“Vicious competition could be catastrophic for the development of industrial ecosystems!” CHEN Fangruo, Dean of Antai College of Economics and Management (ACEM) at Shanghai Jiao Tong University (SJTU), speaks candidly about the negative impact of “involution” on industrial ecosystems.

The Political Bureau of the CPC Central Committee meeting held on July 30 emphasized the need to strengthen industry self-discipline and prevent "involution-style" vicious competition. This statement quickly became a focal point of discussion in both industry and academia.

What is the state of China’s manufacturing industrial ecosystem? What uncertainties does China’s supply chain face?

Recently, the “New Productive Forces Driving the Greater Bay Area” high-quality development research initiative, jointly organized by the Publicity Department of Bao’an District Committee and Shenzhen Press Group, and undertaken by Shenzhen Commercial Daily/Duchuang Platform, partnered with Antai College of Economics and Management at Shanghai Jiao Tong University and Shenzhen Research Institute of Shanghai Jiao Tong University to conduct in-depth research on Bao’an’s advanced manufacturing clusters. The research team sat down with CHEN Fangruo to discuss industrial innovation and China’s manufacturing development path from a management expert’s perspective.

Digitalization Provides Unprecedented Tools for Enterprise Management

Shenzhen Commercial Daily: During your visits to Shenzhen’s smart manufacturing enterprises like Ledman Optoelectronic and Han’s Laser, what aspects impressed you the most?

CHEN Fangruo: The most impressive aspect was how these enterprises achieved world-leading positions in such a short time, which is quite remarkable.

Ledman Optoelectronic is a leader in the LED industry. Twenty years ago, this industry was dominated by Japanese and Korean companies, with some American presence. Chinese companies started from low-end products and, leveraging China’s large market advantage combined with Chinese entrepreneurs’ exceptional learning capabilities, have now created a new landscape where 60-70% of global LED production is in China, mostly concentrated in Shenzhen. This rapid progression is truly extraordinary.

Han’s Laser shows a similar pattern, moving from low-end to world-leading status in just over a decade. I believe such stories are common across different sectors, demonstrating the vigorous development of China’s manufacturing industry, and I’m confident it will continue to improve.

Shenzhen Commercial Daily: Regarding smart manufacturing, "digital transformation" is a frequently mentioned term. You’ve often stated that the essence of digital transformation is management innovation. Could you elaborate on this?

CHEN Fangruo: I’ve always advocated a concept at business school: management is also a productive force. Each industrial revolution has greatly enhanced human productivity. Companies benefit from both technological innovation and management innovation during their development.

Peter Drucker, the father of modern management, once said that a key task of management is to enable ordinary people to do extraordinary things. Poor management often results in hard work rather than smart work.

I want to emphasize this point: Big data and artificial intelligence are technological innovations that provide unprecedented tools for management improvement. Under the digital transformation wave, the essence of management remains unchanged - it’s still about continuously identifying and solving problems, which is crucial.

Shenzhen Commercial Daily: What phenomena should we be wary of when all enterprises are advocating digital transformation?

CHEN Fangruo: Many enterprises pursue digitalization for its own sake. In my view, digitalization is a process variable, not an ultimate goal. It’s merely a tool for problem-solving.

In my research of successful digital transformation cases, many are problem-oriented - addressing issues that couldn’t be solved effectively through traditional methods. With new digital methods, these problems can be better resolved.

Enterprises should consider return on investment rather than just focusing on equipment purchases or network infrastructure as measures of digital sophistication. Staying at this superficial level can be fatal for businesses.

High-Quality Industrial Ecosystem Gives Chinese Manufacturing Its Strength

Shenzhen Commercial Daily: In fact, Shenzhen has consistently used digital transformation as a key driver for advancing "new industrialization." How can digital technology be integrated with the real economy in this process?

CHEN Fangruo: Digital transformation impacts enterprises comprehensively. From my observations of numerous companies, it can create new value across the entire chain - from product development to production to delivery and after-sales service. While full-chain digital enhancement offers benefits, it also comes with significant costs.

Digital transformation presents new opportunities. For government, providing services to enterprises is crucial. For instance, sharing successful cases - showing how enterprises solved problems and improved efficiency through digital transformation - can be beneficial. Of course, the government should offer new perspectives and methods without interfering in internal business management.

Shenzhen Commercial Daily: In 2023, you set a research goal to visit all of China’s lighthouse factories. How many have you visited so far?

CHEN Fangruo: We’ve visited nearly 30 lighthouse factories. There are 162 lighthouse factories globally, with 62 in China—ranking first worldwide, which demonstrates China’s manufacturing strength.

Shenzhen Commercial Daily: After visiting so many enterprises, what’s your view on China’s current smart manufacturing industrial ecosystem?

CHEN Fangruo: I believe a core asset of China’s manufacturing industry is its high-quality industrial ecosystem, which is crucial for manufacturing development. From both governmental and national perspectives, maintaining ecosystem health is vital.

Enterprise competitiveness largely depends on the health of their industrial ecosystem. While many sectors are highly competitive now, market-based healthy competition is good; however, vicious competition could be catastrophic for industrial ecosystem development.

If everyone is overwhelmed and engaged in price wars, the entire industry suffers. If leading companies divert resources to price wars instead of R&D, the whole industry falls behind and the ecosystem shrinks.

Shenzhen Commercial Daily: What should a healthy industrial ecosystem look like?

CHEN Fangruo: It’s a systematic project. I believe it should feature biodiversity. An enterprise’s healthy development is closely tied to its upstream and downstream supply chain and the overall ecosystem’s health. Without a foundation, there can’t be a peak - while leading enterprises are important, the ecosystem is equally crucial.

When formulating industrial policies, governments shouldn’t focus solely on high-tech enterprises or top companies, but should create better business and competitive environments to foster diverse, vibrant industrial ecosystems.

Shenzhen Commercial Daily: Comparing horizontally, how does the Greater Bay Area’s industrial ecosystem differ from that of the Yangtze River Delta?

CHEN Fangruo: We’re very interested in studying the differences between these two most dynamic Chinese economic regions in terms of industrial ecosystems. While research is ongoing and conclusions are premature, I believe the Greater Bay Area shows stronger enterprise and industrial vitality.

A few months ago, Shanghai Jiao Tong University’s Shenzhen Industry Research Institute and China Development Institute jointly released the “Global Cities Industrial Innovation Index Report.” The report showed Shenzhen ranking first globally in industrial innovation. Shenzhen leads in industrial innovation output and performance metrics. Among global cities, Shenzhen and its surrounding regions have formed exceptionally strong industrialization capabilities.

Uncertainty Is the Biggest Challenge for Supply Chains

Shenzhen Commercial Daily: Supply chain management has been your key research focus. What uncertainties do supply chains currently face?

CHEN Fangruo: Over the past decades, we’ve developed the concept of global supply chains, where production and markets can be in different countries - global production for global consumption. The transnational production and transportation networks connecting production sites and markets are called global supply chains. Their function is to integrate resources, optimize layout, and improve efficiency globally.

The biggest supply chain challenge is uncertainty. Changes in international situations, unprecedented changes in a century, especially U.S.-China relations and geopolitical issues, have elevated supply chain uncertainty to new levels, making challenges increasingly significant. Of course, there’s also uncertainty in global supply chain restructuring.

Shenzhen Commercial Daily: How can supply chains become more resilient in response?

CHEN Fangruo: In addressing uncertainty, information transparency between enterprises is crucial. For instance, the digital technologies we discussed earlier allow better future forecasting through historical data analysis. When data can flow freely, enterprises have more tools to handle uncertainty and make more scientific decisions.

Another decisive factor is the business environment. Greater uncertainty in the business environment leads to lower supply chain efficiency. Therefore, to enhance our supply chain competitiveness, we must continuously optimize the business environment to minimize various uncertainties.