Chinese companies are emerging as global competitors that foreign companies have underestimated and dismissed. There are four types of competitive Chinese companies on the global stage: National Champions that are using their domestic leadership to build global brands through innovations; Dedicated Exporters that are driven to enter foreign markets through economies of scale and acquisitions; Competitive Networks that are flexible and responsive to market demands; and Technology Upstarts that are gaining recognition through large R&D investments. If foreign companies do not recognize the growing threat from these hidden dragons, they will lose market share as Chinese companies continue penetrating global markets rapidly.

1. Taiwan Group [Group#4] Paper – UGBA 167 1
Abhinav Prathivadi
Ying Shen
David Fefferman
Minh-Hang Palmgren
The Hidden Dragons
Throughout corporate history, global corporations have viewed emergingmarkets with
much optimism and excitement for the population and market potential it bears. In the
HBR case study The Hidden Dragons, the case writers (Ming Zeng and Peter J.
Williamson) explore the prospects of Chinese corporations and the emerging markets
within it’s boundaries that have grown to beattractive destinations for foreign companies.
With a lot of coverage and media given to companies entering China, the case writers
emphasize the importance of many Chinese corporations and their ambitions of going
abroad. The main focus of the case study is to caution companies in underestmating
i
Chinese corporations and this is paralleled by numerous examples of Chinese companies
going global by leveraging their innovative and economical enterprises.
Foreign companies have for long dismissed Chinese companies as rivals due to their
arrogance and misconceptions, believing China is still a “fragmented, communistic
society” not standing a chance in the global market. If they do not realize the rapid
emergence of Chinese companies as potential global powerhouses soon, they will lose
market share and business to these Chinese corporations in the near future considering the
quot;the speed with which these companies have penetrated foreign markets.quot; There are
mainly three reasons why foreign companies are failing to see the potential of China
succeeding overseas.
First, many top executives believe that Chinese companies are neither big nor profitable
enough to make any real impact. They think that the way the economy is structured is far
too fragmented, which constrains the quot;ability of Chinese companies to grow organicallyquot; or
compete in the foreign market. Second, they think that because many large corporations
are state-owned and are not profitable, then they cannot compete globally. Lastly, global
managers consider the current structure of China's financial system to be inflexible. This
means that while the Chinese government denies private companies to sell equity shares in
the capital market or prevents them from getting loans, the public-sector companies that
benefit from all the subsidized credit does not have themeans to mobilize enough influence
on the global market.
All these opinions are exaggerated (and in many cases completely flawed), and this is
exactly why global managers are failing to realize the threat of Chinese companies quickly
overtaking global leadership in some of the more lucrative industries around the world.
The truth is that although the government holds great influence over companies in China, it
has become more supportive in the recent years in encouraging private ownership as well
as subsidizing companies with global potential. The government does not interfere with
operations of these companies, which allows them to be completely independent and free to
position themselves in a way that makes them foreign market-bound. It even allows these
companies to quot;tap the capital market by giving them permission to list on China's stock
exchanges ahead of other companies and allow them to take over other companies quickly.
A quot;new breed of Chinese companiesquot; has emerged and these Hidden Dragons are definitely
entities keen on making a presence soon if not later in the global market.
There are four specific Hidden Dragon global managers need to watch out for: the
s
National Champions, Dedicated Exporters, Competitive Networks, and Technology
Upstarts. National Champions are using their “advantages as domestic leaders to build

2. Taiwan Group [Group#4] Paper – UGBA 167 2
global brands.quot; They look for unattended segments in the marketthat were abandoned
because the profit margins were too low. In addition, their technologies have allowed them
to create quot;ground-breaking innovationsquot; that meet the demands for reliable and affordable
products. Companies like Haier have grown into formidable competitors by challen ging the
likes of established giants like Whirlpool and Electrolux in a short span of time. Although
National Champions have the capability to quickly scale to global markets, technology is a
key factor in their business proposition and is effective only if they continue to innovate
which is crucial for their existence.
Dedicated Exporters are driven to enter the foreign markets with the strength of their
economies of scale. In addition to their low production costs made possible by their
expertise in crucial techno logies, they are ambitious in acquiring rivals and creating
alliances with other companies. CIMC’s initiative in manufacturing branded shipping
containers led to CIMC being recognized world over and as a result of it become a leading
brand in the shipping industry. Although, the focus of Dedicated Exporters is on the
manufacturing aspect of it locally, their intentions of “acting global” is a relatively new
attempt and is only a matter of time before the concepts of global marketing is within the
grasp of these corporations.
Then there are the Competitive Networks that are highly flexible and are able to respond
quickly to the dynamic demands of the market. Global executives tend to ignore them
because the competitive networks do not quot;conform to the conventional notion of a globally
competitive organization.quot; The Wenzhou and Shenzen Networks represent large
specialized networks that have become dominant and have resisted competition largely due
to their economies of scale. Although Competitive Networks lack the financial capita to l
invest in branding activities, their relative back-end emphasis on manufacturing in China
makes them formidable competitors to companies planning on entering their markets.
The last hidden dragons are the Technology Upstarts. Western managers quot;believe that
high-tech businesses are immune to competition from Chinese companies.quot; Yet this cannot
be anymore wrong because Chinese companies'large investments in R&D projects are
making it possible for many Chinese companies to gain global recognition (i.e. Galanz and
Legend). By combining a strong mix of government, university and private ownership,
Chinese companies are making headway into global markets. Examples like Legend’s (a
Chinese PC maker) quick rise in the PC industry have prompted numerous such ini iatives t
within China to encourage Technology Upstarts to scour through the legal, political and
economic wrangling of the global market
With the advent of the 21st century concept of global marketing, the next few decades
will experience a revival of corporations aiming at increasing brand equity and visibility
among global corporations as opposed to being relegated to a back-end player in
manufacturing or services sector. This trend cannot be truer in the context of Chinese
companies that have started coming out of their back-end mentality and aiming atcapturing
market share from global markets. Although significant advantages exist with emerging
markets like China and India, technology and the pace of innovation is equally crucial and
the next few decades will be pivotal for emerging global market leaders.