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Targeting China’s Shifting Landscape

About a decade ago, businesses started to become aware of the magnitude of the challenges associated with doing business in China and other emerging markets. For the most part, however, the customers with whom they would be doing business were still the “usual suspects,” so the challenges were mainly around operations and logistics.

In a book I co-authored with Atlee Valentine Pope, Co-Destiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs , one firm's experiences were used to suggest a strategy for reaching new global markets:

    Some time ago, one of our clients with responsibilities for his firm’s major customers showed us his 'Nightmare Room.' The walls were covered with a series of eleven world maps, one for the present year and one for each of the next ten years. Pins showed the locations where major customer support was occurring today and where it was forecasted to occur into the future. From a sparse pin collection concentrated mostly in North America, the sequence evolved to resemble a pin cushion.

The strategic advice we provided to that customer involved focusing upon existing customer relationships, and identifying how collaboration with those customers could facilitate entry into new country markets. We emphasized that the challenge of the pin cushion was also an opportunity to deliver increasing value to its customers, helping it to deal with the complexities of new global markets. The advice emphasized “Co-Destiny” strategies through which suppliers could create value for their customers and capture value for their shareholders.

We think this is still quite good advice for firms that serve global customers whose own plans involve continued growth in emerging markets. A senior executive in the customer organization that was the focus of the “Nightmare Room” story recently concurred with our assessment. He noted that his firm now generates almost 40 percent of its sales from customers in markets that accounted for less than 5 percent of its volume a decade ago. But he noted that “In 1999, we should have bought an additional box of pins and just stuck them into random locations in China. It's now our largest single market, surpassing the US last year.”

This firm's experience is not unusual. China continues its record of extraordinary growth, with every year consistently showing increases at or near the double-digit range. The progression of Chinese income distribution has reflected that ongoing growth, and Chinese consumers now have an appetite for products and services that were only dreams a decade earlier.

This has important implications for most businesses, whose 2011 plans almost certainly include strategic initiatives to achieve growth in China. The executives who underestimated China’s potential in 1999 are unlikely to do so in 2011. China is on everyone’s radar scope.

Forget 1999. There are major changes that must be considered in developing 2011 growth plans for China’s market. In 1999, the customers of interest were global firms that entered China in order to take advantage of low-cost manufacturing potential. While they sourced and manufactured in China, their markets were largely in Western countries, and the cultures and processes that these global firms put into place in China were familiar ones transplanted from North America, Japan, and Europe.

Those nightmares were relatively tame. Today, the growth plans of many companies focus on the China market itself, including consumer markets with fast-growing disposable income and business markets that now include Chinese companies that are themselves gaining position on the roster of global firms. It is no longer enough that the China growth strategy address the needs of Western firms operating there. Going forward, it must respond to the needs of the China market itself. This requires a massive transformation in strategy and thinking.

Businesses will learn as they go through this transformation that the concept of a Co-Destiny relationship has soared to new levels in China. We often offer the following comparison: In Western markets, firms win contracts often on the basis of product, service, and price advantages. They then focus on building strong customer relationships in order to sustain that business. In China, firms win business on the basis of relationship; then they focus on the product, service, and price challenges that are on the minds of their customers to sustain that business.

We’ve often been told that this contrast constitutes good hyperbole to illustrate the importance of relationships in China. Our response is that there is no hyperbole to the comparison. Relationship is a fact of life for businesses operating in China’s markets.

— George F. Brown Jr. is the CEO and cofounder of Blue Canyon Partners Inc., a strategy consulting firm working with leading business suppliers on growth strategy. He co-wrote this article with David G. Hartman, the China Practice Director at Blue Canyon Partners. Hartman was a former faculty member with Harvard University and previously executive director of the National Bureau of Economic Research. He has been an active participant in China’s markets for over 20 years, speaks Mandarin, and resides in Beijing.

5 comments on “Targeting China’s Shifting Landscape

  1. Barbara Jorgensen
    February 28, 2011

    It seems odd that a company doesn't have to “earn” your business as we understand it in the West. It also seems to run against the theory of competition, which in part is “you can easily be replaced.” But if it's a fact of doing business in China, we best get used to the idea.

  2. Hardcore
    February 28, 2011

    Hi Barbara,

    yes I'm afraid it is completely correct, business is based on relationships, so much so that it can control the whole supply chain  and in some cases have a significantly negative effect.

    Consider a big factory requiring a part, the M.D went to school with some guy who produces low cost metal parts of inferior quality, such a relationship is likely to result in business for the School friend rather than an ISO 9xxxx company.

    Now consider what happens when the metal parts enter the Quality system of the larger factory, in many cases they will be red stamped through and 'issues' will be corrected next time, in such a relationship it would be very rare for the parts to be returned back to the substandard supplier, sometimes it can be infuriating to have to deal with such methodology especially when a simple solution exists.

    However as with most things in China there is a system and a way round such business practices, this is why  'tea' drinking and after hours entertainment is so popular, but that is only part of the story.

     

    HC.

     

     

  3. hwong
    February 28, 2011

    In order to win business deals, one must get used to the idea of going to nightclubs and karaoke and gifts to swoon the customers. Then again if you are relate to the government officials somehow or if you give some undertable kickback there is definitely better opportunities. That's part of the culture there. It's indeed everywhere but just to the degree. In U.S. networking is also very key to landing jobs / getting deals but just that there are other “rules” that regulate the deal making process. 

  4. Mydesign
    March 2, 2011

         As a part of globalization all most all the countries had opened their internal markets for foreign investment with red carpets & attractive soap facilities. Some of the key factors of globalization are they can take the advantages of economic growth, availability of skilled manpower, low labour cost, availability of raw materials etc. Since everybody wants to gain the advantage of these factors for their growth, companies had expanded their foot print outside the territory. China got much benefited from globalization because almost all companies started their production unit in china.

         We can say Electronics industries are much global because regional distinctions play major roles. Here the product life cycle is like US/Europe will come up with idea and investment plans, design is done either in India or China, Manufacturing is done in Singapore/Taiwan/China, packaging is done in China/Malaysia. That means, for the same product different process at happening at different countries.

        In my opinion, countries like US, Europe have to come up with some key policy and guidelines for attracting investments, which can in turn generate better economic growth and job opportunities

  5. Ms. Daisy
    March 4, 2011

    The kick backs is bribery and not desirable. It is an unfortunate exageration of giving tips by foreign nationals to locals which developing countries learned from foreign business partners and have mastered to an art – sadly. 

    The partying is also a learned behavior which the locals assume to be what foreign nationals expect and a lot of good business men offer to Americans night clubs etc as past of doing business.

    What is networking in the US, is relationship building in other countries. Business is still seen as an interpersonal contract in maany developing economies and the lack of this level of relationship may break deals. Call it culture clash!!

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