China Strategy - 6 Strategies of Mainland Companies to Compete with Multinationals

The Topic of July seminar named “China Strategy - 6 Strategies of Mainland Companies to Compete with Multinationals”, which organized by An Executive Study Group under the Chinese University of Hong Kong (CUHK) and the Hong Kong Science and Technology Parks Corp (HKSTPC) on 15 July 2011.

Mr. Mark Lee (MBA, CUHK) presentation content included “Homegrown of a Strategy”, “Fundamentals of a Strategy (心法)”, “Strategic Landscape for Domestic Players (陣勢)”, “Six Strategies to Compete with MNC (招式)”, “Beating the Locals at Their Own Game” and “Group Discussion”.

Firstly, he explained how strategic importance of mainland market. There are 90 cities with a middle-class population of 250,000 or more in China in 2011. So long-term disadvantage if NMC did not win in China market and it was hard to recover in the future.

Mr. Lee discussed some domestic winners in mainland but Multinational Companies (MNC) were not (e.g. Yahoo and eBay; NEC and Panasonic in cellular handsets) eventhough MNC had competitive advantages.

Fundamentals of a Strategy (心法)

Prof. Michael Porter's three strategy was introduced.

- Defining Unique Position

- Making Trade-offs

- Forging Fit Among Activities (環環緊扣)

Mr. Lee explained Porter's strategy using IKEA that it was focused on young furniture buyers who wanted style but they needed low cost.

The following diagram demonstrated the "Forging Fit Among Activities" in IKEA. The trade-off was limited customer service and modular furniture design in which caused self-selection by customer and low manufacturing cost.

Strategic Landscape for Domestic Players (陣勢)

China provinces were like Europe but not America. "The most mistake is to treat China market is a subsidiary of the parent markets. China is a strategic market." stated by AZONA.

Mainland consumers spend more in categories they highly value, and they generally trade down in less compelling costs. (In terms of Cantonese: 要面子，又要慳。)

Six Strategies to Compete with MNC (招式)

Mr. Lee discussed the six strategies one by one.

1. Innovate Offerings to Best-Fit Mainland Customers

It needed to find out unique positioning (research by income level, by age group and by gender) and strengthen of the locals (niche markets). Two cases were discussed and they were Goodbaby and QQ. QQ won because of simple.

2. Turn “Institutional Void” into Entry Barrier

Prof. Tarun Khanna (Harvard Business School) explanation for “Institutional Void” was quoted. Ctrip was used for case study. Ctrip was an online travel-booking agency in China and founded in 1999. They overcome hurdles and built a national travel business with 5,600 hotel partners and airlines.

3. Adapt Cutting-Edge Technologies Rapidly

Most of companies in China would deploy the latest technologies. It had a rule for disruptive innovation. It was reducing or increasing the price by 4x.

Business innovation can change the market!

4. Tap Low-Cost Labor For Better Customer Service

In this case study, Shanghai Zhenhua Port Machinery had 800 engineers and won in their service.

5. Build Scale Quickly Across Geographic Clusters

Focus Media used this strategy and become China's largest outdoor advertising firm and they placed LCD displays in more than 130,000 locations in 90 cities.

6. Make Locals on the Top to Lead

They believed that invest in Talent to sustain rapid growth. Several executives had left multinational companies or jobs abroad to join local leaders.

Beating the Locals at Their Own Game

It could be explained by the sentence from Prof. Tarun Khanna (Harvard Business School).

Case Study from Yum was employed. They had a new product (Localized product and cannot find in Hong Kong).

The summary of 6 strategies was shown in the following figure.

After that talk, we had an exercise to find out two of the most difficult challenges and one of the easiest challenge for China strategy execution.

Reference:

The Centre for Logistics Technologies and Supply Chain Optimization, CUHK: http://www.logitsco.cuhk.edu.hk/

HKSTP - www.hkstp.org