The Slovenia Times

Building bridges between the West and China


Professor Hellmut Schütte is Dean Emeritus of the China Europe International Business School (CEIBS) and Professor of Management and European Chair for Sino-European Business Relations. His research in the area of international business has a special focus on Asia and the Emerging Markets. For 11 years, he worked as an executive in marketing and investment banking. Professor Schütte is also a visiting professor at IEDC - Bled School of Management. As he says, China represents the world's most attractive market and is growing into the world's biggest economy. 

1. You are Vice President and Dean at CEIBS (China Europe International Business School). What is the main purpose of CEIBS and what competencies does the education bring? According to the per capita income of people in China, the school's fee is very high at about EUR 90,000 for the degree.

We are closely linked with the modern history of China and only 20 years old. When we started, China was a truly communist country and as a business school we obviously had to deal with the characteristics of a planned economy. We were formed as a joint venture between the European Commission and the Chinese government to bring Western management and expertise into China. Today, CEIBS is a truly international business school in China, trying to bring together what we know from China and what we know from the West. Our school is very large like many other organisations in China; the faculty consists of 50 percent foreigners and 50 percent Chinese. We have, right from the beginning, set the school up as an ambitious undertaking to become one of the best schools in the world. If you want to do that, you have to have the best professors and you have to pay them very well. According to the global table of the Financial Times, CEIBS is among the top 20 schools in the world. We have 160 professors and they are paid in line with the top schools in the United States. That gives us a cost base which requires very high fees; we are not subsidised and we have to balance our books.

2. Ten years ago everybody went to China to produce because it was cheap - China was seen as the factory of the world. Today, China is viewed more as the key market to sell your product, even premium goods. How has this change happened?

That comes from the success of China's economic development. When you grow more than seven percent, you double the size of your economy every ten years. China is a large market and has upgraded itself much faster than anybody ever expected. Sales of very expensive products are linked with the size of the market. If you approach just the top one percent of the market, you still deal with 14 million people. Even the smallest niche for luxury cars such as Ferraris is relatively big as you still find a number of people who can afford them. Ferrari has three showrooms in Shanghai; Mercedes, BMW and others are selling very well. The factors that caused this change: the Chinese are very ambitious and hard-working; the government has been extremely good in managing the scope; and finally, the competence of the people. From 1950 to 1980 China was a complete disaster. One does not talk about this anymore; 20 or 30 million people completely unnecessarily died of hunger, because of extremely bad economic policies. Now it is the total opposite.

3. As a regular contributor to the World Economic Forum in Davos, how would you describe the position of China's economy towards the other economies of the BRIC countries (Brazil, Russia and India)?

China is very clearly in its own category. When you look at numbers and you take the 10 largest BRIC countries other than China together, they are not as big as China and the gap is still growing. Some years ago there was a lot of talk and excitement about a BRIC bank. Now China is building its own international development bank. China has become so big that the only country China takes seriously is the U.S. The main advantage of China's economy is the size of the market - but also increasing industry competence and tremendous financial resources. China has by far the largest foreign exchange reserves in the world, which makes the country very strong when it deals with other states that are bankrupt or tries to acquire companies abroad. Japan is also not in good shape financially. The other advantage is a very stable government with very stable policies. As far as income per capita is concerned, which defines the average standard of living, the picture is very different. The U.S. has an income per capita of USD 50,000 and growth of two percent, which means each American has, at the end of the year, USD 1,000 more in his pocket. In China, the average income is only USD 6,000. Even with seven percent growth, the Chinese will have only USD 420 more in their pocket at the end of the year. Will the Chinese reach the standard of living of the Americans? This is highly unlikely.

4. Several Chinese companies entered the top 15 companies based on market capitalisation. Chinese e-commerce giant, Alibaba, is the third-largest company (market cap of USD 232.8bn) and Internet holding company, Tencent, is the sixth-most valuable with USD 190bn market cap. However, Apple holds the top spot (market cap of USD 763.6bn) and Google scored second place (USD 373.4bn market cap). The number of "global public Internet companies" based in China provides an indication of how the country's strength in the online sector continues to grow. Do you think that, in the future, Chinese digital champions could prevail?

When you come from a big country and you have state-owned companies, of course your companies are big. No surprise that the four biggest banks in China are among the top ten banks in the world... The case of Internet companies is very different. We have certain aspects of the Internet world, which are determined by the government. Google is fundamentally blocked in China and that means it is not competitive in China. Then we have Alibaba, Tencent and so on... in a huge market. We have 6,000 million people with Internet subscriptions in China, no other country has these numbers. Therefore, the volume of transactions and consequently the stock valuation numbers are very high. The fundamental question is, is the Internet world a global market? I would argue no! It needs a lot of localisation as the technology is now everywhere. Every Chinese company can build platforms such as those of eBay etc., but the business model as to how you structure the business is the differentiating factor. The Internet pages of companies in China are chaotic, like a bazaar. In the U.S., Amazon is very classy, but the Chinese prefer the other version. What will happen in the future? It is very open. Whether Alibaba and other companies of this nature will be successful abroad... is not obvious. eBay, Amazon and Expedia were first movers in China but Alibaba and others out-competed them totally.. This is quite extraordinary.

5. As the author of the best-seller 'Strategies for Asia Pacific', what would be your advice to Slovenian companies to successfully meet the needs of the Chinese market and what kind of goods from Slovenia have the potential to be sold in China?

There is a whole range of different industries in Slovenia. When you look at the market from the point of view of the segments, you have the top segments, which are basically in the hand of large multinationals, like Louis Vuitton or Mercedes. Then you have cheap companies, their product is cheap and no-one cares for environmental control, they steal the technology, etc. There is a middle segment that multinationals cannot reach because they are too much in the top segment, and for the Chinese companies it is still difficult to move towards the middle segment because they are so used to cutting corners. So in this middle segment, which I call the "good enough market" where relatively good products are not so expensive and do the job, that to my mind is the field, whether in machinery, components or even in agricultural products, that Slovene companies should be positioned.


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