To remain competitive, Spanish companies need an In China for China strategy, while Europe must urgently adopt an ambitious innovation, real single market and de-bureaucratization agenda if it wants to stay in the game.
Diego Guri, amec deputy general manager
China has gone from being the “cheap factory” to an ultra-fast technology ecosystem, with full digital integration and institutional support that accelerates innovation and global expansion.
Their speed, flexibility and vertical integration contrast with European sluggishness, which is driving increased Chinese investment in Europe and raising questions about whether this is an opportunity or a threat.
To remain competitive, Spanish companies need an In China for China strategy, while Europe must urgently adopt an ambitious innovation, real single market and de-bureaucratization agenda if it wants to stay in the game.
The speed of adaptation, once a competitive advantage, is now essential to stay in the game. And in this hyper-accelerated scenario, especially after the pandemic, China has set the pace. China is no longer the “cheap factory” that has been supplying the West for decades, but a flexible technological ecosystem that is ambitiously focused on capturing value throughout the global chain. While Europe is still debating how to regain its industrial and digital autonomy, China is executing. And it does so with a combination that would be unthinkable here:
The country’s hyperconnectivity is the driving force behind this speed. The population is practically digitally integrated, and this facilitates business models based on data, services and technological integration. Many industrial sectors have already made the leap to servitization: a simple QR code on a door or an industrial machine makes it possible to manage maintenance, technical service and customer relations in real time. The “dual circulation” Made in China 2025 policy of the current Five-Year Plan, with a stimulus to domestic demand through a boost to supply, has not yielded the desired results. This has created an impressive industrial overcapacity, with working hours of 10-11 hours a day, six days a week, some 252 hours a month. On paper, labor regulations are comparable to those of the West, but the reality is different. Vacations are practically non-existent beyond the Chinese New Year.
In response, the policy response has not been to reduce supply, but to channel it to the world. The result? Highly productive companies, ready to compete at prices that the West cannot replicate, and at the same time many of them flexible enough to adapt products, white label, develop customized projects and innovate in processes. The United States has reacted by raising tariffs on Chinese goods, and this offer has been quickly channeled to other areas of the world, including Europe.
In this context, according to the CEO of a Spanish company there, “good, nice and cheap” has a different meaning: cheap, fast and flexible. The success in the rapid global expansion of many Chinese companies is based on much deeper vertical integration than in the West, driven and financed by provincial governments and, when necessary, by the central government. The Five-Year Plans (participatory, annually reviewed and with clear objectives) set priorities that are then deployed through subsidies, institutional support and a selective debureaucratization that any European businessman would envy. Each year, local authorities visit companies to ask what they need. In parallel, high-tech industrial parks attract investment with negotiable incentives and first-class infrastructure. An environment that accelerates, accompanies and finances innovation, to compete in quality and technology.
Chinese companies are going out into the world to seek margin, value, knowledge and markets. Meanwhile, some European companies still travel to China for cheaper sourcing. This divergence is revealing. The speed with which they adapt products is overwhelming. While European multinationals based in China need months to adjust a launch, Chinese companies can modify, test and relaunch in weeks. In such a competitive and fast-changing market, this time difference is a condemnation. European companies are perceived in China as “deaf turtles” that do not listen to the market.
All this explains why Chinese companies are investing in or buying European companies at an increasing rate. In principle, this could be seen as an opportunity to provide or maintain jobs in Europe, but is it really an opportunity, or is it more of a threat? Are we putting “the fox in the henhouse”? This fact is especially relevant for our country, which is carrying out an intense activity to attract Chinese investment, especially in the electric mobility sector. Is Spain being “the Trojan horse” for the landing of Chinese companies in Europe? The answer to these questions will depend on how Spain and Europe decide to position themselves. In the past, our companies invested in China to improve their costs, and the Asian giant benefited from the creation of industrial jobs, the development of a supplier industry and the acquisition of technology, not always playing fair, especially in terms of intellectual property. In the case of Chinese investment in Europe, in addition to competing for industrial talent with indigenous companies, what approaches are there for integrating these industrial investments with local suppliers? How will we ensure that these new investments transfer to us differential technologies in which the Chinese have excelled? The European Commission’s Trade Commissioner has already initiated this debate, but there are no signs that the pace will not be that of the European tortoise.
So what should Spanish companies do in China? There are no generalizable recipes, but as always, there are opportunities. It is still feasible to consider going to China to source or produce competitively, although the authorities are reluctant to accept low-tech investments, at least in coastal areas. It will be more complicated to export products from Europe, unless it is the case of high-value consumer products or luxury goods. Nevertheless, it is important to be in the market. Taking advantage of its enormous consumption potential is complicated, but being present in some way allows us to be at the center of what is surely today the most dynamic economy in the world.
Spanish companies operating in China have learned the hard way: whoever wants to compete there must apply the strategy that some companies present there refer to as In China for China. This implies a clear commitment to innovation, adapting the product to the Chinese market, not repeating European models. This makes it possible to play defensively in an environment of fierce competition, in addition to learning from local technology, processes and business models, in order to strengthen the company’s competitiveness in the rest of the world. It is a difficult and risky strategy, but perhaps the only one possible.
China combines vision, execution and courage. Europe, on the other hand, often combines caution, slowness and excessive regulatory dependence. Until this imbalance is resolved, the forecast is clear: a massive price reduction in all industrial sectors will put Europe under pressure as never before.
The question is not whether China is a risk, a threat or an opportunity. The question is whether Europe is willing to play at the same level of ambition. It is therefore urgent to implement the clear roadmap set out in the Letta and Draghi Reports: a real Single Market, with an ambitious commitment to innovation and de-bureaucratization. The moment generated by the American withdrawal from the global scene, and the European reaction with the negotiation and signing of free trade agreements in several areas of the world, may be our last chance, but we must be able to make a firm commitment to it.
China is no longer just the world’s factory. It is the world that will come after it. The question is: will we be there or will we watch from the sidelines?
Diego Guri, amec deputy general manager