This week marks the 20th anniversary of the Chinese student uprising in Tiananmen Square, and its brutal put-down by the Chinese leadership. Ironically, the same week GM agrees to sell its Hummer division to a Chinese company. Quite a contrast in outcomes over 20 years. China was then a backwater nation having very little business with the USA, and GM was still considered a dominant U.S. industrial power.
We all know what China has accomplished in the last 20 years. From struggling poverty, the country is now the third largest economy – and the single largest offshore holder of America's debt. China is poised to be a superpower, and the world's largest economy within another 20 years. How?
Within months of the Tiananmen event, in which the Chinese military slaughtered thousands of its own citizens, the Berlin Wall tumbled. The Soviet Union evaporated, leaving behind a series of independent states poorly capitalized and ill prepared to compete internationally. The Chinese leadership recognized this as a major market shift, and wasted no time taking action.
Step 1 was recognizing that future scenarios no longer required investing massive funds defending the world's longest contested border. More tanks were on the Chinese/Soviet border than all the rest of the world combined – and the replacement of those tanks suddenly became non-essential. And the Chinese recognized this, and changed. With speed exceeding anything anybody imagined, the Chinese changed all their scenarios about the future. Instead of spending massive funds on military works, those funds could be spent elsewhere. By reworking their future scenarios, they realized they could undertake different opportunities. No longer were they required to do "more of the same" as they'd done for several decades.
Step 2 was recognizing the new competition. Instead of fighting a traditional war, the Chinese would be in an economic war with the smaller eastern European nations, and India. Dissolving the USSR meant the Indians, who had long sparred with the Soviets while also taking aid, suddenly knew they had to rely completely on the USA – and trade. And that meant the Chinese had a new #1 competitor, but in the new battle for trade rather than old fashioned aid. Where before China wanted money for armaments, now they needed to invest money in production to pull dollars from U.S. business. The new objective became competing with India, rather than the Russians.
Thirdly, they Disrupted their approach to world diplomacy. Instead of a closed country, they became open. Instead of investing in guns, they invested in power plants, roads and infrastructure. On the world stage, China wanted to become the biggest winner of foreign exchange. And the road to that win came through participating with American capitalists. The leadership realized it needed to totally change the country's investment patterns in order to make the country's low cost labor available, and it did so. Almost overnight. How, by recognizing and undertaking a Disruption in their investment patterns.
Fourth, China implemented White Space for job creation. Suddenly, almost every city had a development zone. They didn't need to figure out what infrastructure to buy. All they had to do was invite the Americans in and we'd tell them what we wanted. We'd describe the airports, power plants, telecom systems, roadways – everything we wanted to give them the work (and foreign exchange). All they had to do was listen and do it.
China is an example in doing things differently, changing how you
compete to be very efffective, without really changing values.
People often tell me they worry that The Phoenix Principle means you
have to give up your ideals. I disagree. Being a Phoenix organization
means you're willing to adapt to market requirements, and doing so does
not mean you have to change your "ethos," religion or personal values.
You merely have to adapt. If you want to be "green" or "sustainable" or "ethical" or even "religious" you can do so. You just have to make sure you are connected to the marketplace in ways that allows you to develop a Success Formula which creates growth.
Compared to India, the Chinese have been wildly successful. And that's saying lot, given how incredibly successful India has been. There is no doubt that India, too, has used outsourcing to raise foreign exchange, create jobs and grow. But compared to China, well there's no comparison. The Indian government is still trying to figure out how to build a highway, expand major (overcrowded) airports and provide consistent electricity to business parks in major cities. The Indian leaders don't suffer from a lack of smart – no way – but the government keeps trying to operate the way it always has. And that has held them back from making the investments and taking the actions which have catapulted the Chinese into the lead. While India had a head start in 1989 (largely English speaking leadership and a strong investment in education for the elite), China has eclipsed their growth and is chasing Japan and the USA.
Through all of this, China never changed its politics. Some people who go to China return talking about how "capitalistic" the country is. They forget the lessons of Tiananmen Square. China has been and remains a tightly controlled, Communist, centrally-planned country. "China scholars see little chance for political reform" is the headline describing how the politics of China are unchanged since the days when they shot thousands of their own students, and imprisoned thousands more. Several students taken prisoner have never been heard from again. Those that fled the country are not allowed to return – and their families were subsequently required to consider them bad Chinese. Many were held in prisons for years, and others are still in remote work camps. China is still China, deep inside. No more a market/capitalistic country than it ever was. It just learned to adapt to a changing world. (Something Chairman Mao tried to avoid – almost destroying the country.)
Coincidentally, my 21 year old son returned from a month in China yesterday evening. He was visiting manufacturing plants and engineering schools. We talked, and will talk more, about what the Chinese businesses and schools are doing. Why, and exactly HOW do these schools and factories affect competition? Competition to be a world-class engineer (he's a mechanical engineer prepping for his civil engineering master's degree), and competition for building things. As he summed it up before crashing to sleep "they do things entirely differently than we do in America – and I can easily see why they get things done cheaply. They do things in a uniquely Chinese way, but it meets the needs of American companies who want lower costs and market access. This may have been my first trip to China, but it won't be my last. It can't be if I want to remain competitive. Maybe I need to learn Mandarin or Cantonese so I can go to one of their schools for a year."
We all have to learn to adapt. The world changes. Every year. If we try to resist those changes, to Defend & Extend what we like to do, we grow further out of touch with market requirements and lose the ability to compete. You don't have to "sell your soul" to adapt. But you must adapt if you want to continue succeeding. You have to make your investments based upon what will make you a winner in the future – not what made you a winner in the past. You have to study competitors, and do those things that will make you a winner. You have to accept Disruptions by attacking old Lock-ins, and use White Space to develop new solutions. If you do that, even at the scale of the Chinese economy, you can have unbelievably successful results. Or at the level of an individual engineer. If you don't the results aren't pretty. Not pretty at all. Just ask the employees at GM.