This is a follow-up to my previous post on getting a suit made in China — Baby, If You Look Good, You Play Good.

Check out this recent March 29, 2008  WSJ article that points out that while high-end Chinese made suits may not yet fully be at the level of high-end Italian made suits, the gap has closed.

This is an example of how Westerners can/will sit back with the status quo, “God, we are good. There is no way the Chinese (or Indians) can touch us or our products or processing.” And then they wake up one day, find that the Chinese are making high end suits that can compete, and the next day other high end items such as computers, cars and the like. If you have been monitoring recent moves by the CCP Government (e.g., click HERE and check out this recent China Law Blog post), the government has made it clear that they will make things easy for firms that seek to move up the manufacturing value chain, while for those who wish to continue to focus on low end goods such as textiles and rubber duckies things will only become more difficult in terms of tax breaks, allowed FDI investment, etc.

Or, if you are a Brit, you might wake up one day and your former colonies, first the US (Ford Motor Co.) and then India, now own your once crown jewel known as Jaguar and Range Rover. Oh, wait, that already happened. Click HERE to read about what many thought was impossible for something like this to occur. Good for India.

I am not saying will all happen tomorrow, but I am saying over time, it will happen more and more and more. The lesson is that those in business who rest on their laurels and own beliefs of infallibility and talent, will die.

Eric K., you are right (for now) in your post, “Would Your Drive This?” … China now makes crappy cars and nobody here will touch them, but I think you would be remiss to assume that China will always be making crappy cars and/or components.

For example, you may be too young to remember this, but not too long ago most Americans scoffed at goods coming from Hong Kong, South Korea, Japan and Taiwan (now they come from China; those other listed countries have moved up the production value chain and if/when you visit them you will see this immediately upon getting off the plane). Now, a number of firms in those listed countries make products that are quite good and people from those same American industries that scoffed are like boxers who have had their butts kicked in the ring and are standing around asking, “What just happened?” I see no reason why that pattern will not repeat itself in China.

Another thing to think about — what business opportunities does a car market in its infancy in a country such as China present to foreign and domestic firms?

For example, nobody can stop the Chinese from wanting their own car (materialism is by no means a foreign concept), and if anyone wants to sell cars in said market they will have to take their lower per capita income into account and be able to sell a car that is much cheaper than what is sold in the West. Further, with the CCP government leaning on said industry, the pressure will really be on to create and produce a lot of cars that are more “green” than the current SUVs and big trucks we see driving around the Cal Poly campus, in part because the government simply cannot import enough oil to keep its population driving cars that get only 16-18 MPG and if it wants to survive, it will need to find a way to foster the development of cars that can do better in this regard.

In short, I predict we will therefore see some new and interesting and perhaps even incredible technologies coming out of China (or India) in the auto industry in the next 10 to 20 years that cannot take place in the west due to our lobbyists, unions, special interest groups needing their piece of the pie, the high cost of labor here, etc. I.e., per economic theory, are the rent seekers in the West just too powerful and establish to overcome and implement change and new technologies?

I am not alone in asking this question. Jack Perkowski, an American in the auto parts business in China supplying parts to their domestic industry (not for export) and the author of the very good book that just came out, Managing the Dragon: How I’m Building a Billion-Dollar Business in China, makes this very same point. See also this NY Times piece that echoes a similar tune, A Chevy With an Engine from China.

If you think the future I am describing is unlikely, I would love to here why you disagree. But please, give me a reason more substantive than the usual, “Man we are just that good” spiel. No reasonable global person buys that anymore.

As Bob Dylan sang, “These Times Are A Changin” ….