How To Succeed In China: The Boom and Bust of Foreign Firms
An Phung is a multimedia journalist based in New York City. She has contributed to NYTimes.com, Patch.com and City Limits. She also spent time reporting in Indonesia where she covered stories about the country's growing illicit drug trade. An graduated from CUNY Graduate School of Journalism with a concentration in international reporting.
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What is the Big Idea?
Best Buy, Pepsi, General Electric, Intel, Phillips and Nestle.
What do these multinational companies have in common? They've all penetrated China's retail market, but that is where their similarities end.
General Electric, Intel and Phillips have found a home in China, while Best Buy, Pepsi and Nestle have had to make a "strategic retreat" from its market. So how did two polar opposite trends emerge from the same country? The answer underscores the highly competitive landscape of multinational companies operating in China's market, according to Xie Zuxi's article in The Economic Observer.
What is the Significance?
The vast and rapidly changing Chinese market is placing pressure on foreign firms to focus on development or sometimes, just survival.
"China is a new economy," said Xie. "Strictly speaking, the opening up of China started from Deng Xiaoping’s 'Southern Tour' in 1992. The country’s vast economic development is thus only 20 years old, a relatively short period. The Chinese government, as well as businesses and customers, are still in the process of learning and exploring what exactly is this 'social market economy with Chinese characteristics.'"
Xie identifies three common faux pas that foreign firms commit.
What Can We Learn From China's Top Performers?
Mark Norbom, President and CEO of General Electric in China refers to the country its "second home," and includes China in its overall business strategy.
Danfross, producer of air conditioner and refrigeration components, made China their second base. Since entering the market in 1996, China has become their third largest market and second largest employee base.
IBM, the most successful example, moved their global procurement division from upstate New York to Shenzhen which in turn strengthened their supply chain. They've since opened a second headquarter in Shanghai to cater to the emerging markets in Asia, Latin America, Russia, Eastern Europe, the Middle East and Africa.
Xie offers two rules that multinational firms need to follow:
"Success requires thorough knowledge of the needs and size of the Chinese market, the level of resources required, and a willingness to explore relevant aspects of their services," said Xie. "Multinational giants in China must find the right way to continuously adjust their business models."