Illustration by Lars Leetaru
In working with multinational companies that enter China, either to manufacture goods or to sell to Chinese markets, we can almost always tell which ones will succeed and which will probably fail. It’s a matter of attitude. Those that approach the region with a mono-dimensional mind-set, applying the same methods they use to run their business in their home country, tend to falter. Those that enter with an appreciation of China’s multifaceted diversity, fast pace of change, and history and culture — in short, those with an understanding of context — tend to have a better chance of finding the markets and revenues they’re looking for. That’s the essential paradox of China today: Growth comes only to those who don’t pursue it single-mindedly.
Many multinational companies are staking their future on dramatic expansion here because they have seen their growth top out on their home turf and in long-standing foreign markets. They look to emerging regions like China and India for that extra propulsion forward, and they find it there for good reason. China’s transition from a planned to a market economy has revolutionized business. International and local competitors are racing to serve the expanding market with a broadening array of products or services via new and increasingly varied distribution channels. The regulatory environment governing all this activity is moving, in fits and starts, toward greater liberalization.
Knowing all this, many companies come to us for help in gaining a significant increase in their overall global revenue growth — often hoping for as much as two or three times their existing growth rates — in just a couple of years. Most of them are already selling products or services in certain parts of China. That’s their starting point. But achieving a quantum jump in the size of their business within a short period of time is more difficult than it seems, even — or especially — in an economy as vibrant as China’s. This vibrancy is a symptom of the complexity of the country’s economic engine. Thus, if you’re an executive of a multinational company looking to turn China into an engine of growth, you need to add another element to the classic “three C’s” that you learned in business school. In addition to customers, company, and competitors — the traditional factors in any corporate strategy — you need to add context. Without a deep understanding of China’s context; the nature of its social, regulatory, economic, and infrastructure environments; how they’re changing in a period of explosive dynamism; and how they affect one another, you cannot tap the true potential of China’s market.
There are several elements of the Chinese context that deserve consideration. Each involves a kind of geopolitical differentiation. The first is the consumer market, which is heterogeneous and changing fast at both the macro (regional) and micro (city/township) levels. The second is China’s regulatory environment, which has been liberalizing for 15 years but has recently suffered some hiccups. The third element is Chinese culture, which is opening to the outside world in ways that have surprised even the Chinese as globalism integrates China with the rest of the world. And the fourth is, in a sense, a consequence of the first three: The myriad opportunities in China stem directly from the newness of Chinese growth and manifest themselves in a nonlinear, disruptive manner that requires a particular mind-set to manage.
Inconsistent Consumer Markets
For the past 15 years, the Chinese consumer market has been notable for its fast-paced growth and receptiveness to new products. But that doesn’t mean that the whole country is moving forward at the same pace and in the same way, and therein lies the growth challenge. Companies that want to propel their sales need to contend with a landscape, both actual and metaphorical, that is highly variable and inconsistent.