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October 12, 2005
A Visit to Chengdu: Looking Beyond the Sweatshop into China’s Future
I’ve been unable to get online for almost two days until just a little while ago; that’s both wildly maddening and at the same time somewhat refreshing and liberating. An odd feeling.
Catching up on the news, I ran across comments which should accompany my earlier post on the entrepreneur I met in Shanghai on Sunday evening. These remarks, from the Scotsman, are from Peter Nightingale, chief executive of the China Britain Business Council, speaking at a conference in Scotland called "The China Challenge":
China is not a sweatshop economy, which is why large multinationals like Nokia do most of their R&D there. The implications of China's positive stimulus for Scottish business are immense. China is the biggest economic opportunity since the rise of the US. Companies have to face the realities of China's rise but no business in Scotland can afford not to have a Chinese policy and strategy.
Scotland has a great history of entrepreneurial and pioneering flair. We have to identify unique selling points, in Scotland's case high-value-added manufacturing, financial services, education and tourism. Scotland's natural attractions represent intellectual property that not even China can steal.
China is indeed more than the world’s sweatshop; to think otherwise is a tremendous mistake.
I’m writing this dispatch from Chengdu, in southwest China’s Sichuan Province. Besides the scenic beauty of this province and its fiery cuisine (which I adore), Chengdu is home to a rapidly expanding software development industry.
Motorola has extensive operations here, including a mobile phone software development unit. Alcatel just announced plans to build a facility for research & development in mobile communications and microwave transmissions technologies that will employ 300 engineers initially. This facility will be located not far from an existing r&d facility which focuses on optical communications. Nokia just announced establishment of a 3G research facility in Chengdu, its second such operation in China.
Officials in Chengdu are also working hard to build the city into a center of online and electronic game development. The country’s first university department of game software was established a few years ago at Sichuan University.
Indeed, the country’s leaders aren't foolish; they're smart enough to realize that long term economic stability cannot be built based entirely on low-cost labor. Over time, as the country’s population continues to age, the supply of young, inexperienced workers (the primary source of "sweatshop" labor), will fall, relatively speaking. (We’ve referenced this issue here.) Other countries and regions with younger workforces (the Middle East?) would be potentially in a position to undercut Chinese companies whose business models are built mostly on low labor costs.
As we’ve seen in the development of technology centers in the United States like Silicon Valley, Route 128 in Massachusetts, and the Research Triangle in North Carolina, the interplay between strong educational institutions, the technology industry and its research and development activities, and capital has a tremendous windfall effect over time for the local economy.
China wants to replicate such centers of technology-driven economic vigor. Chengdu looks like its on its way.
Finding out I was from Atlanta, one of my dinner companions tonight asked me about the Research Triangle. That’s what they’re thinking about in Chengdu.
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