Most Interesting Times
In the introduction, we argued that China was different enough that it deserved its own study. The cases we examine underscore the uniqueness of China. The vastness of the Chinese market and the availability of Chinese talent and capital guarantee that local competition will be tough. A local company will see, in any significant emerging need, the possibility of building a large and valuable business. Winning a market in China will be so lucrative (and prestigious) as to justify a do-or-die focus for Chinese entrepreneurs. This is true for perhaps no other emerging global market other than India. This characteristic of China underscores the criticality of properly assessing demand, making a sufficient commitment, setting up an agile governance structure, articulating a coherent strategy, and adapting the product or service to the market. Yet, a framework pressure tested for China should apply well to global expansion more generally. Entering Belgium also requires demand, access to the market, alpha assets, and so forth. We hope this book provides relevant lessons for any global manager.
Facing the prospect of a global slowdown amid the repercussions of COVID-19, the future for foreign companies in China may not look as promising as it once did. We predict the continued duality of laissez-faire and a visible government hand in the Chinese economy. That’s probably the most certain statement in this book. Some increase in tensions between China and the West seems unavoidable, but we cannot predict just how tense the 2020s will be. Chinese GDP will grow, making the country’s markets even more attractive. Even as the pandemic disrupted the global economy, Walmart announced that it would invest 3 billion yuan ($425 million) in Wuhan, the original epicenter of the virus, over the next five years. Starbucks said that it would invest 900 million yuan ($130 million) to build a roasting plant in the eastern Chinese city of Kunshan.1 In addition to its cities, China has a vast rural area with a population of 500 million people where few multinationals have ventured. Seeking high margins there probably won’t work, given the lower purchasing power. Yet that huge population still offers ample opportunities to make profits. As long as companies know how to recognize demand and deploy their alpha assets to meet that demand, the return on investment may be as good as chasing the middle class.
Economic growth in China is now slowing, as was inevitable. As a result, efforts to grab market share in emerging categories will likely become less frenzied, and companies will eventually have to make profits. We predict this will require some rationalization of pricing and service levels in all sectors.
We also predict the emergence of strong Chinese brands and the development of other powerful alpha assets in Chinese companies. These companies are likely to be formidable competitors when they seek to expand from China to other global markets. That’s already happened with such Chinese outfits as Lenovo and Huawei Technologies. Expect more like them.
“May you live in interesting times” is erroneously described as an ancient Chinese curse.2 In reality, this “curse” can be traced back about a century ago to the British statesman Joseph Chamberlain. And he actually said, “I think that you will all agree that we are living in most interesting times. I never remember myself a time in which our history was so full, in which day by day brought us new objects of interest, and, let me say also, new objects for anxiety.” Chamberlain’s words are an apt summary of the situation for any businessperson considering an expansion into today’s China.