China - Opportunities, Threats, Success and Failure

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This revision presentation highlights the key opportunities and threats faced by firms outside China looking to do business in and with China. It also provides examples of businesses that have succeeded in China and those that have struggled!

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China - Opportunities, Threats, Success and Failure

  1. 1. China – Opportunities, Threats, Success and Failure AQA BUSS4 Research Theme 2014
  2. 2. The relentless rise of China is, perhaps, the most important global business story currently
  3. 3. The opportunity in China • The world’s 2nd largest economy • Still growing much faster than developed economies • Approaching 1 billion consumers as urbanisation progresses • Enlarged & increasingly affluent middle class • Rapidly emerging market segments • Strong demand for western brands, products & services • Massive investment in infrastructure, but now looking to rebalance in favour of consumption • Still a source of low-cost and high quality supply despite rising wage costs
  4. 4. The threats in & from China • Time and cost to establish profitable market position • Risks of loss of IP • Growing & intense local competition • Is competition fair in China? • CSR – western firms under intense scrutiny • A more hostile external environment for western businesses? • Chinese businesses now have their own global ambitions
  5. 5. The following slides guide you through some examples of the opportunities and threats
  6. 6. China is big. Very big
  7. 7. China is complex China is actually a collection of individual submarkets defined by vastly differing demographic, economic and cultural characteristics.
  8. 8. China’s population is approaching 1.4 billion
  9. 9. And soon a billion Chinese will live in urban environments… If current trends hold, China's urban population will hit the one billion mark by 2030. In 20 years, China's cities will have added 350 million people more than the entire population of the United States today. By 2025, China will have 221 cities with one million–plus inhabitants— compared with 35 cities of this size in Europe today—and 23 cities with more than five million. For companies in China and around the world, the scale of China’s urbanization promises substantial new markets and investment opportunities. http://www.mckinsey.com/insights/urbanization/preparing_for_urban_billion_in_china
  10. 10. …driving the growth of a huge and increasingly affluent middle class
  11. 11. A key evaluation point to consider: is China now simply too big to ignore?
  12. 12. More than half of multinationals consider China to be the most important emerging market for their growth strategy Source: Boston Consulting Group, 2013
  13. 13. Most Western multinationals still expect to gain market share in China – but face tough local competition Source: Boston Consulting Group, 2013
  14. 14. The world’s largest businesses already see China as a key opportunity
  15. 15. …but many have come unstuck as they try to build profitable businesses and gain market share in China
  16. 16. Businesses outside China face intensive competition inside and China, increasingly in their domestic markets
  17. 17. Foreign brands are still hugely popular in China
  18. 18. Chinese consumers are increasingly looking to buy branded goods and services
  19. 19. Differences still exist between brands, whether they are multinationally or domestically owned particularly when it comes to recognition, popularity and trust Source: Ipsos Survey of Chinese Consumers 2013
  20. 20. Rebalancing - a process of increasing the proportion of GDP generated from consumption - offers significant opportunities for consumer brands and services
  21. 21. E-commerce offer huge opportunities. China currently has more than 500 million internet users. Source: BCG
  22. 22. However, the Chinese e-commerce market is already dominated by one firm - Alibaba
  23. 23. The obstacles for businesses outside China exploiting the opportunities remain tough
  24. 24. China’s economic transformation has created many giant companies
  25. 25. SOE's are leading the international expansion of Chinese firms outside China
  26. 26. The scale of State-Owned Enterprises poses significant competitive challenges for businesses outside China 27,000 branches throughout China Employees: 447,401 Sales: $103 B (2012)
  27. 27. Domestic competitors are growing rapidly and increasingly turning their attention towards international markets
  28. 28. China is creating its own generation of entrepreneurs who have global aspirations for their own brands
  29. 29. The scale of the transformation means that businesses outside China face lots of new competition
  30. 30. Many of the emerging global Chinese businesses used to be Original Equipment Manufacturers (OEMs)
  31. 31. Chinese firms have acquired / developed expertise and are no longer content to stay at the bottom of the value chain
  32. 32. China's domestic firms are closer to customers, may have better marketing & distribution and are usually lower-cost
  33. 33. Chinese firms are not yet achieving strong brand recognition in developed economies, but they may soon!
  34. 34. Western consumers are open to Chinese brands, but they have reservations about quality
  35. 35. The challenge to businesses outside China will come from takeovers as well as organic growth
  36. 36. The shift in China to a higher-wage economy will put pressure on existing business models there
  37. 37. As China’s industries move up the value chain, businesses outside China are “re-shoring”
  38. 38. For many businesses outside China, the risks of doing business with China still outweigh the rewards
  39. 39. However, for other businesses the risks of China outweighed the rewards
  40. 40. Let’s look at a few examples of businesses that have succeeded in China…and a few that have struggled!
  41. 41. Lessons to learn from businesses that have succeeded Yum Brands! P&G Starbucks
  42. 42. 5 sources of advantage for KFC • Localised the product, reinventing the menu, adding lots of choice and varying the menu by region within China • Moved quickly to establish scale in China. Identified 16 key cities as the base from which they could expand rapidly • Created own distribution system to ensure that it could rely on supplies reaching the expanding store network • Emphasised staff and management training • Owned rather than franchised the outlets in China
  43. 43. Localisation was key to success for KFC
  44. 44. However, localisation doesn’t always go to plan…as McDonald’s found out http://www.businessinsider.com/mcdonalds-rice-based-menu-for-china-2013-6
  45. 45. Multinationals that “localise” their products and services for China tend to be more successful
  46. 46. P&G and the Power of Branding in China http://www.bbc.co.uk/news/business-23364230
  47. 47. China crucial to P&G achieving an ambitious corporate objective 1 billion customers worldwide by 2015 (a 25% increase)
  48. 48. Key success factors for P&G in China • Already a global brand & world-class manufacturer • Invested for long-term (entered 1985) • Focused on promotion to build company and brand awareness • Massive investment in local production • Recruitment & training of locals • Localisation ($2 a day programme)
  49. 49. P&G: a great case study in how to succeed in China
  50. 50. Starbucks creates – and takes leadership of – a market for coffee in China • Think different: China = tea? • Exploit brand awareness & aspiration • Deliver high quality • Work with local partners • Commit & invest for long-term
  51. 51. Read more about Starbucks strategy in China
  52. 52. IKEA has also developed a winning formula in China
  53. 53. Ikea’s long-term strategy of localisation and building brand loyalty in China is starting to pay off
  54. 54. For BMW, China is now the biggest market
  55. 55. Other businesses outside China that have succeeded in China
  56. 56. However, being a global brand or retail giant doesn’t guarantee success in China
  57. 57. Well known brands and firms tried and failed…
  58. 58. A high failure rate illustrates the risks of doing business in China 48% of foreign businesses, including leading multinational corporations, fail and withdraw from the China market within two years of establishing operations there Source: WeberShandwick 2013
  59. 59. What usually goes wrong? • Employee pilfering and theft, including theft of critical intellectual property (IP) • Failure to localise and customise products and services to suit the domestic market • Failure to seek or to heed local advice • Poor senior management appointments • Underestimating local competition • Insufficient or improper market research • Inability to communicate with the local market in culturally appropriate and sensitive ways • Underestimating the important role the government plays at every level of society including commerce Source: WeberShandwick 2013
  60. 60. Lessons learned? Multinational companies hoping to succeed in China can’t treat it as an interesting side bet any longer; they need to take China as seriously as they do their home market. Source: McKinsey
  61. 61. Lessons learned? "Never assume what works for your mature markets will work for China. Success comes for those who stay relevant to the needs of the Chinese consumer." Source: MillwardBrand - How to win in China: Top brands share tips for success

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