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Published: May 29, 2012
 / Summer 2012 / Issue 67

 
 

China’s Mid-Market Innovators

Siemens AG is noteworthy for the way it integrates its Chinese and global operations. It employs 29,000 people in China, where it has 65 operating companies selling industrial, transport, energy, and healthcare equipment, with 16 R&D centers. It has managed data centers for the Ministry of Railways, supplied high-voltage direct-current power transmission systems in Guangdong province, furnished gear motors for a bridge at Rizhao port in Shandong province, and built the baggage handling systems at Beijing Capital International Airport. Siemens’s sales in China were $8.5 billion in fiscal year 2011.

Global companies are also more experienced with localization, adapting global products to meet the varying needs of different markets. Sometimes this can result in simple products of the “good enough” variety. But many companies have learned that value in adaptation need not come from stripping out functionality. Rather, the key is offering market-relevant features at a lower price. A footprint with local innovation can allow companies to tailor product development “in country, for country”; they can use global resources when appropriate, but design products to meet local conditions and delight local customers.

To many global incumbents, the threat of mid-market innovators seems remote. But if the trends continue in a plausible fashion, they could move to center stage. If and when that happens, global incumbents will be forced to rethink their product portfolios, business models, staff skills, and ingrained mind-sets. They will have to stop thinking about what they can bring to China from elsewhere, and start focusing on what China’s mid-market can offer them. On the upside, this would allow major global companies to tap into the same large customer base, and to develop the same kind of entrepreneurial zeal that mid-market innovators are using right now to fuel their growth.

Author Profiles:

  • Edward Tse is a senior partner with Booz & Company and the firm’s chairman for Greater China, and is based in Hong Kong and Shanghai. He is the author of The China Strategy: Harnessing the Power of the World’s Fastest-Growing Economy (Basic Books, 2010).
  • John Jullens is a partner with Booz & Company, and is based in Shanghai. He specializes in demand-side transformation assignments for clients in North America, Europe, and Asia.
  • Bill Russo is a senior executive advisor with Booz & Company. Based in Beijing, he has more than 20 years of experience in the automotive industry, most recently having served as vice president of Chrysler’s business in northeast Asia.

 

 
 
 
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