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Fending off the Dragon

Sunday Times: 2005/11/20

"China's competitive advantages - in particular, labour costs - " are just staggering

A reader from a mid-sized manufacturing company asks: We spent the '80s getting nailed by the Japanese, but we came back in the '90s with process improvements that decreased our costs. For the past two years, however, we keep getting undersold by China. I'm frustrated - where do we go from here?

China is a huge opportunity and a huge threat. But short term, and in your particular situation, you should focus on the latter scenario.

You won't be alone. China's competitive advantages - in particular, labour costs - are just staggering, even to producers in formerly low-cost countries like Hungary and Mexico.

Look, shifts in global economics due to politics or new technologies can disrupt businesses and even up-end whole industries.

That's reality and it's been going on forever.

But that doesn't mean China has you beaten. It means you have to fight harder and smarter.

How? The fact is that there are no shortcuts in this situation. To win now, you've got to bring out those three old war horses of competition - cost, quality and service - and drive them to new levels, making sure everyone in your organisation sees them for what they are, a matter of survival.

Costs first. Search everywhere, inside the company and out, for the best practices that will radically improve processes and productivity.

Your goal cannot be incremental improvement.

If you plan to compete on price, you need to get your team's head around taking out nothing less than 30% to 40% of your costs.

Even with another competitive advantage, such as proprietary technology, your costs have to come down further than you've ever experienced - and more quickly too.

With quality, you just can't afford a ship-and-fix mentality anymore. Get rid of every single defect before it reaches a customer. Chinese quality isn't perfect yet, but it's getting better every day.

You just can't afford to fall behind in this race.

As for service, again, break the paradigm in your industry or market with innovation.

Find ways to go beyond satisfying your customers - you want them to find you so indispensable that they can't even imagine buying from a competitor.

Your "enemy" right now may seem like China but, ultimately, the enemy of every business today is commoditisation.

In the global marketplace, you can't just keep churning out the same old stuff in the same old way.

Winning has always been about differentiated cost, quality or service.

With its enormous competitive advantages, China is definitely a game-changer, but the old levers still work. You just have to pull them harder than ever.

A reader from a technology company writes: Even though my company is in a very competitive industry and we need to move fast and decisively, I've noticed that people rarely say what they mean - particularly in meetings. There's just so much beating around the bush and general phoniness. I'm just a middle manager. What can I do?

What you describe is one of the most common and destructive problems in business, and in society- lack of candour.

No matter where we travel, we hear about organisations that are slowed down and gummed up by the very human tendency to soften hard, urgent messages with false kindness or phony optimism. This tendency is particularly prevalent when it comes to communicating about poor performance.

Very often, bosses don't come right out and tell under-performers how badly they are doing until, in a burst of frustration, they fire them.

That's terribly unfair to the person at the receiving end and often disruptive to the business itself. But lack of candour doesn't just pervade performance evaluations. It cripples lots of conversations - many about how and when and where to spend scarce company resources.

Yes, these kinds of conversations can be hard, sensitive, politically loaded, or complex, or all of the above. But they'll simply be better if they're candid.

So, what can you do? The only option we know of is having the guts to start using candour.

When people use double-talk, push back with questions that cut through the nonsense and probe for reality. Ask, "What are you really trying to tell us?"or say, "What I hear you saying is ... " and deliver the straight message yourself for confirmation.

Introducing candour to an organisation, of course, is not without risk. In fact, it can be a total shock to the system, and being the first one to use it can get you killed - that is, marginalised or thrown out.

But should you decide to "get candid" anyway, go slow and use humour when possible.

In the best-case scenario, your candour will eventually be rewarded with candour in return - and sometimes the change is faster than you would imagine. As soon as many people experience candour, they can't understand how they ever did business without it.

Jack Welch is the former chairman and CEO of General Electric.
Suzy Welch is the former editor-in-chief of the Harvard Business Review.

They are the authors of the international bestseller Winning, published by HarperCollins in April 2005.

E-mail them your questions at winning@nytimes.com

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