Sign up | Log in
Subscribe to AseanAffairs Magazine
View Samples
AseanAffairs Magazine November - December 2010



China in Spotlight
The emerging role of China in the 21st century is a focal point for conjecture and a certain degree of apprehension in the world outside of China. Is China an ally, a competitor, an adversary or perhaps all three?


Testimonials – What our Readers are saying about us
Read the full story.  Subscribe now!




“Prof. Jianwen (Jon) Liao of Cheung Kong Graduate School of Business explains what MNCs can learn from P&G, GE, and Yunnan Baiyao.

   In recent years, the MNCs that once dominated the China market have begun to lose ground to Chinese competitors. What brought about this change?

   Jianwen(Jon) Liao Professor Liao is Adjunct Professor of Strategy and Innovation at Cheung kong graduate School of business.His profesional experience spans accross North America and Asia. Currently,professor Liao also serves as a highly sought after consultant on strategy and innovation for major companies in China and MNCs Chin(a) operations.

MNCs typically adopt one of two strategies when they expand into China. Some pursue a global strategy that focuses on scale and efficiency. These companies centralize operations such as marketing and R&D. Others take a multi-domestic approach that focuses on responsiveness and localization, with decentralized local operations.

However, the mindsets behind the two strategies remain the same in that MNCs try to extend the business models and core competencies they have already established in developed countries to China. And in both cases, the MNC business model in China usually targets top-tier customers first. Then they have tried to take a “topdown” approach and leverage economies of scale so that the products or services become accessible to customers in lowerpriced markets.

And what has been the strategy of Chinese companies?
Chinese companies take the opposite approach -- the bottom-up approach. In the very beginning, Chinese companies had a hard time competing in tier-one and tier-two markets, so they typically attacked the lower end first. But these companies have gradually started to move up the value chain.

Meanwhile, the problem for MNCs taking the top-down approach is that they often haven’t been able to make their product cheap and competitive enough to penetrate down into the larger market. Sooner or later, they hit a wall in the midtier market, beyond which they have no competitive advantage.

What is worse, in industries where MNCs used to have a competitive advantage, such as medical equipment, we’ve seen the emergence of Chinese companies. They’ve improved their manufacturing, design and marketing. They’ve become more competitive in higher-value areas that used to be dominated by MNCs.

Take the example of Band-Aid and [domestic bandage company] Yunnan Baiyao. Johnson & Johnson’s strategy is to have their salespeople dress in nice shirts and suits while staying in nice hotels. So what does Yunnan Baiyao do? It takes a more grassroots approach. In third-tier and fourth-tier cities, their salesmen go store by store to make sales. Johnson & Johnson failed to go the last mile and it has lost 15 percent market share to Yunnan Baiyao over the last three years. And its market share is continuously declining.

Taking this bottom-up approach, Chinese companies are acting as disruptors in many industries. Look at Huawei. It went from the countryside to major cities, and then to Southeast Asia, Africa and the Middle East. And it’s now penetrating the mainstream telecommunications market in North America and Europe. Huawei went from the bottom to the top.

What can multinational companies do to remain competitive?
Fundamentally they have to change the way they do business and make China their second hometown, rather than just being visitors here. When these two business models clash in the middle, there is just one choice -- develop a new business model for the Chinese market that is different from what they have gotten used to in other markets.


Page 6 of 14    Next  >>

Back to Top Read the Complete Article Subscribe to ASEANAFFAIRS Magazine

Home | About Us | Contact Us | Special | Features | News | Magazine | Events | TV | Press Release | Advertise With us

Our Products | Work with us | Terms of Use | Site Map | Privacy Policy | Refund Policy | Shipping/Delivery Policy

Version 5.0


Copyright © 2007-2011 TIME INTERNATIONAL MANAGEMENT ENTERPRISES CO., LTD. All rights reserved.
Bangkok, Thailand