Burt’s Bees counter in Wing-On Department Store Hong Kong
Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer
http://www.newsobserver.com/2011/09/18/1494316/china-challenges-western-entrepreneurs.html
Furthermore, companies lacking a solid grasp of local economic forces often underestimate the complexity of the Chinese market. Chinese companies are no longer relegated to merely low cost manufacturing. While these companies secured a toehold by manufacturing components at the lowest cost, they have since used strategic acquisitions, licensing and partnerships to gain additional technical and management expertise. This has allowed Chinese businesses to vertically integrate to the point where they can produce entire products in several industries, such as the automotive and aircraft industries. Although in the first nine months of 2010 the Chinese manufactured only 1.6 million automobiles, by 2020 the nation aims to export 25 million annually.
In fact, while Western companies have been preoccupied with internal problems precipitated by The Great Recession, the economic fundamentals in China have strengthened through increased productivity and consolidation. Chinese firms are now using excess capital for larger foreign acquisitions. Furthermore, while many state-owned enterprises (“SOEs”) have been privatized or done away with altogether, several industries remain dominated by government-owned companies that often lack transparency. Top executives at SOEs may even be former members of the Chinese Communist Party. It is critical to never underestimate the significant local advantages afforded to state supported businesses.
Therefore, firms should extensively analyze how to seize opportunities and confront inevitable challenges so they can be responsive post-entry. Moreover, new entrants must be nimble or risk falling behind because China does not buy older technologies; it buys the technologies that will be used in the coming decade. The majority of companies entering China prefer to hire outside experts when formulating their market strategies.
When Burt's Bees in Durham, NC prioritized global expansion, they hired a leading global management consultancy to help. When China arose as a top opportunity, they engaged the consultancy's China office to work closely with them on a wide range of issues from finding a partner to legal issues.
Outside consultants provide invaluable tools for understanding the Chinese market because they can offer third party perspective through informed market research, counsel on strategy, and therefore optimize market entry. Firms focused on consumer preferences might choose to partner with local Chinese firms in order to understand the distinct market segments within China, which can vary widely from region to region because of local tastes and traditions and economic dynamics.
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