In recent discussions pertaining to the state of competition in various industries, the term "involution" has gained traction, particularly as it relates to inappropriate competition among businesses. This phenomenon describes a situation where companies obsessively compete against each other in a way that negatively impacts their profitability, leads to a waste of resources, and ultimately results in a stagnant market. Such characteristics of competition often manifest through price wars, inadequate investments in innovation, and a lack of technological advancements. Notably, industries like electric vehicles, lithium batteries, and photovoltaic products, which were once viewed as advantageous sectors for Chinese development, are now grappling with serious challenges attributed to involutional competition.
The urgency surrounding the need to address involution became evident during the Politburo meeting on July 30, 2023, which emphasized the necessity of preventing "malicious involutional competition." Subsequent economic meetings have underscored the importance of comprehensive measures to regulate this type of competition, illuminating how critical it is to tackle these challenges head-on. As leaders within the Chinese economy, publicly traded companies must take the initiative to extricate themselves from the involution trap, and there are three primary strategies companies should focus on to navigate out of this predicament.
To succeed in today's fiercely competitive and ever-evolving business landscape, publicly traded companies must adopt a multifaceted approach to strategy and transformative change.
Firstly, driving innovation for value enhancement is essential to break free from the dilemmas of involution. Innovation stands as the cornerstone for companies aiming to escape the hostile environment fostered by this competitive climate. Particularly salient are breakthroughs in core technologies that not only require considerable technical prowess but also demonstrate clear applications. For instance, the field of semiconductor manufacturing has seen significant advancements where innovations in chip technologies, from shrinking manufacturing processes to optimizing architectural designs, have each given companies a competitive edge in the global marketplace. These advancements do not simply enhance product performance; they also broaden the range of applications for these products, enabling sectors like AI and smartphone industries to flourish, thanks to superior chip technology. Moreover, innovation caters to the diversifying demands of consumers. As society progresses, there is a growing expectation for high-quality living and spiritual fulfillment, which businesses can meet through innovative product designs and service paradigms. A prominent coffee chain, for example, has successfully fused coffee consumption with social and cultural experiences, introducing unique beverages and merchandise that not only satiate taste buds but also fulfill consumers’ desires for social interaction and cultural engagement. This method allows companies to escape the low-standard price competition spiral and instead significantly elevate their core competencies and intrinsic value, ultimately creating new market spaces and improving profit margins on the trajectory of quality development.
Secondly, striving for high standards yields high quality, enabling companies to seize the competitive lead. In the fierce battlefield of market competition, firms must hold themselves to stringent standards, aligning their operations with national benchmarks in production, technology, safety, energy consumption, environmental protection, and quality control. Such alignment not only demonstrates corporate social responsibility but also protects the quality of products and services offered. For example, an automobile manufacturer aiming for recognition in both domestic and international markets must adhere to stringent safety and emission standards at every production stage, from component manufacturing to final assembly and quality checks. Furthermore, companies should aspire to lead in standard-setting, taking proactive steps in the development of industry and national standards. By leading in standard formulation, firms can spearhead high-quality growth within their sectors. A telecommunications company exemplified this approach by leveraging its expertise in 5G technology to influence international standards, further solidifying its leadership position within the global telecom market. This high-standard-driven development model assists companies in phasing out outdated production methods, mitigating surplus capacities, and optimizing the industrial landscape, ensuring they maintain their market influence and competitive voice.
Lastly, mergers and acquisitions play a vital role in optimizing resource allocation and restructuring industry competitive dynamics. As an indispensable strategic tool, M&A activities facilitate the integration of premium industrial resources, expeditiously clear low-efficiency assets, and enhance resource allocation. In light of the escalating involutional pressures across numerous sectors in China, the urgency for industrial consolidation and strategic partnerships has heightened. Industry frontrunners are thereby shouldered with the responsibility to champion M&A initiatives. For instance, a large internet company expanded its realms by acquiring smaller firms showcasing unique business models, effectively broadening its service offerings. This integration strategy allows for the amalgamation of advantageous resources, such as shared R&D capabilities and customer engagement channels, resulting in heightened industry concentration. As market concentration grows, supply and demand imbalances remedy themselves, while the disruptive effects of price wars and resource squandering are curtailed. In this way, major industry players can reshape the competitive landscape, fostering healthier and more efficient market interactions.
In the journey toward high-quality economic advancement in China, addressing involutional competition is a pressing matter that demands collaborative effort. Influential enterprises bear the weighty responsibility of ensuring the longevity and health of their respective industries. By aligning with national policy directives and recognizing industry trends, publicly traded companies can become proactive players in fostering orderly competition, thus championing their sustainable growth while enhancing the overall quality of their sectors.