Is It Too Late To Enter China?

By Edward Tse
Chairman of Booz & Company, Greater China
The author of The China Strategy: Harnessing the Power of the Worlds Fastest-Growing Economy
(Basic Books, 2010)
HBR : April 2010
The Dilemma
The world is hit by a profound recession in 2009

However, Chinas economy is projected to grow by more than 11%

Presence of several risks :
Vulnerability of IPR
Stringent government restrictions
Rivalry from State-Owned-Enterprises (SOEs)
Incredible government backing being provided to
domestic companies

Should a foreign company invest in China?
China At A Glance
The Scenario Explained
There are several risks associating with investing in China
Loss of IPR
Governments capricious imposition of restrictions
Prohibition of entering into core businesses like telecommunication, energy
and mobile.
However, companies on Chinese soil have witnessed
unprecedented growth
No. of private companies shot up from 140,000 in 1992 to 6.6 million in
2008
Of the Fortune 500 companies, 480 are already in China


China V/s the US A Revelation
China surpassed the US as the worlds largest automotive market
in 2009
Top 500 Chinese companies net profits were $170.6 bn in the first
half of 2009 exceeding the USs top 500 companies $98.9 bn
China is expected to replace the US as the worlds largest
economy sooner than predicted


The China Context One-World Strategy
3 Cs for the world : Customers, Competitors and the Companies
4 Cs for China as the core: Customer, Competitors, Companies
and Context
Official China
Communist party-ruled
Economic liberalization would continue
The pace of liberalization is solely controlled by the party
Companies wishing to invest in China must understand the
governments policies and modify their strategies accordingly
The Story of Google in China
Google entered the Chinese market in early 2000
Created a Chinese-language version of its home page
Google created Google.cn located in China and subject
to Chinese filtering
Physically entering China and exposition of
censorship drew lot of criticism
Competitors like Yahoo and Microsoft were gaining
presence in China and getting ahead
Headquartered in the US, Google wasnt subject to
Chinese censorship
Dilemma: Whether to compromise their mission
by abiding to censorship
Or compromise their mission of entering China
altogether and abstain from any censorship
imposed by the Chinese government
Google decided to exit China and not to loose its
core values
However, other companies benefitted by forming
a tie-ups with the local players
Chinas Domestic Competitors to Global
Internet Giants
Alibaba.com
Sohu.com
Taobao.com
Renren.com
Baidu.com

Competitive China: Challenges Ahead
Growing labor and raw material costs
Companies in China would have to
Reduce their consumption of raw-materials
Mitigate the environment impact of their operations
Improve the quality of products
Hone their management skills
Shifting consumer demands due to urbanization
Large no. of generic brands owing to huge middle class
populations demands --- no brand loyalty

5 Questions for Shaping Chinas Strategy
1. How open isand will beour industry in China?
Building connections (guanxi)
Set-up fully owned operations in China
Ready to accept intermittent intervention by Chinese government
2. What business models should we use?
Sourcing-centric
Sales-centric
Blend of the above two

5 Questions for Shaping Chinas Strategy..
3. Can we live with Chinas uncertainties?
Tough decision making due to pace of change, lack of data and high
executive turnover
Willingness to take huge risks
4. How can we integrate our China operations with our businesses
elsewhere in the world?
Stand-alone business model of MNCs facing tremendous pressure due to
rising labor and material costs and Yuans appreciation
Will have to integrate their China operation with the businesses elsewhere



5 Questions for Shaping Chinas Strategy..
5. Can we move more parts of our value chain to China?
Re-location of value-chain activity to China
Setting up research and development centres in China
Developing product based on these research and then catering to other
countries which have similar demands
Improvement of the quality at competitive price
Few Things That China Manufactures
THANK YOU
Presented by:
Ankesh Dev
1301-507