Shanghaiist sat down with business analyst Shaun Rein to discuss wide-ranging changing trends in China, as Rein described in his book “The End of Cheap China”. For example, how are Chinese brands going to fight the global heavyweights to make their mark
Let me answer in two parts. First, Chinese firms absolutely compete with western brands on their home turf. Companies like Sheng Xiang flooring, Supor kitchen crock ware, and JDB in herbal tea beverages often beat western counterparts because they respond quickly to consumer tastes, launching new products as well as marketing campaigns. We find for instance wealthy Shanghaiese consumers are shifting to local chains like Hao Shui Guo to buy fruit rather than at Wal-Mart or Carrefour because they trust the local chain more for supply chain management for high end fruit.
Ten years ago, being beaten by Chinese firms here was not a big deal because the market was so small. But now the market is too important to lose out. Brands like chip-maker Qualcomm and YUM Brands generate over 40% of their revenue in China but will face challenges if they cannot adjust to rising domestic competition.
Second, many of these firms will be strong in China but will have difficulties becoming truly global players. Look at the problems Li Ning has been facing. Nurturing the mid-level management needed to become global players organically will not be easy and might take decades as it did for Sony and Samsung. I expect more Chinese companies to follow what auto-maker Geeley which bought Volvo and Fosun Group which acquired Folli Foli did. They will become global players through acquisition and get management know-how and brands.
But it would be a mistake for western companies to underestimate the rise of Chinese brands to grow organically. Senior executives need to plan 5 years out at least. In 2007, we did a massive 6-month project for DuPont to analyze and deal with rising domestic Chinese chemical makers. DuPont is ahead of the curve which is why they have been able to maintain their dominance.
Ten years ago, few had heard of SANY in construction equipment or Huawei in the telecom sector but look at their dominance now. If I were on the board of construction equipment maker Terex, I would be nervous about the rise of SANY as companies tell us they are buying SANY not just because they are cheap but because they are as good if not better than western brands. Underestimating the competition is a recipe for disaster.
Foreign firms very often underestimate their Chinese competitors, and they regularly fail. The China Weekly Hangout discussed the failure of foreign firms in China at January 30, 2013 with Richard Brubaker of Collective Responsibility and Andrew Hupert, expert on conflict management in China. Moderation: Fons Tuinstra of the China Speakers Bureau. Including references to Apple, Mediamarkt, Foxconn and many others.
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