When you put all these pieces together, you see a complex business environment, unavoidable yet daunting—but also accessible for those who are prepared with flexible, observant, and engaged business strategies. China defies easy answers, but you can build the judgment and mindset needed to operate there, and by doing so, you can equip yourself better for business in the world at large.
Companies will have to embrace complexity to achieve success in China. No simple marketing or production strategy will fit all of a company’s needs—the country and its dynamics are simply too varied. A strategy that works in the telecommunications sector in China will not necessarily work in computers; some alliances will be successful while others are not; a marketing strategy that works marvelously in one part of the country may fail miserably in another region. Despite all the business literature published on China, most authors and experts still treat this vast country in a facile way; they claim that one can “know” China after studying the business environment in a few major cities. That is like claiming to “know” the United States after working in New York, Washington, and Chicago.
Throughout the rest of this book, I will describe how to build the capabilities that business leaders need for developing an integrated China-global strategy. For example, you will learn how to tell which Chinese companies can provide the best alliances for particular purposes; what parts of the country to enter first; how to manage Chinese
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financing; and how to establish a trajectory for growth that benefits from the growth of the next wave of Chinese competitors. I will discuss flexible “footprints” for locating innovation, manufacturing, and services; the adaptation of brand names in China’s many markets; and the integration of back-office functions between China and the rest of the world. You will also learn how success in China can be applied globally, using the market knowledge, networks of low-cost suppliers, and scientific talent that can be found there as a platform for reaching a worldwide scale.
The structure of this book is intended to help you apply this aspiration to your own business and situation. The first half explores each of the four main drivers of change in China and how they fit together.
Chapter 2, “Open China,” explores the dynamics of the Chinese market—why it is expanding so rapidly and what this offers to companies, both Chinese and international. It briefly reviews the history of the last three decades to show just how important China’s openness has been in shaping the opportunities, then turns to look at how China’s markets will evolve over the next decade and beyond.
Chapter 3, “Entrepreneurial China,” examines the different types of companies operating in China, and the nature of the competitive threat they offer to each other. Two conceptual frameworks—a product market freedom matrix and a value-chain migration model—are introduced to explore the amount and nature of competition that companies are likely to face, and the kinds of functions they can expect to run in their China operations over the next several years.
Chapter 4, “Official China,” considers the role of the government and the Communist Party, the limits these two forces will put on China’s movement toward being a fully market-driven economy, and how their changing priorities will shape the business environment over the next decade.
Chapter 5, “One World,” pulls the threads of the previous three chapters together to show how the combination of China’s market liberalization and the integration of China into global value chains has
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laid the groundwork for integrated global strategies—the strategies that will propel the most successful companies of the next few decades.
The second half of this book then looks more closely at this type of strategy, how to craft it, and how to build the capabilities you need to implement it.
Chapter 6, “Vision,” describes the mindset—or strategic vision— that companies must develop to negotiate China’s business environment over the next decade. It explains why a China orientation is also a global mindset; that if a company does not try to shape its global strategy in the light of its China strategy, not only will it likely lose out in markets around the world, but it will also face the prospect of underperforming within China.
Chapter 7, “Versatility,” identifies the core capabilities companies must develop to realize their strategic vision. It highlights the need for flexibility, speed, and the ability to manage change, with a particular emphasis on the techniques used by China’s most successful domestic companies and how they have used their home market advantage to build the foundations for international expansion.
Chapter 8, “Vigilance,” discusses the type of leadership traits that corporate executives and managers will need to develop as they face the challenges of leading their businesses in China.
Chapter 9, “The Chinese Renaissance,” is a small epilogue suggesting that what we are seeing is more than just an economy reemerging. China’s revitalization could be as significant to the world as the great period in the early Tang Dynasty.
Throughout this book I recount the experiences of companies that have begun to develop their own versions of the China strategy. These include multinational companies such as Coca-Cola, IBM, KFC, Honeywell, and Nokia; and Chinese companies such as Huawei, ZTE, BYD, Haier, Li Ning, Dongxiang, Hengan, and Wanxiang. The companies that succeed the most will do so because they adopt a strategic mindset: not strategies for China alone but global strategies with China at their core.
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In this sense, China is the first country that has become truly analogous to the United States in geo-economic terms. Because of the scale of the American market, and because of the global reach and power of American corporations, every truly global company must compete, at least in some form, in the U.S. market. The same will hold true in China. If a company ignores China, it cedes this region to its competitors. If a company enters China strategically, it builds an increasingly necessary base from which it can establish its competitive prowess.