In an article last week we explored the possibility that many of the jobs we had expected to materialize from “green tech” industries such as wind and solar power would in reality end up in China as manufacturers in those markets are given support and subsidy to assist them in exports around the world. In a separate article this week we discussed trends in the high tech aviation industry, until recently considered the preserve of technologically advanced western nations. The common thread linking these previous articles and what follows is that times are a changing, and they are changing fast. Where we had assumed somewhat arrogantly that a mixture of inventiveness, entrepreneurial spirit and technological sophistication would keep us one step ahead of low wage Asian competitors at least in the more sophisticated “knowledge economy the fact is we are being challenged at every turn. I don’t want to sound like a doomsayer, this is not the end of western civilization. Emerging markets such as China are not without their own problems in other ways but what is clear is that the 5-10 year lead we felt we had is fast disappearing because Asian suppliers are using technology transfers into their home market linked with lower manufacturing costs and the easy availability of mind bogglingly large sums of finance to give western firms a run for their money in the global market place.
No better example exists than the rail industry. As a Financial Times article explains, the world’s big-three passenger train manufacturers Siemens of Germany, France’s Alstom and Canada’s Bombardier along with GE and Caterpillar’s EMD Division, the dominant forces in diesel locomotives, have long bet advanced technology would keep them on top of the world’s rail supply market. But as Siemens realized when they recently bid to supply high-speed trains for Saudi Arabia’s inaugural high-speed rail project between Mecca and Medina they were being out bid by a Chinese consortium and to stay in the race they had to join in with the Chinese.
The Chinese producers ability to undercut western manufacturers and in many cases to provide solutions that do not require the same level of technological sophistication as European or North American buyers expect will mean major infrastructure projects in Africa, South America and wider Asian markets will go their way. There have been reports that suggest Chinese technology has not been as reliable as western suppliers but that gap will narrow as Chinese manufacturers learn from the technology transfers that are an integral part of western companies being allowed to supply to China’s own massive rail development projects. Technically under the technology transfer agreements that technology may not be then used in export contracts but it is entirely possible that a modification to a design or technique can circumvent such restrictions or that greater understanding of the technologies involved could allow Chinese designers to engineer alternative solutions that do not blatantly infringe upon any agreements.
Peter Ulrich, of the Boston Consulting Group, who oversaw production of a rail market report commissioned by Unife, the European railway industry association, is quoted in the FT as predicting a slowdown in average annual growth rates in Asia’s rail markets to just 2.5% around the middle of this decade. That could leave Chinese factories supplying China’s high-speed network with significant spare capacity. Will they scale back capacity or will those companies look for opportunities outside China? What do you think?