Differentiation, Branding and Global Competition
In the current issue of Fortune, Geoff Colvin warns that we in U.S. business have a mere 7 years to learn Mandarin. He argues that the cost advantages and quality differential that Chinese product and service providers have and are closing on U.S. competitors makes it a virtual certainty that they’ll achieve domination over our economy in short order. Unless we are in a location specific service industry (plumbing, haircuts, emergency medicine) it looks like he could be right! Silicon Valley and Wall Street could be serious losers and the U.S. would thereby lose high paying jobs, influence in capital markets and technological leadership. But, of course saying stuff like this sells magazines too!
The obvious implication is that the U.S. faces a competitive crisis viz a viz the Chinese. Yet we are China’s biggest customer! Could it be that our collective decisions as consumers are leading to our own demise, by providing China with the income necessary to fund technological superiority? I’m writing these words on a MacBook Pro which, though I bought it from Apple, was manufactured in China, via a value network that extends throughout Southeast Asia.
Why does the Chinese company that organized and managed that value network and the manufacturing and assembly process need Apple? Simple! Not only did Apple designers and engineers conceive the product I am using, they also conceived the look, feel operating system, application suite and the manner in which these hang together to create an experience for me. This is what differentiates Apple from Dell, HP, Microsoft, Lenovo and any other PC maker. Could the chinese supplier develop this kind of design aesthetic and engineering capability. Probably so, but probably not without Americans involved. Just as Americans would be unlikely to develop products, services and experiences that would be uniquely appealing to a Chinese audience. Apple’s brand is not strictly American, yet there is an inseparably American aspect to the brand and to the process through which it has been created.
The point is that there will remain cultural differences for some time to come and these differences provide a basis for differentiated competition. If companies focus only on cost-based competition, they will lose to firms in developing countries like China. The same will hold true for investment banks, pharmaceutical companies, other high tech companies and even business schools. If a chinese, indian or bulgarian company can provide the service or product cheaper and cost is the primary basis of competition, then U.S. firms will lose. But, cost is not the only basis. Differentation strategies based on quality, customer knowledge, speed and innovation are also available.
True we need to keep investing in a high quality education system to be able to effectively execute these kinds of differentiation strategies. Failing to do so is one way that we could lose the race. For some interesting reading on competitive advantage at the level of nations, check out Michael Porter’s Diamond Model at valuebasedmanagement.net.