How Can China Achieve Industrial Upgrade?

WANG Jiancheng1( 汪建成) and MAO Yunshi2( 毛蕴诗)
1Ph.D. in Management and Lecturer of the School of Management at Sun Yat-Sen University
2Professor, Doctoral Adviser and Director of the “Research Center on Enterprise and Markets” at Sun Yat-Sen University

Editorial note:In spite of the immense trade surplus garnered in recent years, China’s manufacturing industry still remains at the low end of the international division of labor spectrum and derives much of its international competitiveness from its advantages in low production costs. Chinese manufacturing enterprises are also characterized by low profit margins, and the low profitability of China’s manufacturing industry is usually depicted as the so-called “smiling” curve. How should China’s manufacturing industry pursue industrial upgrade? How can Chinese manufacturing enterprises get out of their low profit “quagmire”? The authors of this article attempt to answer both questions using a case study to support their theory.

I.Introduction
The optimum path for an enterprise in emerging market economies to realize upgrade and innovation is to evolve from simple contract manufacturing, through R&D design engineering, to eventually building its own brand, according to Amsden (1989).
For almost three decades, since China initiated reform and opening up to the outside world, OEM (original equipment manufacturer), as an effective cooperative model, has become an important avenue for Chinese manufacturing enterprises to enter the international value chain system and participate in international market competition.

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