Friday, July 30, 2010

Facts and Filters

  Business media, like all media, has its own internal model or set of assumptions that drive commentary. Publications in the field often engage in obvious ideological cheerleading. On a more subtle level, much of what is written obscures a reliance on a circumscribed model that shapes our views and unconsciously walls off alternative interpretations.
   For example, the June 23 online edition of InformationWeek reported that giant Chinese PC maker Lenovo recorded a 10.2% share of global PC sales, the first time the company has garnered a double-digit share. Lenovo CEO Yang Yuangqing is naturally ecstatic at his company's performance, and gushed about Lenovo's “two-fisted strategy.”
   It's almost as if he thinks Lenovo's innovative products were the reason. Or was it brilliant marketing? InformationWeek seems impressed, noting that Lenovo's 47% year on year sales increase was the industry's highest, but then ponders, almost as an afterthought, why Lenovo's profit margin of 0.78% is so much lower than its American competitors.
   InformationWeek did not bother to connect a few dots. By way of contrast, the print edition of BusinessWeek (April 5, 2010) ran a major article on how Western companies are finding that doing business in China is becoming increasingly difficult. As BW details, Chinese officials are ramping up a variety of neo-mercantilist tactics to ensure the success of Chinese firms and to keep foreign business in check.
   One such tactic is a policy of “indigenous innovation” which means, among other things, government procurement contracts are to give preference to Chinese suppliers. Lenovo was specifically named as a beneficiary of this Japan-inspired policy.
   Combine this with China's weak currency, also the intended result of government policy, and low labor costs, and you have the real reasons why Lenovo is enjoying outsized sales increases. Despite all that, Lenovo registered paper-thin profit margins. So where is the innovation? And with so much in its favor, one might ask why Lenovo does not have large margins to go with its revenues. Either Lenovo is hugely inefficient, or it is dumping products in its overseas markets. The former is possible, the latter would fit in with the neo-mercantilist devotion to market share and reduced emphasis on profits. And as with government favoritism, this is in line with the Japanese experience.
   Two different sets of assumptions on what is driving commerce, two different commentaries, and two very different conclusions on impact and importance.
   Just remember why unemployment is slated to stay chronically high for years to come and why corporations and our government policymakers have allowed manufacturing to deteriorate.
   These are the dots they refuse to connect.

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