What Is China's Importance To The World Economy?

By James Santagata
Principal Consultant, SiliconEdge


I. What Exactly Is China's Importance To The World Economy?

The reason I ask this is that unless one has been living under a rock one couldn't help but notice the brutal one-two punch of China's recent stock market "turmoil" as well as the successive waves of Yuan devaluation.

And this is where it gets a bit funny.

You see, prior to this "correction" or perhaps "implosion" (the verdict is still out as to which one since the events are still unfolding although I lean towards "implosion" at this point) we were told by the pundits and market gurus that China was The Growth Engine that would pull us all out of and through the last "Great Recession" -- that is, China not only mattered, it mattered greatly.

Suddenly, however, when the Chinese stock market has gone into a free fall these same pundits and market gurus, you know, the ones who told us that China was The Last Great Red Economic Hope of the world, now tell us that we have absolutely nothing to worry about -- that the Chinese stock market crash was and is somehow contained to China -- that it wouldn't and won't affect those of us outside of China (See: Fears over China's market crash are overblown - CNN/Money).

Hmm.

It seems that the pundits have changed their minds once again then, since that flip-flop (lie?) only lasted a few days because when we suddenly saw the contagion spread, other global stock markets (Japan, US and so on) were roiled (See: Dow posts 212-point drop as China roils global markets - MarketWatch).

So which is it? 

II. Does China Matter Or Doesn't It?

It should be obvious to any objective minded person that:

(a) China matters and matters greatly

and

(b) China, like all major economies has a huge impact and effect on the larger, world economy. This is clear if one thinks through the value chain, considering the impact of China's economy on the demand for raw materials from producers like Australia, Canada, Brazil and others. Expect gas and key commodities such as copper to continue to plummet as factory orders plummet.

So let's just assume that the next Big Reset, the next Great Recession is here, just recently heralded in by the Chinese stock market crash.

Now what? What can we expect, what should we do?

Well, I would suggest looking beyond the immediate pain and short-term belt tightening and instead begin to position one's self for the post-recession recovery.

With each recession or post-depression, the recovery almost always results in various industries and the economy as a whole hitting the next inflection point.

Most recently, we saw this with the 2000/2001 Dot Com Crash and to a lessor extent for the 2008 Great Recession / Financial Implosion. Sure, there were a lot of crazy idea or just plain great ideas poorly executed or executed a decade or more before their time, but we can see how ubiquitous these various business models and products now are -- from online commerce to flight and hotel tickets to streaming videos and IPTV to mobile phones with camera and so on.

It's all here.

Moreover, some key concepts like the old ASP (Application Service Provider) have been leapfrogged and bettered by the concept and application of SaaS (Software as a Service), IaaS, PaaS, STaaS, DaaS and all the rest.

This happens after every economic shock.

If you look at the 1970's dual "oil shocks", it is very plain to see the tectonic shifts in the automobile industry which saw the move to gas sippers from very big gas guzzlers and testosterone enriched muscle cars. For instance (and from a personal standpoint, sadly I might add) in place of your 1973-1974 Pontiac Trans-Am SD-455 (Super Duty, 455 CID) soon came Japanese imports such as the gas sipping Honda CVCC.  In the late 1970's, after the second "oil shock", the Honda CVCC was often actually relling at retail for a huge premium OVER the MSRP!

This was not something that Honda Japan officially condoned but something that local dealers were doing -- but what could the local dealers do?

Demand simply outstripped supply.

Who could blame them?

As this recession passes and we enter the next recovery, there will once again be massive opportunities. Some of the opportunities will be a linear acceleration of pre-crash trends while others will be whole new approaches to old problems.

In particular, I see big post-recovery opportunities as follows:

• Human Resources Transformations.
  
• Corporate Cultural Transformations.
  
• Recruiting Industry Transformations - bringing recruiting into the 21st century by slashing fees while increasing transactional velocities and quality of hires.
• All manner of cost-reductive software including those that enable or accelerate the shift from sales force automation to marketing force among others. 
  

III. Automation Will Further Shift Retail Work From Employees To Consumers

There will also be a quickening in the use of automation technologies which further shift the work of retail store employees to consumers.

For unskilled and lower-skilled service workers, it will be all about robots and Factory and Restaurant Automation (FRA) solutions that again further shift the retail workload from store employees and staff to the consumers. Think order kiosks, ATMs, self-service drink bars, self-service bagging, self-service check out lanes and so on.

Many of these are already here but they are currently a curiosity and they are optional. In the near future, to choose not to use these self-serve options and to opt to be processed by a human would require an additional fee.

IV. From Sales To Marketing

Further shifts will occur as more firms move from their focus and investments from their sales departments to their marketing departments -- which makes me smile since marketing has often been considered a "last to hire, first to fire" occupation....except in now, in the information age.

Huge changes in this regard are already being seen in the pharma industry where there is a major push to replace costly MRs (medical representatives) with Digital Marketers using the latest Marketing Automation (MA) tools.

V. Human Resources' Ineffectiveness & Costly Cost Overruns

The fully burdened cost of hiring is at least 2X of what it should be -- and even then with this costly process, we end up hiring people who aren't needed, are a bad fit or are simply improperly skilled or flat out incompetent.

VI. Human Resources & Recruitment Process Development and Transformations = Goldmine

Within companies, the transformation of company culture along with specific employee skill building to stamp out or at least contain destructive internal rent-seeking will gain acceptance and traction.

There will be an "aha" moment.

Next, approaching this not just from vertical industries or functional roles but entire geographic markets, there's unbelievable opportunity lurking within Asia. 

Countless challenges and opportunities exist within the Asian / Asia-Pacific markets. Some are country specific while others are more universal however, all in all,  Asia is going to need to make various critical transformation in terms of cultivating new markets, building brands, containing pollution, acquiring English language skills (based on the fact that as a second language English offers almost assuredly the highest marginal utility), transforming company cultures and developing global leaders.