Kerby Anderson

In this commentary, I want to explain an interesting business pattern that developed in China. It illustrates what many have called “the catfish effect.” What is the catfish effect?

Live sardines are more expensive than frozen sardines and more valuable because they have better flavor and texture. One ship in Norway was always able to bring sardines home because the captain put a catfish in the tank. The sardines had to keep swimming to avoid this predator.

The catfish effect is used in business to describe what happens when the strong competitor stimulates the other companies to be more competitive and innovative. The Tesla Gigafactory in Shanghai is often cited as the catfish.

This explains China’s unique exception to their general business model. China has worked to keep many companies out of the country. Those they let in come under full control of the Chinese government.

Tesla was the exception. China supported the company with land, loans, and tax benefits. That seemed like a puzzle until you realize that Tesla became the catfish for China’s electric vehicle industry. They set up shop and immediately began selling cars. But their presence stimulated the other electric car companies. They started copying the techniques used by Tesla in production and deploying camera-based autopilot.

Tesla also discovered they needed parts that weren’t being manufactured in China. By demanding these cutting-edge materials from suppliers, they were also providing them to the other China car companies.

Once the Tesla catfish was dropped into the China tank, all the other companies started swimming faster. That’s why China did something few expected.