Conquering the China Market
Topic: China – the future battlefield:
Strategy & Tactics.
By: Adjunct Professor - CBS, Visiting Senior Research Fellow ISEAS, Jørgen Ørstrøm Møller. www.oerstroemmoeller.com
Singapore September 10, 2005.
Prelude
The old Poodle, the Leopard, the Monkey.
Wisdom, Strength, Smartness.
Who are you? Virgin flight attendant.
Key sentence: Find your competitive parameter.
1) Global trends controlling structure of
enterprises.
- The economic gravity moves from goods to the
immaterial economy – service, entertainment,
audio-visual world, infocom, dream society,
education.
- Consumption patterns changes from price and
cost to values, set of values, ethics, preferences –
do we share the same basic attitude.
1) Global trends controlling structure of
enterprises.
- Consumers cease to be just that. Changes into an asset
base for the enterprise taking a part, an interest, engage
themselves in the evolution of the enterprise, congruous
set of values. They become capital value to be listed on
the asset side of the balance sheet.
- Staff goes the other way. Less motivated to work
HERE more interested in money. A transfer market for
the best and the brightest. A wage squeeze for the water
boy. In short: Enterprise-staff becomes
Economics/Costs.
The trigger mechanism. Outsourcing and off shoring..
1. Global trends ...
a)
Outsourcing.
- No longer primarily lower end of the scale production. Moving
upwards from simple production to IT to BPO to KPO.
Newest trends are:
Diamond Cluster http://www.atimes.com/atimes/China/GF09Ad01.html
- Skepticism moves in. 2005 Global IT Outsourcing. The number of buyers
prematurely terminating an outsourcing relationship has doubled to 51%,.The
number of buyers satisfied with their providers has plummeted from 79% to 62%.
- China moves in. In 2004, only 6% of survey respondents planned to establish
operations in China. 2005 number is 40%. China is starting to look like India did
10 years ago.
- Contact to end users. Feed back
1. Global trends ...
b) Off Shoring
Heard about Innocentive http://www.innocentive.com/ ? You
should.
Big enterprises (Boeing, Dupont, Procter & Gamble) start to put
their research & development jobs on the net. Auction. Who is
offering the best and most cost effective solution. Out of the
window own R&D department. More than 100 labs in
Bangalore live by off shoring. Prairie fire.
1. Global trends ...
c) Implications for enterprises
Less horizontal. Less box the compass.
Number of employees: Down.
Size of capital value: Up.
-
The virtual enterprise emerges.
Controlled by values (customers), capital value (competitive
parameter, ability to pay resource persons, transfer market),
cost squeeze (outsourcing), R&D ∑ off-shoring, hunt for talent
and ideas (make one kill, not 100).
1. Global trends ...
c) Implications for enterprises
-
The ownerless enterprise.
Too much liquidity chasing too few assets. Too many
enterprises bought at a too high price. By whom? Where is the
money coming from?
You feed the dog with its own tail. Three possibilities: Run the
enterprise better, split up the enterprise, discount in advance
high/rising profits. Why? What happens if it goes wrong?
2. Consumption
Private consumption vital for sustainable growth in Asia and
consequently vital for global growth.
a)
The middle class will be decisive.
Few people realises what global cities signifies. The trendsetters live in
global cities finding themselves at ease inside this cultural framework. The
Hub concept. Branding, consumer preferences.
- L'Oreal, Avon, Christian Dior, LVM.
- Shanghai, Beijing, Guangzhou-Hong Kong-Macau, Mumbai, Calcutta, may
be Tokyo. Sub-hubs Bangkok, Saigon, Singapore-Johore, Sydney. Many
more.
Centre-Periphery-Hinterland.
All the new hubs will be in Asia. All. Not a single one outside
Asia.
2. Consumption
b)
Not only that. Mass consumption. Recall Rostow’s
theory of economic development with mass
consumption as the crucial stage? Ask Wal-Mart,
Carrefour, Metro. They are here expanding like a
sparkler. Or Wumart established in 1995, 453 stores,
revenue of more than 300 mio Us dollars, profitable
(25 mio Us dollar) and Chinese.
Table 2 – Domestic Consumption
Legacy of Export - Led: UnderDeveloped Domestic Consumption
United States
Japan
Korea
Malaysia
Singapore
Taiwan
Private Consumption
changes % of GDP
70
55
58
50
46
63
Table 3 – Consumption in the Middle Class
The Consumption Revolution: Massive
Expansion of the Middle Class
Size of the
middle class 2002 (million) 2010 (million)
China
64
155
Hong Kong
6
7
Taiwan
18
23
Korea
39
42
Malaysia
7
13
Thailand
10
21
Indonesia
11
13
(defined as those earning US$5,000 and more per year)
2. Consumption
c)
Now listen to this. Every time consumption takes one
percent point more of GNP consumption goes up with
70 billion Us dollars (approx 40% of DKs GNP).
3. China as the spider in the net
a) It is not China or India. It is China AND India.
The political imperative will overshadow any misgivings.
The figures. Trade beginning 90´s: approx 150 mio Us dollars. 2004
14,96 bio Us dollars equal multiplication by 100 in about 12 years!
China is negotiating a FTA with Asean.
India has started to negotiate a FTA with Asean.
March 2005 Chinese Prime Minister Wen Jiabao in India: Start FTA.
About 2012 a FTA with 3 bio people, average GNP pr capita about
1500 Us dollars, average growth 6-7%.
The Chinese look at integration in East Asia in a strategic perspective.
This is the VISION for Asia in the next decades and it will change the
world
3. China as the spider in the net
b) The Chinese currency - Yuan
Asia was a de facto US dollar block.
The US pressure for revaluation of the Yuan .
Justified? May be but irrelevant.
The rest of Asia did – partly - follow Yuan.
The end of Asia as a Us dollar zone.
US policy: He shot himself in his remaining foot! A seminal shift.
4. One of the strongest consumption patterns the world has ever seen will be
triggered off by mass emigration from Chinas countryside to the cities.
There is not enough water to sustain development in the countryside and
in the cities at the same time. China must choose.
It will almost certainly choose the cities and industry, technology.
Imagine, just think about it, what emigration of about 400 mio people
will mean for consumption, investment, infrastructure.
E (environment), E (energy, oil, LNG, nuclear, sustainable, coal), W
(water).
5) China and India jumps ahead in creating
multinational companies.
Start by looking at Japan. Multinational companies? No
way. Japanese companies operating worldwide.
Chinas way. Buying. Lenovo-IBM. CNOOC-Unical. HaierMaytag. But what do they buy? Knowledge, distribution
network, consumer loyalty.
India's way. Like Japan but smarter and more clever.
Now: Chinese and Indian companies entering each other
markets. Infosys, Wipro, Tata become household names in
software in China. Haier, Konka, Lenovo, TCL become
household names in India.
5) China and India jumps ahead in creating
multinational companies.
China sees Indian consumer markets as springboard for
expansion to other markets. India values software markets
in China as a growth sector. China software – yes domestic
market and may be Korea, Japan. Indian software global
potential power.
Strategic perspective. Why ´jolly good old fellow´ when
buying US government bonds but ´who the hell do you
think you are?´ when trying to buy Unocal with only approx
0,3% of US oil consumption..
The implications for Good Corporate Governance of
emerging Chinese and Indian multinational enterprises.
6) China – Japan. Stumble or not?.
The question remains however do we all want to be
Japanese?´
Why did the Japanese growth machine come to a halt.
The trends turned against Japan.
Economic policy wrong.
Too dependent on export.
Japanese enterprises balance sheet focused.
Why the Chinese growth machine may slow down but not
stop.
6) China – Japan. Stumble or not?.
China is a total – global - economy in itself.
A clear political objective.
Extremely competent political leadership knowing the
problems and trying to deal with them in time.
Stick my neck out: How will China look in one or two
decades?
Economic model
Political system
7) China – India. Rivals, competitors or
what?
Energy. Trying to pool efforts. A long list of measures to
ensure energy supply. Central Asia. Russia.
China looking at the rest of South Asia. China looking at
South East Asia. What is India looking at? Central Asia a
pivotal role.
8) CdI2E – the keys on the managers control
panel.
a)
Communication. KISS. Customers: Set of values, what do
we stand for. Staff: How do we do things here. Illustrations:
Intel inside, Runs on Oracle, Due diligence. The indirect
communication: SAS and environment.
How to get across. Illustrations from military history.
b)
Command. Basically three models. Rule based, control
based, value based. With the virtual enterprise only one is
viable. Risk is the risk! The enterprise kept together by
invisible strings/values and interacting with customers (new
word sought please) on the basis of shared set of values. No
control. No rules.
Illustration. Every time something is done, not being
output, ask the question why?
8) CdI2E – the keys …
c)
Control. The odd word.
d)
Culture. The enterprise needs a cultural profile reflecting
what it stands for.
-God, Royalty, Sex, Mystery.
- Set of values generally applicable, possessing
survivability
- Adaptable to local circumstances without sacrificing main
principles.
- Sex, race, religion, other taboos.
There must be some mystique around the enterprise. The
court jester.
Oxford University philosophy exams.
8) CdI2E – the keys ….
e)
f)
g)
Information. Need to know – forget it fellows. Info all over
the board. Capable of acting here and now. Cultural profile
tells what to do, info tells when to do it.
Contingency plan. It always go wrong in the cover up
phase!
Intelligence. Know your competitors, know the markets,
know your surroundings? Nope fellows know about
yourself. Spy on your own enterprise. Set up a guerrilla
unit. CoC. ( Mao Zedongs cultural revolution, Schumpeter's
creative destruction).
Illustrations. IBM in early 90´s. EAC in the 70´s. Company
after company being outmanoeuvred by new technology.
You name them.
Entertainment. We need to have some fun here. Illustration
Southwest Airlines in the US.
9) The three core’s
a)
Core business. What are we actually doing here. Directed at
the staff. Production oriented. Inward looking. Improving
our performance. Product concept.
b)
Core value added. Why the customer should buy our
product instead of the competitors. Ever thought about that.
Why our product, why not X or Y. Aiming at the costumer.
c)
Core message. What do we want the customer to associate
us with. How do we want the staff to see the enterprise.
Remember a crucial phrase from politics: It goes wrong if a
gap arises between how we (political leaders) present the
reality and how it is perceived by the public. Precisely the
same applies for business.
10) The dirty linen
Espionage and propaganda.
OK OK OK
You are all nice fellows we know that don’t we?
Do you recall the phrase spoken by president John F. Kennedy’s
father ´the nice fellows are the losers´.
Business competition becomes more and more like war in the
sense that the instruments and tactics of war find their way into
the boardrooms. Prepare for it. The others do.
J. Oerstroem Moeller, www.oerstroemmoeller.com