China isn’t an easy place for Western companies to do business. Just ask Google, or the 38% of American firms who say they already feel unwelcome there. But – particularly for big companies – it’s also very hard to ignore. According to Booz & Company consultant Dr Edward Tse, author of a new book out this week called ‘The China Strategy’, that’s not just because China is the cheapest place to make stuff, or because it’s such a huge potential market (although having rebounded faster than any other big economy, China is arguably both of those things). Tse reckons that companies who get it right in China will be leaner, meaner and more competitive as a result – which will make them better equipped to win elsewhere...
Tse’s new book identifies four big drivers of change in China. There’s the increasing urbanisation and growth of the middle class (Open China). There’s the increasing interdependence between China and the rest of the world (One World). And there’s the increasing liberalisation of (some parts of) the economy by the state (Official China). For all three reasons, the scale of the opportunity in China is only going to get bigger. Then again, Tse reckons the most common mistake currently made by foreign companies is failing to understand the Chinese market properly. ‘They believe they can take the business model they offer in the rest of world and replicate it in China – but in most cases that does not work,’ he tells MT. And as the market grows, with incomes diverging further, it’ll get even more complex.
But the most salient bit of the book, we thought, was the section on Competitive China. Here Tse suggests the explosion in Chinese entrepreneurship in recent years – thanks partly to the government’s support – has fostered an ‘intensely competitive’ market, where nimble local firms compete furiously with multinationals. To beat them, he says, foreign companies must ‘be more Chinese than the Chinese’ – which means they need to do a better job of understanding consumer demand, and then be faster, more innovative and more cost-effective in getting their products to market. The good news is that if they get this right, it will help them elsewhere in the world too.
There’s also a defensive argument, says Tse. At the moment, there aren’t many Chinese companies that are household names here in the UK. But they’re starting to spread their wings – and although it won’t be easy for Chinese firms to understand Western culture, as he admits, they can expand by acquisition (like Lenovo, which recently bought IBM’s PC business) or partnerships (hence UK firms should be on the lookout for potential tie-ups). So maybe you can’t afford to leave them to bulk up in China.
Interestingly, from our point of view, Tse thinks that China’s biggest constraint is likely to be a lack of experienced managers and leaders. In some ways this is inevitable, since there haven’t been many massive Chinese companies. But it’s also a function of the Chinese market, he reckons: because it can change so abruptly, it’s not easy to guess what’s going to happen next and plan accordingly. ‘That’s a high-order requirement for business leadership,' he suggests.
So basically, it won’t be easy to succeed in China. And it will take time – both to understand the market, and to build your local capability. But for those companies that are prepared to invest and be patient, and make China a key part of their global strategy (like IBM, which is now doing its global procurement and R&D in the country too), Tse insists that ‘it will pay off at some point’. And when it does, the rewards could be huge – not just in China, but all around the world.
'The China Strategy: Harnessing the Power of the World's Fastest-Growing Economy' by Edward Tse is out now, published by Basic Books.
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