (original design manufacturer) model. It is hardly an easy shift, and many, particularly those in the Chinese garment sector, recognize that their design talent continues to lag that of their foreign competitors.

China’s history as an OEM manufacturer, however, may also give it an edge. Manufacturing of goods destined for export was the first step in a continuing internationalization process for China’s designers. Furthermore, China’s manufacturing sector has made an art of the speedy production of goods tailor-made to client demand. As such, the mainland has an unparalleled ability to quickly implement design.

Yet, the new generation of Chinese designers face significant hurdles. There are over 1 million design students on the mainland, but most of them have little understanding of the market’s demand for their services. Young designers also lack the relationships to secure plum government contracts – a major industry driver in China. As a result, government design contracts go to senior designers. The few Chinese enterprises that recognize the importance of design prefer to hire more experienced foreign designers who will work hand in hand with the client throughout the entire project.

Nonetheless, China is approaching a tipping point in the global design industry. Chinese designers are swiftly boosting their capabilities, while garnering the respect of their international peers. Furthermore, the sheer size of China’s consumer market suggests that future global design will be aimed at satisfying the demands of the Chinese consumer. It is a transition that could mark a new day for Chinese design, and domestic designers would be wise to begin preparing now.

Some suggest that China could take a page out of Japan’s playbook. Japanese designers in the 1980s shifted their focus from the export market and sought to reinterpret traditional colours, shapes and textures into their products. Today, Japanese brands such as Muji have championed a modern and quintessentially Japanese aesthetic that has found a market at home and abroad. Ultimately, China’s designers face the same problems as designers around the world. The goal is not to create “Chinese design” but rather “appropriate design” that meets market needs and can help spur innovation.

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Finding a Growth Strategy in the Post-Crisis World ..!!

Despite some headline grabbing, global merger and acquisition volumes are 38% lower than a year ago.

How are major industries rethinking and redesigning future growth models, at home and abroad?

Key Points
• The world will return to growth but it will be a jobless recovery and the economic recovery will vary across regions and countries.
• Companies must remain flexible and innovative to meet shifting purchasing patterns and more demanding consumer needs.
• Organic growth funded by internal cash flows is preferred to debt driven mergers and acquisitions in the new economic environment.

Synopsis
The extent and quality of the economic recovery is the big debate. The US administration says that the freefall has stopped. The IMF upgraded its prediction of world growth in its most recent estimate. However, others such as the World Bank and some independent economists are more negative on the subject. A recent survey found that most observers think there is a recovery but that it remains fragile. The role of sentiment is critical.

The recovery will likely be lumpy and vary by country and by market. Recovery will rely on increasing demand and increasing GDP. However, it is likely to be a jobless recovery since there is excess capacity in the system.

The shape of the recovery will also vary across regions. Western Europe faces an “L shaped” recovery (a longer recession). The US faces a “U shape” (growth will return but not right away). Asia, Latin America, Africa and the Middle East are all well positioned for a “V shaped” recovery (rapid bounce back).

Business leaders need to understand what the new environment will look like. The economy before the crisis was not “normal” and will not return to that situation. There was an extreme expansion of credit that will not be repeated.

For companies to thrive in the post-crisis era, innovation is the key. Innovation is the essence of value creation, and the ability to reinvent business models. When companies diversify, the businesses should complement each other and allow for innovation. There is also need for new business models. Consumers are challenging the old model. Today’s consumer is setting a new standard, looking for new products and new ways of buying things. This is creating a transformation agenda for businesses in meeting this need.

The appropriate business model depends on the situation. There is no silver bullet. Whether a company should be diversified or focused, there is no “right answer”. It needs to be what fits and works. But it is clear that if a company is not successful in one market it is unlikely that it will be successful in others. And for diversification to work, the company cannot have a “top-down” centralized model – flexibility and some decentralization are needed.

Organic growth is always the strongest way for a company to grow, but acquisitions are the quickest way to get there. However, mergers and acquisitions need to be done right. Two drunk people don’t make a stable person. Some Chinese companies have expanded internationally, but not all stories have a happy ending. They have found that there is just as must potential to destroy value as to create value. Issues such as higher labour costs and major cultural differences in Europe and elsewhere are difficult to overcome. All risks need to be considered, and there has to be an underlying purpose for acquiring a company. It needs to link to the overall strategy and what value it will bring. Size itself is not enough to do this. Following mergers, companies then need to be aggressive about driving integration.

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Finding the New Shoots of Growth..!!

As the global economy begins to exit from the deepest recession since World War II, the recovery is expected to follow a different path from those of recent memory.

What, and where, are the new drivers of growth?

Key Points on the Topic
• Economic crises are often accompanied by rapid periods of innovation. New business models and technologies emerge from the ashes to become the new drivers of growth.
• China, India and Africa will lead global growth in the coming decades, particularly in sectors such as renewable energy, information and communication technologies, and biotechnology.
• The Middle East is becoming more integrated globally and will become an important new source of demand as well as a source of capital.
• Innovation does not come without R&D and strong science and technology capabilities. Governments can help by funding these activities, while new businesses and new frameworks of collaboration are necessary to get innovations to the market.

Synopsis
Both government and business play a crucial role in the process of creative destruction. Governments can provide funding for early stage research and development and provide a “test” market for new concepts (e.g. Chinese municipalities trialling electric bus fleets). Policy-makers need to create an environment which encourages entrepreneurial activity (e.g. open economies, tax systems which support R&D, commitment to diversity).

Entrepreneurs and small to medium businesses can identify and meet new demands and new needs. Many great companies were launched in times of crisis and grew to dominate their industries.

In China, there are huge opportunities over the next two decades as the middle class emerges and domestic consumption takes hold. New shoots of growth will include renewable energy and energy efficiency (e.g. solar, wind, LED lighting, fuel cells); healthcare and biotechnology; convergence of IT networks and roll-out of broadband); advanced manufacturing and new materials emerging from nanotechnology. The challenge for China will be to make the transition from an export-dependent economy to one which is based on domestic consumption and services. India is also well placed to benefit from the rise of renewable energy (particularly solar) and efforts are focussed on reducing the cost of solar energy to below that of hydrocarbons.

Africa will be a new driver of growth, especially in the aquaculture, biotechnology and renewable energy sectors. With some countries growing in excess of 8%, the continent offers enormous opportunities and is roughly where China was 10 to 15 years ago. The abundance of mineral resources is well known, but there is also untapped human potential. The quantum leap will come as new information and communication technologies take hold.

In the Middle East, innovation has traditionally been impeded by large government involvement in the economy. With the process of privatization now in full swing, government-controlled assets (airlines and media) are transitioning to private ownership. One fertile area for new opportunities which can exploit the abundance of oil is the development of products which use oil as a key input (moving up the value chain).

New collaborative models will likely emerge, such as arrangements to share intellectual property as well as open innovation (use of external resources and ideas). In this respect, the cross-border cooperation demonstrated by the G20 in response to the financial crisis is a good model.

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The Rise of Economic Nationalism ..!!

Which industries and regions are most threatened by new forms of economic nationalism?

Key Points
• The global crisis has raised concerns about the adoption of protectionist measures to support domestic industries and please public opinion.
• Despite the severity of the crisis, only a few countries have resorted to such measures, and in a limited number of industries.
• The multilateral trade system (MTS) is under constant threat. Politicians must exhibit stronger leadership in supporting it.
• Fairness and equality of treatment by major trading partners is crucial when negotiating with developing nations.
• While the disastrous effects of protectionism on developing countries are all too obvious, it also negatively affects advanced economies.

Synopsis
The severity of the current crisis has made protectionism increasingly popular. The adoption of measures to support local industries may seem appealing at first and provide some temporary benefits. However, their consequences in the longer run are disastrous because of the retaliatory measures likely to be taken by affected countries, the distortive effects, and the impact on access, prices and variety.

Fortunately, there has not been a major move towards protectionism as the majority of governments around the world realize the positive role of trade in their recovery. Rather than resorting to protectionism, they have been trying to fix the problems that led to the crisis and adopting new international financial regulations. The unprecedented drop in trade over the past 18 months is not the consequence of protectionism but merely the result of collapsing global demand.

Yet, the MTS needs stronger support. Governments need to resist the pressure to adapt populist measures exercised by the electors, labour unions and domestic industries who are most affected by international competition. Their suggestions, all the more persuasive in times of crisis, provide temporary fixes. Governments must exhibit strong leadership and work at convincing all parties of the benefits of pro-trade policies. The latest decision by the US to raise tariffs on tyre imports from China, if confirmed, could have dreadful consequences, such as triggering a cascade of retaliatory measures or damaging the framework of the MTS.

The difficult negotiations of the Doha Round, which trade ministers will attempt to revive next week in Geneva and later at the G20 summit in Pittsburgh, is another reminder of the fragility of the system. To conclude the Doha Round, governments will need to make concessions and be both visionary and reasonable. More work awaits negotiators after Doha, especially regarding the proliferation of regional and free trade agreements. As these agreements create trade among participating countries at the expense of others and violate the most favoured nation clause, governments will have to agree to extend these bilateral agreements to all WTO members.

Besides its fragility, the fairness of the MTS is also the subject of debate. Developing nations resent that advanced nations still seem to dictate the rules of the game. Despite its flaws, the MTS is one of the most successful models of international cooperation.

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Building a Sustainable Value Chain ..!!

The EU highlights that if the rest of the world adopted European lifestyles, the resources of two and a half planets would be needed to support consumption.

As consumption trends towards sustainability in major economies, what will be the future business model for manufacturers and retailers in advanced and developing economies?

Key Points on the Topic
• Sustainability is firmly taking its place on the business and global agendas. It is no longer a fringe discussion or “nice to have”. The prospect of a price on carbon, water scarcity and resource constraints are forcing action.
• Many economies and companies have been built on cheap credit, stable energy and commodity prices, and rising consumer consumption. Sustainable success in the post-crisis world will depend on innovation and collaboration.
• Companies caught flat-footed will miss market opportunities and face both community backlash and regulatory risk. Sustainability should be central to the business mission and a source of competitive advantage.
• Consumer demand for sustainable products is growing rapidly, but it is difficult for consumers to make informed decisions due to information overload (“sustainability spam”) and complexity of the issues.

Synopsis
There will be a tripling of the global middle class over the next two decades, as 2 billion new consumers enter the middle income bracket. If lifestyles of the average European or North American were adopted, the world would need more planet Earths to sustain the populace. In short, current consumption trends are fundamentally unsustainable.

This sustainability challenge poses both a threat and an opportunity. If left unchecked, the human race will face the “ultimate tragedy of the commons”. On the other hand, providing for the next generation of consumers in a sustainable manner presents an enormous opportunity for global businesses.

Companies which have taken the lead on sustainability demonstrate that there is no “impossible trade-off” between profitability and sustainable products and practices. They are also integrating the supply chain by helping suppliers reduce waste, improve energy efficiency, use innovative packaging and adopt closed-loop systems. At the same time, these leading companies are showing consumers that there is no need to sacrifice price or quality for sustainability.

National and local governments are supportive and continue to seek ways to level the playing field and price externalities without compromising development or living standards. The private sector will need to work with government, civil society and the media to help shape policy that aligns incentives for migration towards a sustainable economy.

However, incremental change is not enough. Radical changes are required. It is hoped that the “sustainability crisis” can be approached with the same sense of “can-do” spirit that was applied in response to the economic crisis.

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A Sustainable Road to Development and Growth ..!!

A sustainable global economy is premised on business leaders and policy-makers developing holistic strategies for energy, agriculture, infrastructure and water.

How can policy-makers and business leaders work together to adequately create these synergies?

Key Points
• Various supply and demand forecasts on energy, food, water, and other goods and services indicate serious shortages by 2030.
• But in addressing one problem, the world often creates unintended consequences in other areas because the issues of sustainability are complex and closely interlinked.
• A multistakeholder approach and integrated policy response are required to unravel the complexity of the problem.
• International institutions must also be restructured, a global body created to serve as honest broker and holistic action taken on the regional level.

Synopsis
The World Food Programme estimates that food production must double over the next 40 years to meet projected demand. If agricultural businesses continue to operate as they do today, warns the International Water Management Institute, there would not be enough water to meet the needs of a world population of 9 billion people expected in 2030.

For its part, the International Energy Agency (IEA) forecasts a 45% increase in energy demand by 2030, one-third of which will be met by burning coal. The IEA also estimates that 269 trillion litres of biofuels must be produced per year by 2030 just to account for 5% of total road transport fuels, a significant increase from today’s ethanol production of 368 billion litres.

These issues are closely intertwined. For example, the world will consume dramatically more sugar for food and to produce ethanol by 2030, but an explosion in high-intensity sugar cultivation risks encroachment into forest land, draining of rivers, damage to biodiversity and social problems as smaller farmers are forced off their land.

The push and pull of competing needs require a multi-sectoral approach and a policy package that addresses both supply and demand. On the supply side, trade and energy policies must be reformed so the right incentives encourage sustainable sugar production. Tariffs and other trade barriers must be removed to allow the market to function effectively.

On the demand side, the desirability of sugar as food can be decreased by communicating the downside of consumption on people’s health and the negative impact of intensified cultivation on the environment and farming families. Investments in biofuel technologies that can produce alternatives to sugar-based ethanol must also be increased.

The same dynamic is at work in other sustainability-related problems such as water and infrastructure. All stakeholders, including policy-makers and business leaders, must work together on an integrated policy response. The courses of action developed must be holistic and should not create unintended consequences.

Restructuring today’s international institutions into organizations for sustainability is a difficult task. A dialogue based on scenario planning that takes into account geopolitical and technological interests as well as the voices of smaller players is a meaningful starting point.

But reinvented multilateral agencies alone cannot address all the challenges. A global organization may be needed to act as an honest broker among the various interests. Regional organizations and NGOs also have a significant role to play. Initiatives on a regional basis may be the optimum road to take towards sustainable growth and development.

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Economic Update: India's Outlook..!!

The World Bank has stated that India's growth rate in 2010 could surpass China's for the first time in history.

What critical reforms remain to keep growth on track?

Key Points
• India managed to achieve an average of 9% growth over five years before the economic crisis. There is no reason to believe that its economy is not capable of returning to that level of growth.
• To sustain growth at 9% and above, the country must address its skills shortage, especially at the mid-level, if it is to maintain its competitiveness and attract more investment.
• India must focus on how to reform the legal system to make it more efficient through better implementation and enforcement of laws and a swifter judicial process.
• Effective models of public-private partnerships are needed to address critical bottlenecks to higher growth and efficiency such as infrastructure and the delivery of education and skills training, especially in rural areas.

Synopsis
For five years before the global financial crisis, India had averaged 9% growth. In the 2008-2009 fiscal year, the Indian economy grew by 6.7% and is set to achieve 7% growth next year, assuming a good monsoon season. In the medium term, India is likely to once again reach 8-9% growth.

There are, however, inherent constraints on the supply side that India must address to sustain 9%, plus growth over the medium and long term. Infrastructure is one such inhibiting factor. Another is the lack of skilled workers, especially at the mid-level. To address this deficit will require investment in education to widen access especially in rural areas and improve the quality of schools. A lot needs to be done in higher education. The government is taking a broad-based approach to this problem and is working together with industry to ensure that skills development aligns with the needs of business.

If India is able to adequately address its skills shortage, it is likely to attract more foreign direct investment that will drive new growth. Another area in need of reform is the legal system. The perception is that, while India has good laws on its books and globally comparable legal frameworks, it lacks efficient implementation and adequate law enforcement. The judicial process must be streamlined. It is important to increase transparency standards and to improve the quality of public- and private-sector governance.

To adequately address the constraints to growth from deficiencies in infrastructure, education, health care and the legal system, the Indian government will need to work together with the private sector. The right models of public-private partnership have to be adopted to ensure that they work effectively and achieve results.

Education is a particular concern since many young people in rural areas do not have access to schools. Private-sector education is a controversial issue in India, but often these are the only options available. Yet there is no reason that the government should not be able to provide quality public education. Intense discussions are now under way in India to determine what public-private partnership arrangements would be appropriate in the education sector.

Promoting inclusive growth must be the basis of government action. India’s democratic system means that there are often strenuous debates over policies; this should be viewed not as a deficiency but as an advantage. The airing of disagreements ensures that consensus, once reached, is sustainable and policies may then be implemented with the support of all sectors of society.

The dedication to inclusive growth also entails focusing on how to improve the lives of those at the bottom of the pyramid, by providing them with services that would enable them to be more productive and entrepreneurial. While the financial services sector is regarded as a major success story in India, less than 20% of Indians have access to any kind of credit. A large number of citizens do not have bank accounts. It is critical to find ways to bring banking and financial services to these people. To achieve this, new models of banking that employ mobile technology have to be explored.

On the trade front, India is pursuing both a multilateral and regional strategy, working for fair ways to conclude the Doha Round and negotiating regional and bilateral free trade agreements. It is in the midst of implementing a recently signed free trade agreement with ASEAN. Regional trade and cooperation within South Asia, however, remains weak.

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