Only the Paranoid Survive
By Randall Coleman, Portfolio Manager, CFA
“Made in Japan” used to be derogatory, meaning low quality, inferior, cheap. Somewhere along the line, “Made in Japan” flipped in meaning, signifying the point when Japan’s manufacturing and engineering talent became world class. Indeed, the 1969 Toyota Corona that I learned how to drive in ultimately clocked more than 325,000 miles before giving up the ghost. Between my brother and me, we taught at least 25 of our friends how to drive a stick shift on The Red Bomb. That’s quality.
Like it or not, China has followed a similar trajectory. Cheap plastic junk has given way to first-rate products, and consumers around the world benefit from China’s competitiveness. Several real-world examples will illustrate the point.
Example 1. Four years ago, I converted the family swimming pool to a salt-water system. Salinity monitoring is required and is built in to the pool controls. Unfortunately, the saline sensor failed twice, once under warranty and the second time on my dime. The third time the sensor failed, I had a choice: either shell out another $200 for a replacement part that has proven unreliable, or buy a $15 meter from China. I went with China, expecting a low precision meter. What I got surpassed all expectations. I mixed up two saline solutions (who doesn’t have a triple-beam balance at home?), one at 10 parts-per-thousand and one at 9 parts-per-thousand. The meter read them both perfectly, to 3 decimal points. At $15, I can’t help but be astonished at the better value and precision I got from Made in China.
Example 2. Tesla has been promising fully-automated driving for years. On October 11, the company hosted a Robotaxi analyst event, with the CEO touting the firm’s 50 on-premise driverless vehicles. Progress is being made, but delivery on the promise is still some nebulous somewhere in the future. Contrast Tesla’s automated driving promise with China’s WeRide reality. On Friday, October 25, WeRide, IPO’d on Nasdaq. WeRide has operated a self-driving fleet for almost five years. The company already offers driverless robotaxi rides in three cities globally. WeRide has begun trial and commercial operations in 25 cities and five countries.[1] China delivers. Tesla promises.
Example 3. At a recent EV auto exhibition in Japan, a teardown of BYD’s Atto 3 vehicle revealed significant cost advantages from BYD’s construction methodology. BYD, based in Shenzhen, China, is the world’s leading EV manufacturer, surpassing Tesla in 2023. The teardown showed a much higher use of integrated parts than other manufacturers. For example, “the e-axle electric drive unit combines eight parts, including the motor, inverter and reducer, as well as the on-board charger and DC-to-DC converter. This leads to reduced costs and lower weight.”[2] China’s innovation and relentless drive for cost savings has allowed BYD to deliver an EV with a $20,000 sticker price.
Example 4. China is the undisputed sales leader in smartphones in the world’s two most populous countries. The chart below shows a single non-Chinese manufacturer in the top five smartphone vendors in India for the most recent quarter. Apple doesn’t even make the top five.
| India smartphone shipment (million units) | ||
| Vendor | 3Q23 | 3Q24 |
| Vivo | 7.2 | 9.1 |
| Xiaomi | 7.6 | 7.8 |
| Samsung | 7.9 | 7.5 |
| Oppo | 4.4 | 6.3 |
| Realme | 5.8 | 5.3 |
| Others | 10.2 | 11.1 |
On a related note, Huawei’s HarmonyOS is quickly gaining traction against Android and iOS. From a base of zero in 2022, HarmonyOS already accounts for 4% of global smartphones.
Source: https://www.counterpointresearch.com/insights/global-smartphone-os-market-share/
China has built a global smartphone powerhouse that delivers a world-beating level of value.
China now ranks 11th in the Global Innovation Index, bumping France down to 12th and remaining ahead of Japan and Canada. Among Upper Middle-Income peers, China ranks number one, ahead of Malaysia and Turkey.
The World’s most innovative countries ranked:
Source: https://www.visualcapitalist.com/ranked-the-worlds-most-innovative-countries-in-2024/
And ranked by income group:
Source: https://www.visualcapitalist.com/ranked-the-worlds-most-innovative-countries-in-2024/
Competition makes you work harder. Competition keeps you sharp. Competition keeps you paranoid. As Intel’s founder Andy Grove wrote, only the paranoid survive. Without competition, the pace of advancement slows. People get lazy. Just walk in to your local DMV and feel time slow down.
The global competitive and innovation dynamics are reflected in our security selection. Because our process is company-focused, or “bottoms-up,” it’s not surprising that our International and Global portfolios have significant exposure to the most innovative countries in the world. China has a very deserving representation.
[1] https://ir.weride.ai/node/6446/html
[2] https://asia.nikkei.com/Business/Automobiles/Electric-vehicles/EV-teardown-showcase-reveals-secrets-to-China-s-low-costs
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