"Everything is Possible, but Nothing is Easy" - Strategies for Competing in a Changed China

Multinationals operating in China now face a new challenge. Local competitors in recent years have been able to rise almost out of nowhere to challenge, and perhaps dominate, areas of the domestic market. Chinese firms have far greater appreciation of local sensibilities, are more flexible, and are taking advantage of more accessible global markets. Foreign corporations may have no choice but to look for ways to form long-term alliances with their current Chinese competitors.

by Peter Williamson,Ming Zeng

Challenges for foreign players in the Chinese market are coming ever thicker and faster. The more experienced multinationals have learned many lessons the hard way from the rough and tumble of operating within the often-chaotic atmosphere of cultural, logistical, political and infrastructural obstacles that the Chinese market has long created. Now comes a new and largely unanticipated one: being forced to go head to head with some very well positioned and often ruthlessly aggressive home-grown competitors.

Affiliate Professor of Asian Business and International Management Peter Williamson and Assistant Professor of Asian Business Ming Zeng offer very recent examples of how many of the world's leading corporations are struggling to cope with a radical and ongoing paradigm shift within the China theatre. The types of advantages multinationals may bring to emerging markets are now being countered very effectively by local Chinese competitors.

The wealth of industry-specific technology, innovation capabilities and managerial edges in brand building or marketing that foreign giants can call upon are increasingly revealing their limitations. From beer brewing to cellphone making to detergent production, local companies have been able to rise - often apparently out of nowhere - to achieve significant market dominance in, at most, a couple of years.

The authors cite the examples of global leaders like Motorola, General Motors, and Toshiba becoming stymied by the types of inflexibility that simply being such huge organisations creates. The very newness of such concepts in China as efficient logistics and distribution, or clearer definitions of "marketing" versus "sales", mean that local competitors share far more profoundly in the "collective consciousness" of disruption that the economic revolution has engendered. Williamson and Zeng detail the types of financial burdens that integrating Chinese and global operations, or being forced still to cope with fragmented and still underdeveloped markets, provincial tariffs and local protectionism impose.

Chinese rivals are also showing far more sophistication in using advertising to strike emotional chords. The psychosocial effects of China's one-child policies, for example, have absolutely no Western equivalent. How can foreigners be expected to appreciate adequately how a local firm like the Haier Group - makers of the "Little Prince" line of smaller, more energy-efficient washing machines - can satisfy both the practical and the emotional needs of Chinese parents?

With Chinese companies now proving their advantages in understanding the local market, being leaner and more flexible, while also taking fuller advantage of increasingly more accessible global markets, the authors offer their expert evaluations. Multinationals in a host of industries already have no real choice but to look for ways to form alliances with their current Chinese competitors. Any workable and sustainable joint ventures, however, would have to be markedly different from most of the arrangements that have worked - or too often, failed - since the opening up of the Chinese market.

Full partnerships, as opposed to the often ad hoc types of influence peddling or government conduit arrangements that have been tried to date, are in order. If arranged well, the authors see such possibilities as having enormous potential. "These new-style alliances not only bring together complimentary sets of competencies; they also have global scope. By defining an international area of responsibility for these partnerships, a multinational can effectively recruit a strong Chinese company to fight on its side in the broader battle with global rivals."

While the potential for such alliances may well be astronomical, the authors provide several notes of caution for the more pressing concerns of simply battling to secure market share in the immediate future. Their "Five Strategies for Multinationals" include tips for expanding market coverage; focusing on dramatically lowering costs; streamlining distribution channels; localising R&D, and driving industry consolidation.

MIT Sloan Management Review, 2004

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