Lei Jun – Chairman and Chief Executive Officer of Xiaomi Corp has once said according to one report, “Doing the right thing is much more important than doing the things right. A pig could fly if it finds itself in the eye of a storm.” Probably by this he means that things get much easier if one jumps on the band wagon of existing trends instead of innovating new trends. He has been successful by doing what he preaches.

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Xiaomi, therefore, offers high capability Smartphones below $317 (<2000 Yuan), an aggressive pricing strategy that almost puts the selling price at the factory cost (perhaps same as Apple’s manufacturing cost). It has become the first company to sell high-end Smartphones at a relatively cheaper price. Prior to this Lei Jun worked with a software company where he discovered new Internet companies and made a fortune easily. The mobile internet is the next big trend, and Lei Jun is busy doing the right thing.

He might be an example of successful business mantra of the country he belongs to, China. Today China has overtaken the United States to become the world’s largest Smartphone market by volume in the third quarter of last year. Nearly two thirds of Chinese people will be using Smartphones by 2013. Xiaomi has more practical strategy-targeting emerging markets and India would be no exception which today is dominated by Korean giant Samsung. Though it still needs time for customers in developed economies to recognize and accept a Chinese brand, China is slowly capturing the foreign shores.

A lot of Chinese companies are good at innovation. Yet, Chinese products are often considered of lower in quality and `made in China` tag is very often looked down upon by quality conscious customers. This has good reasons too. This writer has faced inconvenience after buying China- made products a number of times. Consider these : A Nikon camera of Japanese origin with a `made in China’ tag ( probably assembled at a Nikon factory in China with few of its components sourced locally to keep costs low) became unusable due to a breakage in the battery door within a span of one year. In the past when Japanese brands were “really” made in Japan, this could never happen. A couple of years ago, a branded Korean air conditioner with its compressor assembled at their factory in China started to malfunction within the warranty period. One has gone through such experiences even while one travelled to England or the US. A pedestal fan sourced from China and branded for sale by an established manufacturer in London (the name of the brand is being withheld for obvious reasons) comes with a misleading operating instruction, making the product unusable and untenable after sometime. This writer’s technical background helped resolved the issue. But an American hemp garment produced at its hub in China injures the customer after the first wash due to improper riveting. These are all firsthand experiences.

There could be umpteen such incidents that make customers averse to buying anything that carries a “made in China` tag. Yet, there are very few items that do not carry this tag. You may dislike this fact, but you cannot ignore this. China has made startling progress in terms of unbeatable cost advantage. Even in India where labour is easily available, a traditional Indian product such as Kanjeervaram silk thread gets imported at unbelievable low cost than the home grown one. Children’s toys, lighting decorations during Deepavali festival, even traditional Indian electronic brands, to name a few, have almost eliminated local suppliers. More and more Indian private retail labels such as Reliance Digital, Chroma etc. are sourcing their products, at least a part of it, from China to maintain good margins. Not only this, Chinese workers are being increasingly hired for domestic infrastructural projects like power plant construction sites in far flung areas. It not only saves cost, but also enables the contracting companies to maintain the deadlines. The government has had to intervene to issue visa restrictions for their duration of stay in India to avoid conflict with local engagement of labour. Outside India, made in China’ labels are now as commonplace in the US stores as in the rest of the world. A good contribution of Wal-Mart’s revenue ($420 Bn) comes out of Chinese imports.

China has emerged so rapidly as a manufacturing powerhouse over the past 15 years that nearly all major foreign companies have set up operations there. It has emerged as the world’s biggest goods producer in the world last year, reclaiming the global supremacy it lost in the 19th century. Changzou, 170 km west of Shangahai- is among the industrial pace setters in China making the country comfortably the world’s fastest growing manufacturing nation.

Western companies now believe that China is advancing more rapidly towards high- end goods. According to an assessment of Swiss Swedish engineering group ABB the overall level of manufacturing capability in China- as measured by factors like quality of local supplies and the availability of top level design expertise- is now 75% of the level of Germany, while 5 years ago it was 50%.

China’s increasing wage cost is now a major concern though. Between 2008 and 2010 the average year-on year rise in labour cost in China’s engineering sector was 11.6% as a comparable rise of 1.6% in the EU and a decline over the same period of 8.55% in the USA and 3% in Japan. The higher wages have triggered speculation that some foreign manufacturers would increasingly shift away from China to seek cheaper bases in South East Asia. But China has a pronounced advantage in terms of infrastructure, sophistication in manufacturing, on time supplies by a disciplined workforce, fewer quality problems, and improved logistics network. The cost of labour is still often 80% – 90% cheaper than many western nations. The cost of making say a ‘capacitor’ in China is still 70% to 75% of the equivalent cost in Japan, as opposed to 80% to 85% a few years ago. Companies like Xiaomi, Huawei, ZTE Telecom (two large companies in Telecom business), Siemens (German engineering group with a base in China), Medtronic (a big US medical implant maker), National Bluestar (a chemicals group), Sany (a construction equipment business) to name a few are becoming world class companies and probably working for them would be the dream jobs of the modern generation.

In June, 2012, China took a major step to extend its growing global economic clout by commencing direct trade of its currency, the Yuan with the Japanese Yen. China’s trading with Japan ($300 bn) – its second largest trading partner after United States will be settled in Yuan and Yen without the need of American dollars. It will save both countries from saving the transaction costs of converting to dollars. This is a well timed move with the Eurozone crisis looming over and stagnation of the Japanese economy. It is expected that Yuan will become a global currency 20 years from now. And in final analysis, if the progress of a nation is determined by the number of medals the country wins, China’s success in the recently held London Olympics is extraordinary.

Lei Jun of Xiaomi represents this bright scenario in China. Perhaps a short comparison with our country cannot be avoided in this respect. India really needs to pull up its socks, quite literally, to get going. Consider this: ever since our government adopted a symbol for the rupee which was expected to be viewed as a first step to internationalise the currency, Rupee has lost almost 20% of its value from around Rs.45.00 to Rs.47.00 to a dollar to Rs.55.00 to Rs.57.00 to a dollar. Poor state of infrastructure, chaotic traffic and unplanned, shrinking road space, endemic corruption, lopsided, old labour laws and an inefficient and sloth bureaucracy are cited as some of our problems that slow down our business enterprises. Despite all these, we can move ahead as forcefully as China because of the ever increasing young, educated and a very positive manpower. If today appears to belong to China, despite the lack of confidence in its world customers, India definitely is not going to lag far behind.

References

Financial Times Ltd 2012 FT/ India Today (12/06/2012)/ Daily Telegraph (21/08/2012)