China Platforms: Market Defense

Tuesday, October 24, 2006 13:10

for many companies looking to “incorporate” China into their “global” strategies, there are two platforms or angles that they look at first: (1) Sourcing/ manufacturing and (2) Distribution. these strategies recieve 95% of the attention by the media, and any protectist strategies are usually limited and rooted in politics
Unlike the first two platforms though, a market defense platform focuses not only on the home market, but also on third markets outside of a company’s home market and outside of China. We hope you enjoy this post, and we encourage you to share your experiences in the comments section.

As the technologies, techniques, and sophistication of Chinese manufacturers has improved in the last 5 years (and no doubt will continue to improve), many multinational manufacturers are being forced to complete with Chinese companies in third country markets. It is the possibly the newest angle (or platform) that has been recognized by manufacturers, however, it is probably one of the oldest strategies employed by Chinese manufacturers who have developed successful export models internally. With many multinationals who not paying attention or unable to successfully monitor markets outside of their own, these manufacturers are beginning to lose market share in these market to to Chinese companies that are producing goods that are of similar quality standards at a lower price, a situation that many are not prepared for.

It is with this in mind that we open a discussion on the China Defense platform:

While primarily reported by the popular press that Chinese manufacturers are getting ready to compete directly with U.S. or E.U. companies in their home markets, this competition has really begun in third markets like Latin America, Africa, the Middle East, and Eastern Europe. In these third markets, where the quality standards are lower that in U.S. or E.U, there are a flood of Chinese OEM goods that have begun to take away market share from U.S. and E.U based manufacturers. It has been seen with medical equipment, construction equipment, white goods, and in many other categories as Chinese manufacturers use these markets as their test markets for the future.

For many multinationals, this phenomenon should be a critical concern as:
(1) Profits from 3rd markets (primarily developing countries) for many Western multinational companies risk being reduced, and therefore global revenue streams become unstable.
(2) Chinese firms are using these markets to not only build expertise, but also to perfect technologies that will be used as a base for technologies used in products for 1st world markets
(3) Profit from 3rd markets will provide the money for Chinese companies to move into the 1st world markets of U.S. and E.U.

Once a company has recognized the risk, it is then important to bring online the assets necessary to research, analyze, and monitor the potential risks and strategies. This will require a company to bring together marketing, sales, and country managers to accurately assess the current situation, understand future risk(s), and prioritize areas of concern. For companies that do not have the in-house resources, bringing in external service providers is often the second best approach as service providers, while not necessarily experts in a particular industry, can leverage local knowledge to bring another perspective.

Either way, come of the critical information that must be gathered and understood are:
1) What are the most important markets to your company?
2) Current level of activity in a third market of Chinese manufacturers on a macro level in those areas?
3) What products within your industry/ product portfolio are most easily copied, or can be manufactured at a lesser quality for another market?
4) What is the pricing structure for products vs. Chinese products in the Chinese market
5) What are the service needs of your product; What are your service capabilities; What are the capabilities of Chinese manufacturers?
6) Who is in the strongest position in 6 months, 2 years, 5 years to effectively compete under the above scenario? What are the hurdles they face, how long will it take for them to jump the hurdle, what happens when they are past the hurdle?

Following the gathering of this information, a company must then perform the necessary analysis to construct a successful counter strategy to protect one’s market. Sometimes, this could mean introducing a new product that meets the lower quality/ price needs or it could mean acquiring/ investing in a competitor to leverage the work they have done already to shore up your own markets.

For many of these companies, monitoring domestic markets (and more recently Chinese markets) has been a critical function of the marketing department, however many do not fully understand the full implications of Chinese products competing outside those markets. Defending third markets will be one of the most important future strategies that a company must consider for the future with a number of industries seeing Chinese products encroaching these markets.

You can leave a response, or trackback from your own site.

Leave a Reply