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Published: November 12, 2012

 
 

The New Chinese Economy

In addition, companies have increasing opportunities to leverage digital channels, including e-commerce and social media, as part of their strategies. The Chinese e-commerce market is thriving, with well-known and successful retail websites such as Taobao.com, a B2C site owned by Alibaba.com, which is a popular B2B site. The number of Internet users in China is already twice that in the U.S., and China is the largest social media market in the world. Social media is especially important in China as a source of credible information, because the mainstream media is still controlled by the central government.

Execution remains a key challenge in the short term, largely because of a widening talent gap. Such was the finding of two recent surveys, the 2012 China Consumer Market Strategies survey, conducted by Booz & Company and the American Chamber of Commerce in Shanghai, and the 2012 China Innovation survey, conducted by the Benelux Chamber of Commerce, the China Europe International Business School, the Wenzhou Chamber of Commerce, and Booz & Company. Companies need the right leaders in place in their China business, as well as an operating model that balances local flexibility and agility with global control and capability leverage. But China’s acute shortage of trained and experienced managers and executives remains a roadblock for companies looking to grow rapidly and profitably. Companies need to take a more holistic approach to addressing the labor supply imbalance. The imbalance is particularly critical at the middle management level, where talent is scarce and expats are inherently less effective than they are at more senior levels.

In general, companies need to focus less on recruiting the right people and more on developing and retaining high-potential people through structured talent management programs and a long-term commitment to their China strategy. Companies can also seek out partnerships with universities, where they can establish scholarships, internships, and relevant courses.

Long-Term Competition

True, Chinese customers are now prepared to pay more for higher quality, and they may have more brand loyalty than in the past. But the value of these developments for MNCs will be limited by ambitious local competitors that are fast acquiring the technology and know-how to produce high-quality goods on par with multinationals’ offerings. The days of winning purely by having the allure of a foreign brand are largely over, thus more clearly differentiated customer value propositions are needed.

Although Chinese companies still have capabilities gaps, especially in branding and marketing, many are moving beyond their copycat reputations to become serious innovative competitors. Indeed, the 2012 China Innovation survey found that many Chinese companies have already replaced their shanzhai reputations (in which they rapidly put out low-cost, knockoff-style products) with an entrepreneurial Need Seeker model (in which they pay closer attention to the market and release products that fit consumer demand as they see it). Among the MNCs interviewed as part of the study, 45 percent said they have Chinese competitors that are at least as innovative as they are.

The survey’s findings are further supported by Booz & Company’s analysis of a new category of Chinese competitor: mid-market innovators. In some sectors, MNCs increasingly find themselves competing with this new category of local companies that have strong brands and fast-improving (or equivalent) technologies and quality standards. Sectors with a large and vibrant Chinese mid-market include construction equipment (Sany Heavy Industry), logistics (China International Marine Containers Group), motorcycles (Lifeng Group), and household appliances (Haier and Galanz). Now able to sell into China’s immense market, these companies have taken advantage of the explosive growth in infrastructure investment and the huge supply of cheap labor at all levels to produce high technology and variety at low cost, with a strong home base to build from globally. (See “China’s Mid-Market Innovators,” by Edward Tse, John Jullens, and Bill Russo, s+b, Summer 2012.)

 
 
 
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