How can Chinese Companies compete in Global Markets?
s Chinese companies look to expand into global markets, they face several challenges. Among other things, they have to overcome preconceived notions about the quality of Chinese goods and innovation, or lack thereof. Japan, Korea and even the United States faced similar conundrums during their first forays into global commerce and learnt valuable lessons which Chinese companies may do well to follow.
Chinese companies are losing their global cost advantage and need to make up for lackluster nation equity. Companies must devise a global strategy which will capitalize on their core benefit and quash negative 'Made in China' connotations. Some companies such as Haier, Alibaba and Lenovo are already making headway in this respect.
In this conversation with CKGSB's Assistant Professor of Marketing, Zhang Kaifu, Durairaj Maheswaran, the Paganelli Bull Professor of Marketing at NYU Stern School of Business, talks about what Chinese companies are doing right and what else they can do to become globally competitive.
Q. Can you share any insights on what difficulties Chinese firms which attempt to globalize are facing, and what are some strategies that they follow to overcome these hurdles?
A. China is the second-largest economy in the world. Chinese companies are becoming larger so it’s only natural that they would want to expand out of the country. It’s a process of evolution. But there is a major challenge in going from a domestic market to an international market. The domestic market has a lot of fixed variables such as government policies and economic policies for competition. But when you globalize, you have to get used to the dynamics of the global marketplace, a lot of moving parts, and it’s very hard to do that. But the good news is that this was also true for American companies when they began to globalize right after the Second World War. They have been successful in going abroad, that is also true for Japanese companies and Korean companies. So my guess is that Chinese companies will eventually do well abroad, but the process might very well be challenging.
I typically talk about global business in terms of a ‘Five C’ model. The first C is what I call “core benefit”. Typically we think in terms of core competence and what the company can do effectively, its unique strength. But interestingly, it is not what the company can do, but what the consumers want. What is the benefit being offered by the company when they go abroad which is unique to them?
Chinese companies don’t really define themselves in terms of what the benefit that they are offering is. If you look at the Chinese companies they use a “me too” (strategy). They do something that is very similar to what everyone else is doing and try to position themselves within a segment of the economy then sell as many products as they can. That is a very basic model and it’s not going to be very successful. So they have to develop a strategy which is unique to them and the benefit that they are offering.
Q. Most companies are very successful in terms of competitive pricing, but I guess that is just the “me too” strategy that you’re referring to. So you’re saying that in order to expand globally, companies have to go beyond the pricing strategy and start to offer something more than simply the cheaper option?
A. Right, let me give you an example. People nowadays talk a lot about Samsung versus Apple. Especially in the US, people are getting very excited about Samsung taking on apple, they seem to think because of this, Samsung is doing well (which is actually true because our data shows that Samsung is currently the global leader in terms of sales and units). There are two reasons for that. People conclude that because sales are growing that they must be very successful, they are doing better than Apple. Actually it’s very interesting because Apple is not really in all the countries that Samsung is in to begin with. They are only in about 17 countries or so and they are very selectively distributed. So just looking at the numbers sold in dollars is not necessarily an indication of how well a company is doing.
Samsung is positioned as a “value brand” but Apple is positioned as a “premium brand”, so there are two different segments that they are competing for. Anyone who wants a cell phone which is better than existing smart phones, would choose a Samsung because it’s widely available and not that expensive. When it comes to Apple they have a strategy of holding onto the premium segment, which, I think is a very smart strategy.
People often criticize Apple for not being number one, for not going full scale in every segment but people eventually want to trade up. Samsung is the functional product and Apple is the lifestyle product. Now why did I bring that up? Most Chinese companies are positioning themselves as a functional product, which is a very basic positioning easily taken over by someone else who can produce the product at a much cheaper rate or add another feature.