Beating Them on Their Own Turf in China
MNCs are figuring out how to overcome the territorial disadvantage vis-a-vis their local rivals when doing business in China
It was a deal that the Coca-Cola company had been eyeing for a while. Early last year, the world’s largest beverage company seemed to be on course to sew up a $2.4 billion deal to buy out Huiyuan, one of China’s largest juice makers. It was meant to be part of the cola maker’s big push to build a portfolio beyond cola in one of the world’s fast growing markets.
And then, in March last year, the Commerce Ministry ruled that it couldn’t allow the deal because it would snuff out local brands and could end up raising consumer prices. It was an example of the unexpected and unpleasant surprises that China holds for foreign companies.
The government isn’t the only variable CEOs of foreign companies have to contend with. In the past few years, local players like Huawei, Haier, Lenovo, Baidu, ZTE and Alibaba have emerged as formidable competitors. These players have a much better grasp of the local conditions. They are nimble and street smart in bringing new products to market — something Western firms find hard to replicate. In order to win in China, global firms have to unlearn their traditional innovation formulas. And that often starts with drastically crunching the time it takes to create new innovations and take it to market. Says Anil Gupta, INSEAD Chair and Professor of Strategy, INSEAD, “The speed with which a market moves is highly connected to the rate of growth of the market. China’s GDP is growing at 10 percent a year whereas a developed country’s GDP is growing at an average rate of 2-2.5 percent.”
So how do you figure out a new operating model for China?
Localise, Localise, Localise
Gupta, who consults with many MNCs on their China strategy, says a lot of boardroom discussion today is on how to empower the Chinese subsidiary. He says, “For a MNC that wants to win in China, clearly you want to give local empowerment so that people on the ground can move with speed.”
Companies have started empowering local people. Microsoft floundered in China in the 1990s due to software piracy and complicated product localisation issues. In the later part of the decade, the-then CTO Craig Mundie realised running China operations out of Japan was a mistake. By 2003 Mundie separated Greater China as a region headed by Timothy Chen, who was earlier heading Motorola China. Chen steadied the organisation and ensured the region got enough attention from Redmond, changing the firm’s fortunes.
“Localisation in its many different dimensions is critical,” says Mark Norbom, president and CEO, GE China. “Local competitors are getting better in terms of quality, they are fast-to-market and they deliver products that the market needs. If we want to compete with them, we have to really localise our business here.” GE China started a programme called ‘In China For China’ (ICFC). ICFC essentially runs through the needs of the business based on the needs of their customers. Business leaders work very closely with GE’s research centre, or the China Tech Centre. “We have a series of products that go through the ICFC process which is funded globally,” says Norbom. GE Global CEO Jeff Immelt has earmarked special funding for China-specific products. This effort has started to bear fruit in terms of lower-priced product innovations that suit China. The Brivo CT scanner developed by GE China, for instance, costs 50 percent less than its competitors.
