New frontier has high-tech welcome mat

By CHRIS BARTON

In the exhibition hall at the Eastsoft technology park in Shanghai there is an old, well-used bicycle - apparently the one Song Ruhua used when he first started the Top Group.

Song left his university teaching job in 1992 along with two friends and founded the company with US$600 and a vision to become a leader in China's IT revolution.

Another symbol to absolute commitment to a vision is on the opposite wall.

Next to the words of the company song, there's a framed document signed by 40 early employees.

To underline their determination to achieve, each has marked the page with a few drops of their own blood.

As a motivational management technique, it seems to have worked.

Today Top Group employs 6000 people, owns US$1.2 billion ($2.1 billion) in assets, had revenues of US$660 million in 2001 and is listed on the Shenzhen and Hong Kong Stock Exchanges. Forbes puts Song's personal wealth at US$70 million ($127 million).

The company is a particularly good example of the enormous change that has taken place in China over the past decade.

With our Government talking so much about, but making so little headway in, making transformational economic change and increased growth, China's achievement is worth contemplating.

During the 1998-2002 period, China's gross domestic product (GDP) increased by 7.7 per cent annually and living standards improved dramatically. Even putting that statistic in perspective, that China's GDP in 2001 was only 3.7 per cent of the world total, far behind the United States (32.6 per cent) or Japan (13.6 per cent), it's still impressive growth.

But China as a whole - with a population of 1.28 billion (and an annual per capita GDP of under US$1000 in 2001 compared with New Zealand's US$12,870) is just too big to take on board.

Narrow it down to something smaller like the city of Shanghai (16.7 million population) and the numbers are still big. The city's GDP grew 10.9 per cent in 2002 to US$65.2 billion ($118 billion).

But if that's hard to comprehend, Shanghai's IT sector (including telecommunications) is more astonishing. It grew 30 per cent last year with sales reaching US$20.25 billion ($36.8 billion). Computer chip manufacturers exported US$2.26 billion ($4.1 billion) and software exports soared by 71.6 per cent to US$175 million ($318.5 million).

The question I ask a number of people while I'm there attending a computer conference as a guest of IBM is "How do they do it?"

IBM general manager of software for Greater China Charles Wu tells me that much of the success can be put down to central Government "directives".

"The one party chain of command is very powerful."

Wu also talks about how a directive such as growing the IT industry is executed by municipal government which is made up of a party and administrative arm - ensuring party directives are carried out. But he acknowledges that like any system, bureaucratic difficulties exist.

Others tell me about the need for a lot of formal meetings with officials - meetings which often appear to be without purpose, but are all necessary to turn administrative wheels.

Another key to the growth is the preferential treatment for qualifying industries, which sees companies paying zero tax for the first two years and reduced tax in subsequent years. There are also easy-to-get bank loans and interest-free loans for construction. At the moment the focus in Shanghai is on software.

Plans to further develop the industry over the next three years aim for software exports of US$800 million ($1456 million) by 2005.

As Wu puts it: "China is well on its way, but this is just the beginning. It goes all the way to the mindset."

I get more of a sense of what he means at the Eastsoft tech park - the newest one of 28 parks Top Group runs across China.

It's a weekend when I visit and just before the start of Chinese New Year of the Sheep so the place is mostly empty.

But that only serves to heighten the vastness of the 150ha, US$220 million ($400 million), park. Buildings surround lakes shaped as the continents of the world, all beautifully landscaped - with plants supplied by one of Top Group's numerous companies. It comes with its own IT college to produce a steady stream of workers and is looking for foreign companies to take up residence and, if they wish, form joint ventures.

At the exhibition hall I'm shown the enormous range of the company's manufacturing, including software for tax, real estate and medical insurance industries, monitors, flat panel displays, PCs and yes, even bicycles.

Top also founded search portal Chinese.com. On the wall alongside photos of visits by Chinese leaders over the years, office director of Top Group's international division, Oliver Chen, shows the vastness of the company structure - appropriately with a tree diagram.

One of the huge advantages China has over other countries is the size of its domestic market. Couple that with low labour costs - the average annual salary of white-collar workers in 2002 was US$4573 ($8325) - and the advantage seems unbeatable. About 20 Chinese companies have entered the domestic mobile phone handset market, raising their share to 21 per cent from about 5 per cent three years ago. During 2002 their output doubled to 23 million phones. The success is now set to flow on to the world market, threatening the thin margins of global giants like Nokia and Motorola.

It's a similar story with manufacturers such as Huawei which competes in the small to midsize networking market with products that are between 25 and 50 per cent cheaper than Cisco or Nortel.

With software the next target, now would be a very good time for New Zealand software companies wanting to expand, to go North West to the new frontier.

Unlike New Zealand, Chinese companies aided by their Government are waiting to welcome you.

* Email Chris Barton

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