It wasn’t too long ago that China was a bit of a jungle for foreign multinationals. The market was relatively under-developed, and the key to success was knowing the right people – either as a partner or as a means to circumvent official red tape. Now it’s very different: China’s economic explosion has created a hugely attractive market for foreign firms, and the government has been making it much easier for them to get in there. At the same time, domestic competitors have been getting stronger.
According to Jonathan Woetzel, a McKinsey partner based in Shanghai and co-author of a new book on the country, this means the rules have changed. Just being in the right place at the right time is no longer enough – overcoming this fierce competition has now become a question of execution, not strategy. Unfortunately, he reckons a lot of companies haven’t worked this out yet.
Woetzel told MT there were two classic mistakes that new entrants tend to make. ‘The first is to start from scratch. ‘They think: let's forget everything we ever learned and come up with China-specific answer.’ But then you lose the competitive advantage you have from your global reach – and you’ll probably find the local firms are already doing it better. The second is to take what you do in Birmingham, and do the same thing in Beijing – but that’s expensive, and unlikely to go down well with local customers. ‘So what’s really required is to ask yourself: what am I good at? Then you take that process and adapt it to Chinese context. That requires a lot of thinking.’ But if you get it right, you’re opening up a huge new market.
However, according to Woetzel, there’s much more to it than that. China’s now the ‘centre of gravity’ for many industries, he says – not only as a market, but also as a sourcing, design and manufacturing centre. ‘China used to be an inefficient market, where you could get away with being sloppy – now you have to execute to the same standard as you do globally.’ And because China is growing so fast, he says, it’s going to be at the forefront of improvement and innovation within these global standards – meaning that anyone without a meaningful operation in the country could get left behind. ‘If you're not involved in setting those standards, you're not going to be involved in the industry’.
Most of Woetzel’s book (written with fellow McKinseyite Jimmy Hexter) provides a template for how firms can get their execution right in terms of product development, HR, IT, marketing and supply chain management. And they reach some interesting conclusions – for instance, that it might be necessary to move your global HQ to China if you’re really serious about attracting the country’s top talent.
Of course, we wouldn't expect a couple of strategy consultants to write a book saying that China was a straightforward market where nothing ever changes - but on the other hand they might have a point here. Clearly China is still a complex place to do business, even if (especially if) you’re a huge multinational. But there’s much to gain; as the Americans authors of this book might put it: if you can make it there, you can make it anywhere...
'Operation China: From Strategy to Execution' by Jimmy Hexter and Jonathan Woetzel is published by Harvard Business School Press. Click HERE for more details.