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Published: August 29, 2007

 
 

Context and Complexity

Fleeting Opportunities
Growth and change are often nonlinear and therefore disruptive qualities that China’s size and pace of change only amplify. Consider how consumer demand has skyrocketed as more and more people have money to spend. The mobile phone market in China stood at nearly zero in 1993, hit 40 million in 1999, and then exploded to 400 million by 2006. Sales of passenger cars went from 400,000 in 1995 to 700,000 in 2001 and then to an astonishing 2.2 million in 2004. Such discontinuities and complexities characterize most emerging markets, but China’s scale and diversity render them more extreme — and profoundly consequential to any company with global aspirations. The opportunities are enormous and, given the speed and scope of China’s economic development, they de­mand good timing.

One remarkable story of fleeting opportunity is that of Zhang Yin, owner of the Nine Dragon Paper Company. In the 1990s, she was a trader in Hong Kong, cashing in on China’s paper shortage by collecting scrap and shipping it to mainland China for recycling. She saw a bigger opportunity in the container ships that took full loads of goods to the U.S. and Europe and returned empty. Her idea was to fill those empty ships with wastepaper collected in the U.S. and Europe and recycle the contents in China into cardboard boxes to be used for shipping Chinese goods back to the American and European markets, where the process would start all over again. Leveraging China’s low costs and quickly building scale, she created a thriving business that is now the envy of many of the major multinational paper companies that are eyeing the same market in China and abroad. In just a few short years, according to the Hurun Report’s 2006 China Rich List, Zhang has become the wealthiest person in China and one of the richest female entrepreneurs in the world.

Another example is Baidu, a Chinese search engine company. Baidu was founded in January 2000 with an investment of US$1.2 million and today has a market cap of $5.23 billion. Its design resembles that of Google, but it is tailored to meet Chinese needs. Approximately 45 percent of all Internet searches in China — the world’s second-largest online market, with more than 100 million Internet users — are conducted by Baidu. By July 2005, Baidu was already the sixth-most-visited site on the Internet, and today it commands a 57 percent share of the Chinese search market against such strong competitors as Google and Yahoo.

Yin Core, Yang Portfolio
There is a way to organize your company to embed strategic anticipation and insulate the core enterprise from the disruptions that characterize business in China. Given the vast differences within China’s markets, growing a business isn’t a matter of running operations in the same way across the entire country. A company cannot behave as if it is pursuing just one business in China; rather, it must pursue a portfolio of businesses that require a portfolio of organizations to lend support. And, in the same way that a multinational cannot expect to thrive by transplanting to China the business approach that brought it success at home, it cannot transplant its Shanghai approach into Wuhu, or its Beijing business model into Dali.

In other words, a company needs a yin and yang of the organization — opposing yet complementary dynamics that protect existing business while driving growth. The yin is the existing core business. The yang is a matter of continuing to push growth in the same ways along the same dimensions of company, customer, and competitors. In other words, the company will use its existing organization to sell the same array of products to the same kinds of customers in the same kinds of places.

 
 
 
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