Guangdong Province in China - Industry Analysis - Case Study Example

Guangzhou Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 10th April, 2015. Introduction and Executive Summary Guangzhou is a manufacturing hub located in Guangdong province in China which has grown tremendously due to globalization and urbanization. This report will look at the critical success factors for the growth of the city and its affect on China and the global trade. Guangzhou’s location as a port city has enabled it to attract global foreign trade with the city witnessing over $ 90 billion worth of trade annually. Over 170 of the global Fortune 500 companies have established base in the city and thus this has boosted the city’s reputation as a world class manufacturing centre. Business data from the Chinese government and other institutions such as the World Bank outline a growth of business and export numbers from Chinese producers. Guangzhou contributes the bulk of these export numbers and growth of these numbers is likely to increase as China GDP and economy grows. The main industrial sectors that are likely to benefit from this growth are the Petrochemical, Automobile and Information Technology based industries. This report will analyze the critical success factors and other factors that contribute to the growth of Guangzhou as a global manufacturing hub. Industry Analysis Manufacturing has experienced increased global growth especially within previously underdeveloped regions of Latin, Asian and African regions. Growth in these areas has necessitated the growth of manufacturing to service the growth of these regions. From the economic data, we witness that the industry has been growing gradually over the last decade based on output values. For instance, the manufacturing industry’s output grew from ¥ 178.7 billion in the year 2001 to ¥ 850.6 billion (Cheng 2009). Manufacturing in Guangzhou is mainly catered for the export market and thus growth witnessed in other regions has also had a complementary effect on the growth of Guangzhou manufacturing sectors. The data and output figures are outlined by the figures in table 1 in the appendix section. From the table, all the major manufacturing sectors in Guangzhou are outlined with output figures (SSB 2013). The data outlined in the table points to a growing trend of growth within different sectors. For instance, the information and technology sector and the automobile industries represent the highest growth manufacturing sectors in Guangzhou (Eltschinger 2012). These two sectors outperformed the average growth numbers within the manufacturing sector in Guangzhou. This is best outlined by the Figure 1 in the appendix section which shows the average performance of different sectors against the general performance of the manufacturing industry. There are several factors that aid the growth of the manufacturing industry in Guangzhou as outlined; a) Technological advancement: Guangzhou has witnessed the growth of technology within the manufacturing industry leading to increased efficiency and output. For instance, more young and innovative Chinese people are being absorbed into the manufacturing industry. As a result, Guangzhou has been able to attract technological innovative companies and people into the manufacturing sector (Wu 2013, p. 75). b) Economic growth: China and other regions have witnessed economic growth that has led to increased consumer spending as outlined by the growth of the Chinese export market. This economic growth has been phenomenal in supporting the Chinese manufacturing sector since the affordable Chinese goods have been successfully been exported overseas (Marshall 2013). c) Political support: Chinese manufacturing sector is supported by the government through several initiatives such as fiscal monitoring and economic incentives. For instance, the government has ensured that the value of the Chinese Yuan remains low compared to other global currencies while at the same time setting up economic zones within cities such as Tianjin, Shenzhen and Guangzhou whereby cost of production is low (Pennington 2012). d) Local Industries: China has a long tradition for home grown industries that has been a base for the emergence of new manufacturing centres to support the urban population and the growing export market. The location of these industries has aided manufacturing since they were located in Asia and close to other growing economies of Eastern Europe and Africa (Ebanks 2012, pp. 30-37). Guangzhou as a growing Industrial Hub Guangzhou is located in Guangdong province at the Pearl River Delta in Southeast China with a big manufacturing base. The city is located in the midst of Dongguan and Shenzhen cities which are also big manufacturing zones. The city has been able to attract sizeable employees to work in its manufacturing centres from the mainland regions. Over 30 manufacturing sectors are located in the city with the main industries being the automobile, Information & Technology and Petrochemicals sectors supporting the region. The city has grown tremendously and thus has attracted large corporations such as Toyota, Isuzu, Siemens, Mitsubishi and BP/Shell (Wong 2010, pp. 307-312). Due to the growth of manufacturing industry, the city has been able to attract other industries that service the manufacturing sector. Financial services providers and technological companies have been set up in the city leading to growth of the city. The city’s close locality to other manufacturing zones has enabled it to create a niche in the technological and automobile manufacturing sectors. The city has been able to attract over 180 global Fortune 500 companies to invest in the city and thus contributing to growth of the city. For instance, over $ 17.9 billion has been invested by these foreign companies with a majority of these firms being from the USA and Japan. 59.3% of these companies have invested in production manufacturing while 40.7% have invested in the service sector (Cheng 2009). Guangzhou contributes over $ 90 billion to the Chinese economy and ranks third among cities in China that contribute to the economy of the country. The future of Guangzhou as a manufacturing and service centre is set to grow due to the expected growth of the technology and automobile sectors which will witness global and local growth in China (Xiaohu 2014). Currently, the city is globally recognized for its contribution in trade and manufacturing as witnessed by its annual Canton Fair business showcase. This event usually attracts traders globally interested in partnering with Chinese companies in the manufacturing industries. Technology Growth Cements Guangzhou’s position as Manufacturing Hub Guangzhou has benefitted greatly from technological growth within its manufacturing and automobile industry. Growing technologies such as 3D printing, micro fabrication, semi-conductor device manufacturing and industrial robotics within Guangzhou’s industries has boosted industrial growth. As a result, several companies have set up base within the city leading to technology sharing and advancement in the manufacturing sector. Most of the technologies used in the city and other manufacturing hubs were employed and imported from different sections of the world (Wu 2013, pp. 71-73). As Chinese manufacturing grew in the last two decades, several companies entered the Chinese market with the aim of improving manufacturing and gaining a foothold within the manufacturing sector. These companies have exported from their home countries and adopted these advanced technologies within the undertaking of their Chinese operations (Guldin 2010). Consequently, high end technology companies such as Siemens and other IT companies have also set up base in Guangzhou thus assisting in cementing its position as a technology hub. The strategic location of the city close to other manufacturing hubs has assisted it in attracting technology companies which are in the business of developing machinery and industrial service parts. Companies such as Mitsubishi Heavy Industries, Schneider Electrics and Flextronics have ensured technology is adopted within the city industrial companies (Eltschinger 2012). Technology companies in Guangzhou service other manufacturing entities in the region in the process of undertaking their activities. Global IT companies such as Samsung, Siemens, Toshiba and Hitachi has attracted talented experts in the technology field and thus assisting Guangzhou become a technology hub. Automobile Production will assist Guangzhou’s Economic Growth Global automobile industry is set to grow by around 12% per annum and this will impact on automobile production. In the year 2014, China became the largest automobile producing nation globally and also the largest car market in the world. Around 70% of Chinese automobile companies operate in Guangzhou and thus this aids the city in realizing growth for the long term (Xiaohu 2014). The Chinese domestic market and car production companies will set up shop in China and thus Guangzhou will likely benefit from increased production which is set to shoot to around 40 million units in the next five years. Car registration figures for China show a likely increase to around 170 million units by the year 2020. Moreover, other markets are also set to benefit from increased sales figures which will impact Guangzhou factories directly (Wong 2010, pp. 311-314). Guangzhou economic output has grown tremendously owing to the increased car production and increased output will employ more Chinese people and increase the city income capita to around $ 18,000 annually. Increased Competition among Manufacturing Hubs Abets Guangzhou’s Growth Chinese cities and other regions have witnessed phenomenal growth that has aided in the growth of these regions. As a result, there has been increased competition from within China leading to the development of certain strategies and differentiation in the market. Due to competition, regions such as Guangzhou have developed differentiation strategies so that it can compete effectively with other industries in the region. Due to competition, Guangzhou has leveraged on technology and its strategic location to ensure its manufacturing and production industries become successful (Ebanks 2012, p. 46). Guangzhou has developed due to competition and it has undertaken differentiation within the following sectors; a) Automobile Sector: Guangzhou is a major city for the production of automobiles with nearly over 40% of all cars produced in China being produced in the city. This industry relies heavily on technology and therefore, the sector was well suited setting up base in China. China is currently the largest automobile market in the world and thus Guangzhou has benefitted from the rise of China as an automobile production city (CIIC 2014). b) Petrochemicals: Guangzhou is well renowned for its petro-chemical industries and thus the city has developed plans to ensure that it serves the Chinese and international markets. Due to the city’s well developed ports and infrastructure, the city has developed world class facilities for the petro-chemicals industry. This industry supports other major sectors such as the automobile, shipping and manufacturing within the Guangzhou region (Guldin 2010). c) Information and Technology: the global IT industry has witnessed exceptional growth and Guangzhou has been part of the success for the development of the industry. Since the city is a technological hub, many industries have set up shop in the city to tap into the technology sharing and development based on these technologies. Guangzhou currently leads in the export of IT and electronics goods to other global destinations amounting to over $ 45 billion annually (Pennington 2012). Increased competition has encouraged differentiation which has contributed to growth for cities such as Guangzhou. Consequently, this growth is expected in the future since these sectors are set to witness continued global growth. Manufacturing in Relation to Population & Policies The manufacturing sector is greatly aided by growing population and the economic environment that is receptive to business and consumerism. Chinese consumers support the manufacturing sector greatly and other international trading partners such as the United States of America, the European Union and Africa. Due to the country’s reliance on trade, the Chinese government has to put in place measures to ensure its manufacturing industries are well protected and continue to generate wealth. For instance, the global economic recession that affected China’s main trading partner led to the government encouraging its citizens to spend more leading to increased local output and consumption (Marshall 2013). Several demographic factors and policies aid the growth of Chinese cities such as Guangzhou as outlined; a) Demography: China has the largest urban population in the world and thus this aid in the creation of a mass market that could be utilized in manufacturing and market creation for several manufacturing concerns in the region. For instance, Guangzhou has a huge population of high income earning residents and thus these companies can meet the growing demand for the Chinese market. For instance, economic data sampled shows that 60% of all automobiles produced in the country in areas such as Guangzhou are for the local Chinese market (Wu 2013, p. 76). b) Policies: China’s fiscal policy is geared towards ensuing its exports are affordable for the international markets and thus manufacturing companies can continue with production in the long run for these Chinese companies to meet growing global demand (Ebanks 2012, p. 38). Recently, China has encouraged its manufacturers to aim at producing high quality goods and the government is also encouraging for innovation among Chinese producers. c) Culture: Chinese culture is quite conservative and therefore the Chinese place more importance to locally produced goods than foreign made goods. As a result, goods produced in China are quite popular and thus supporting local companies. However, new technology has exposed the Chinese to better quality products such as vehicles and technology based goods. Therefore, foreign companies operating from Guangzhou will get exposure in terms of selling their goods to the local population leading to exponential growth for the city and its manufacturing companies (Xiaohu 2014). Conclusion Guangzhou is a magical coastal city to behold which has grown gradually like other Chinese cities in the last two decades thanks to globalization. The city’s growth has been aided by many factors such as its cottage industries or strategic location. However, the city has been able to differentiate itself from other cities in China due to its technological edge over these cities in terms of production. Consumers and producers alike have come to recognize Guangzhou as a technological hub with huge Fortune 500 companies relocating there. The future of the city as a world class manufacturing hub is guaranteed largely due to its technological edge over other global manufacturing hubs. References Cheng, L & Kwan, Y 2009, Foreign capital stock and its determinants: In Foreign direct investment and economic growth in China, Eward Elgar, Cheltenham, UK. China Internet Information Centre (CIIC) 2014, A brief introduction of National Economics and Technological Zones in China. Available from: http://www.china.org.cn/english/ Ebanks, G & Cheng, C 2012, “China: A unique urbanization model”, Asia-Pacific Population Journal vol. 5, no. 3, pp. 29–50. Eltschinger, C 2012, Source Code China: The New Global Hub of IT (Information Technology) Outsourcing, John Wiley & Sons, New York. Guldin, E & OECD 2010, OECD Territorial Reviews OECD Territorial Reviews: Growth of Guangzhou, UN Publications, New York. Marshall, R 2013, Emerging Urbanity: Global Urban Projects in the Asia Pacific Rim, Routledge, London. Pennington, M 2012, China Economic Review's China Business Guide 2012, SinoMedia (Holdings) Co. Ltd., Beijing. SPORT-c/76751.htm (accessed April 2015). State Statistical Bureau (SSB) 2013, China Statistical Yearbook 2013, China Statistical Publishing House, Beijing. Wong, S & Tang, B 2010, “Challenges to the sustainability of ‘development zones’: A case study of Guangzhou Development District, China”, Cities, vol. 22, no. 4, pp. 303–316. Wu, F 2013, “Intrametropolitan FDI firm location in Guangzhou, China”, Journal of Contemporary China, vol. 34, no. 3, pp. 67-78. Xiaohu, T 2014, Building a Successful Plant in China, China Knowledge Press, Shanghai. Appendix Output Value 2001 2002 2003 2005 2006 2008 2009 2010 2011 Electronic and Information Technology 206.92 306.03 436.36 667.37 693.35 797.56 1075.74 1353.25 1489.25 Electric Equipment and Special-purpose Machinery 222.16 246.97 300.80 397.60 476.34 647.11 624.02 712.40 737.82 Petroleum and Chemistry 441.87 488.73 693.83 921.54 1012.91 1428.56 1370.46 1627.25 1941.27 Food and Beverage 164.78 172.03 192.83 233.24 261.69 310.76 421.27 441.96 506.87 Textile and Garments 228.07 250.62 284.57 309.83 341.13 415.91 455.34 563.42 625.75 Logging and Papermaking 105.68 106.03 109.89 120.20 130.09 200.39 180.87 223.03 213.89 Medicine 61.56 59.83 68.08 77.50 88.82 101.23 116.21 130.63 137.11 Table 1: Output Value of Main Industrial above the Designated Size in Guangzhou (¥ 100K) Figure 1: Showing the Main Manufacturing Yield and the Change Read More