By Simon Malinowski (Harris & Moure summer associate)
Excellent podcast interview with Edward Tse, Chairman of Greater China for Booz & Co, entitled, “The China Strategy.” Nice overview on what it takes to succeed in China today.
Some of the highlights:
– The new way to think about China. Global companies should not treat China as a marginal or potential market on the fringe of their global operations. Sending a few people to China and hoping that something will happen is just not going to work. Companies need to integrate the China market into the core of their global strategies. Companies that successfully integrate China into their overall market structure will have a significant advantage over their competitors.
– China needs to be part of a your global network. Companies are evolving from single dimensional China activities, such as manufacturing and production, to having fairly complete operations in China. Successful companies are incorporating research and product development, and even engineering, into their China operations. By adding these sorts of high value-added activities to their China operations, these companies are improving their entire global production chains.
– Liberalization of the China market. Industries (like retail and consumer goods) that are entirely open to foreign companies in China represent some of the most intensely competitive markets in the world. Companies in these markets need to bring their best capabilities to China to succeed. Foreign companies that treat China as a fringe market do not stand a chance.The high level of competition in these markets will weed out the companies ill-equipped to operate in China, leaving only the most efficient and integrated market participants.
Increased liberalization can be a double-edged sword for foreign companies. Though liberalization lowers entry barriers for foreign companies, it also allows Chinese companies already in these markets to operate more freely. The competition created by increasingly free markets creates stronger Chinese companies that will present a growing threat to foreign companies in both local and global markets.
– Joint Ventures. Joint Ventures (JVs) were useful to foreign companies entering the Chinese market because these companies were unfamiliar with the lay of the land they needed to minimize risk by having a local company guide them. But the risk of buy-out, abandonment, and flat-out theft has minimized the rewards associated with joint ventures. As a result, more and more foreign companies are choosing either to go it alone in entering the China market or to buy out a Chinese company already present in the target market.
What do you think?
