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.