Jim Hemerling, a partner at BCG, recently penned a piece in Business Week that describes his firm's view on how companies are rethinking their global procurement strategies and China in particular. Citing IBM's transfer of its procurement headquarters to Shenzhen from North America, Hemerling notes that China is fast becoming the centerpiece of many company's global sourcing thrust. But in his words, "China will not, and should not, become the center of global procurement for every company. China may not be the best location for some goods." What's more interesting is his take on China as an innovator on the world stage noting that "R&D centers originally set up to support product localization for the Chinese market are now going full force in developing new products for the global market."
A fascinating point, but I'd still argue that this is the exception, not the rule. Holding China back on the innovation front is a higher education system which still does not begin to compare to India or North America from an engineering perspective. And let's not forget about China's notorious disregard from intellectual property. After all, why invest in R&D if your neighbor will just knock it off as the government turns its head?