Competitive Advantage Case Study

China’s Manufacturing Edge: Is it Losing?

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Abstract:
This case, set in 2008 end, attempts to explore a debate on whether China is losing its competitive edge as a preferred manufacturing destination. Since China’s transition from a planned economy under the leadership of Deng Xiaoping into a market economy in 1978, there was a rapid growth in the Chinese economy. Leveraging on its strength of 1.3 billion people, including 100 million cheap labours, China promoted labour-intensive mass manufacturing. Coupled with the open door policy, China’s strategy of becoming the world’s factory floor was quiet successful. Within 20 years, China became the seventh-largest economy in terms of GDP, the most favoured nation for FDI and emerged as the world’s superpower in manufacturing. With competitive advantages in labour, raw material and supply chain, China was ranked 40th in Global Competitiveness Index, an index that ranks countries based on their competitiveness. However, how sustainable is China's competitiveness? By 2003, China was finding it hard to retain MNCs. Rising labour costs, spiralling raw material prices and appreciating Yuan, is forcing many companies to shut down their branches in China and move out for better alternatives. Can China remain globally competitive while other low-cost countries like India and Vietnam are offering better manufacturing advantages to MNCs? Some of the companies, however, still prefer China as the destination of choice owing to factors like large consumer market, supply chain advantages and relatively low raw material prices. Moreover, to avoid the challenge of rising cost, companies are changing their strategies, investing on higher technology and training employees. Even China is shifting from mass manufacturing labour-intensive industries to high-tech industries. The case explores the opportunities and challenges that China would face as its competitive equation is shifting.

Pedagogical Objectives:

• To understand the factors that make a country economically competitive globally
• To understand the factors that made China competitive
• To analyse the economic benefit and social cost to china’s economic development and the sustainability of China’s competitive advantage
• To analyse whether China is losing its competitive edge and measures that China should take to regain/retain its competitive edge.

Keywords : China, MNCs, Yuan, GCI, Competitive Advantage, Comparative Advantage, Deng Xiapong, China's Competitiveness, GDP, PPP, Manufacturing Sector