Opportunities and challenges
Geographically, China is 36 times the size of New Zealand, has a population over 300 times the size of ours and has a growth rate that sees the value of its economy double every seven years.
By some calculations China is on track to become the world's largest economy by 2020, but it is still a developing country. China's economic growth over the past 25 years is probably the largest and most sustained period of wealth creation in the history of the world. In 1800 China generated 25 percent of the world's industrial output. By 1975 it had fallen to 1.5 percent. It is now on its way back to 25 percent.
But experienced business people in China emphasise patience when doing business in China. Brendan O'Toole, Managing Partner of Summergate, says while China is growing rapidly, firms shouldn't lose sight of the long-term: "It's still very immature, very embryonic. The real prize to China is 30, 40, 50 years and beyond."
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The opportunitiesThe opportunities arise from rapid economic growth in the world's largest market and the availability of a cheap manufacturing base from which to sell to China and the world. From a manufacturing perspective, China in the long run will be distinguished by its overall business strength and structure, including the huge investments made to ensure China has a modern competitive manufacturing sector.
New Zealand businesses need to be clear about whether they want to sell or manufacture in China. Long-term, China business strategies shouldn't be based on the availability of cheap labour - this is disappearing as China becomes wealthier.
In 2007 China had 106 US dollar billionaires - more than any country other than the USA. There were just 15 in 2006 and none in 2002.
A new generation of consumers is emerging in China - they are young, well educated and familiar with non-Chinese cultures. This 'Y generation' of 240 million, born between 1980 and 1990, is now the highest earning age group in the country and is looking for a new way of life.
They typically live in the major cities on the Eastern seaboard of China and in particular in Beijing, Shanghai, Shenzhen and Guangzhou where GDP per person is now over US$5,000 but corresponds in Purchasing Power Parity terms to four times that amount.
Grant Walsh, a Kiwi businessman with 10 years' experience in China, says if his food business wasn't located in China he wouldn't be able to give the levels of service or meet the volumes demanded by customers. "I think it's really that simple."
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The challengesStarting to do business in China is likely to be more costly and time consuming than in other markets.
Challenges arise because of China's size, its 'gold rush' style growth and the fact China has a very different business culture and environment from what we are used to in New Zealand and in other export markets.
New Zealand and China are also markedly different in size,culture, politics, geography, history and economic structure.
These issues can present challenges for companies looking to sell or invest in China which can only be overcome by thorough research, spending a lot of time in-market and following a focused business plan.
Much of the information available on China may appear contradictory. You need to see for yourself which advice is right for you.
From a distance China appears huge. The reality is that it is several large regional markets and many more numerous niche and micro-niche markets which helps to make China more accessible to New Zealand businesses.
Differences between the size and focus of the two economies, rather than being an obstacle to doing business in China, often present opportunities for New Zealand businesses.
The Chinese dairy market is typical of the mix of the opportunities and challenges facing New Zealand businesses. Chinese consumption of dairy products is just one fifth of the international average, but is predicted to move more into line with the norm as incomes rise. It is estimated that if each Chinese person drinks half a kilogram of milk a day, the country's dairy consumption would equal more than a third of the world's total dairy production.
There's a twofold challenge for New Zealand companies wanting to take advantage of this opportunity. Firstly every other major dairy producer in the world is similarly focused and secondly the domestic Chinese dairy industry itself is growing rapidly.
You should also not underestimate the size and quality of your competition in China. The government's pro-growth policies have produced a host of businesses pursuing each and every opportunity.
Other challenges include the uneven application of regulations, local protectionism, indirect subsidies to local industry such as low interest bank loans, intellectual property violations and the need to build up closer relationships with business partners than would be usual in New Zealand.
While there are unique difficulties in doing business in China, they are not as great as they sometimes seem from a distance. Companies already in China see problems as fewer in number and of lesser importance than those looking at China from back in New Zealand.
2009年1月21日
Business Opportunities
http://www.eastmids-china.co.uk/businessopportunities.html
Business Opportunities
Please do not contact the East Midlands China Business Bureau in regards to these opportunities. Appropriate contact details can be found within the opportunity details.
Export Opportunities
Wed, 07 Jan 2009
UK furniture retailing, accessories design and children's furniture design opportunities
Large furniture manufacturing and retailing companies and export-oriented furniture companies in China require UK design to enhance their competitiveness. Children's furniture also in great demand.
Mon, 05 Jan 2009
New energy vehicle research & development
It is the first company in China focusing on new energy vehicle research and development. It is attached to a local group company who plans to mass produce.
Chongqing Online Gaming Developer seeks International Cooperation
U-Soft is a local online gaming developer with overseas background in the US. It seeks international cooperation in terms of Business Inteligence, ERP, CRM, MIS, HIS and etc either via technology transfer or co-development. It also wishes to represent international online game products in local region and China at large and seeks agents for its own products in overseas market at the same time.
Opportunity for UK Brands of Mattresses & Bed Linen
A local retailer and importer in China would like to be the licensee promoting a selected UK brand of spring mattresses and bed linen products to China market. Their plan is to purchase products, which are designed and made in the UK, at the initial years and market them in the China market. A few years later, they are happy to introduce the production to their plant in Shenzhen City, China with an agreement aligned by both parties.
Fri, 02 Jan 2009
Industrial design development
With support from Tianjin municipality, Tianjin Internal Combustion Engine Research Institute is looking for foreign industrial design companies to work with its member companies to develop the city development not only in automotive sector but also include all the other sectors.
All Export Opportunities
Import Opportunities
Wed, 10 Dec 2008
Chinese Telecommunications Company Seeks UK Agent
Nanjing Putian Telecommunications Co., Ltd is looking for UK partners to distribute their products, and potential co-operation opportunities in products and technologies in high-tech telecommunication field.
Thu, 23 Oct 2008
Partners/Distributors Sought for Ultrasound Medical/Surgical Equipment
A Chongqing company is looking for distributors/partners for it's ultrasound medical/surgical devices
Thu, 27 Sep 2007
Distributors for machinery and electronic connectors
Huafeng group is looking for distributers dealing with machinery and electronic connectors to open its European market. The company is also interested in cooperating with connector manufactures for technology cooperation and best practice sharing.
Fri, 24 Aug 2007
Integrator/Distributor for Routers/VOIP equipment required
Chengdu based company looking for a UK distributor.
Tue, 27 Mar 2007
Organic chemical company looking for CERs Buyers
An company in Guiyang, Guizhou Province is looking for buyers of CERs that will be generated from a CDM project developed by the company's own funding.
All Import Opportunities
Projects for Tendering
Page:123456»
Displaying results 1-10 of 57
Tue, 20 Jan 2009
Procurement of Airport Weather Observation for Changsha Huanghua Airport
International tender for procurement of airport weather observation equipment
Mon, 05 Jan 2009
Tender of the Design Contract of Sewage Treatment Projects
Guangzhou Construction Engineering and Trading Centre (www.gzzb.gd.cn), entrusted by the purchaser – Guangzhou Sewage Treatment Co. Ltd, invite sealed bids from a consortium of domestic and overseas design companies, for studying and designing the two sewage treatment projects in Guangzhou, i.e. Phase IV of Lie De Sewage Treatment Plant and Phase II of Li Jiao Sewage Treatment Plant.
Wed, 10 Dec 2008
Procurement of Airport Seating for Baiyun International Airport
International tender for procurement of airport seating at East 3 and West 3 Corridors and some connection areas of Guangzhou Baiyun International Airport expansion project.
Wed, 12 Nov 2008
Procurement of Wheelchair Lifts for Guangzhou Metro Line
Guangdong Machinery & Electric Equipment Terdering Center entrusted by the purchaser, invites sealed bids from eligible suppliers home and abroad for the supply of the following goods and/or service by way of International Competitive Bidding.
Tue, 09 Sep 2008
City Plan and Design of the four banks of the two rivers in Chongqing
Chongqing Urban Planning Bureau and Chongqing Yuzhong District Government are inviting companies to join the planning and design of further development of the four banks of the two rivers, Yangtze River and Jialing River for the Yuzhong District section.
Mon, 01 Sep 2008
Procurement of Metro Trains for Guangzhou Metro Line
China CNTC International Tendering Corporation entrusted by the purchaser, invites sealed bids from eligible suppliers home and abroad for the supply of the metro trains by way of International Competitive Bidding.
Tue, 15 Jul 2008
Sightseeing Facilities on Top of the New TV Tower Project
GZ new TV tower, the world’s tallest TV tower and the future architectural symbol and tourist attraction of Guangzhou city is now seeking the sightseeing facilities design and equipment procurement within the permissible range of top construction, structure and site conditions of the outer shell steel structure.
Fri, 27 Jun 2008
Procurement of Aircraft Parking Guidance System at Baiyun International Airport
Guangzhou Baiyun International Airport is one of the major gateways to China. The airport is currently the second busiest in China based on passenger flow, and the third largest based on cargo movement. GMG International Tendering Co.,Ltd. entrusted by the purchaser, invites sealed bids from eligible suppliers home and abroad.
Wed, 11 Jun 2008
Procurement of pig waste treatment systems
GMG International Tendering Co., Ltd, entrusted by the purchaser – Guangdong Agriculture Environment and Energy General Office, invites sealed bids from domestic and overseas suppliers by way of international competitive bidding, for the supply of pig waste treatment systems to a demonstration project of animal waste management in Guangdong using the World Bank Global Environment Fund.
China National Pension Fund Seeks Global Equity Managers
According to the "Interim Provisions on the Administration of Overseas Investment by National Social Security Fund", National Council for Social Security Fund intends to select a group of external investment managers to provide global investment management services.
Page:123456»
Displaying results 1-10 of 57
Investment Opportunities
Tue, 20 Jan 2009
Qingdao helicopters company looking for investment and technology partners
Apart from trying to set up a service centre in the UK, Haili is also seeking to attract investment and advance technology to support its development in China and regional markets. They are looking for potential partners from the UK who will consider investing in the company, they are particularly interested in venture capital investment, as well as potential technology partners.
Mon, 12 Jan 2009
Partnership with Chinese Automobile Group
ShaanXi Auto Group is seeking collaboration with foreign companies in areas such as whole vehicle manufactures or suppliers of design and component parts.
Oil Storage Project Opportunity in Chaozhou
A state-owned reorganized stock company in China is looking for foreign partner to set up an oil storage reserves in Chaozhou, Guangdong, China.
Mon, 05 Jan 2009
Partner sought for pharmaceutical project
Hubei Jinggong Bioengineering Co Ltd is seeking for a partner on a project to produce 100 tons of pharmaceutical intermediate.
Partnership with XAC/China super large company
XAC, established in 1958, is a super-sized aviation industry enterprise integrated with scientific R&D and production, is a base for developing and manufacturing large and medium-sized aircrafts in China.
All Investment Opportunities
Technology Transfer Opportunities
Wed, 10 Jan 2007
Click here for a list of technologies that Chinese companies are seeking to co-operate with British firms on
New Project for the Production of High-Purity Yellow Phosphorous
Chinese company expanding production of computerised car washing machines
Joint Venture project on chemical preparation for locust preventing and controlling
Project on Cambrian Period Park
Technical Support for Life Style Management Project
Industrial company seeks liquid injection related equipment
R&D, Manufacturer system of digital watermarking anti-forgery in printing (Chengdu)
Distributor of telecommunication products sought
Loncin seeks cooperation with a Motorcycle design company
Retail business seeking strategic partner
Electronics company looking to work with UK firms
Coal Mine Methane Development Project
New Chendgu Sports Centre
Chengdu electronics company seeking partner
Motorcycle Factory looking for Joint Venture Partners
Agricultural Firm Seeking Foreign Management Expertise
Chinese company is seeking a partner to develop motorcycle engines
Shineray looking for technical support for engine development
Listing, Venture Capital and Banking Services for a Leading Minerals Manufacturer
B-ray Media company seeking strategic partner
Manufacture and sale of electronics and telecommunication products
Seeking Financial Services Consultancy to help list overseas
Retail Business Seeking Strategic Partner
Organic chemical company looking for CERs Buyers
Supply and Delivery of Railway Materials
Mobile light measurement equipment required
Tenders for the Supply & Installation of Passenger Boarding Bridges invited
Medical company looking for partners in product development
Guangzhou Surexam seeks UK Suppliers for Biomaterial
Ball valves used in Oil and Gas Sector required
Air Disk Brake Project
450cc Motorcycle Engine Technology needed
Film Distributor seeking UK films
Game Publisher to Localise and Distribute Foreign Console and PC Games
UK investor for a JV hospital sought
Opportunity to export Bullet-proof steel plate/Glass
JV opportunity in pharmaceutical development
Pharmaceutical Development Project
Central Yunnan Roads Development Project
Jonway Auto is looking for strategic investor
Virtual Reality Technology Partnership Opportunity
Coal Mine Methane CDM Project
Non-Oil ignition Technology and Systems Sought
UK Mobile Single games are Required
Mobile Value Added Services, Interactive TV and Programs Are Required
Fume denox technology required
Automotive and Motorcycle Gear Manufacturer looking for financial services
Skyman Industrial Group Seeking Strategic partnership
Southern Sichuan Road Development Project
White Goods Treatment Technology Required
Invitation for Bids on Coal Mine Methane Development Project
JV opportunity for heavy load trucks - Guangzhou
Elevator company seeks to distribute European goods
Integrator/Distributor for Routers/VOIP equipment required
Opportunity to jointly research and develop, Manufacture, and sell communication equipment
Partnership with UK firms in animation sector sought
Medical Waste Treatment Solution Required
Aircraft Engines and Industrial Gas Turbo Manufacturing Equipment required
Sichuan company looking for production line for disposable glass tubes
Guangzhou legal service provider seeks overseas partner
Solid waste separation & remediation technology required
Joint Venture opportunity for furniture manufacture
Wind Power CDM Project
Footwear designers / company needed in China
Short-Term Training for Auto Engineers in China
New Hope Group seeking international partnership and financial services
JV engineering laboratory
Chicken feet for Eastern China
Milk transport trucks required
Distributors for machinery and electronic connectors
Chinese paint and coating company seeking UK partner
Iron & Steel Financial Expertise sought
China-end-of-life vehicle treatment required
Technology for utilisation of gas with low methane concentration required
China (Chongqing) - Tourism Development Planning
Chuan Wei Looking for Financial Service
Pre-qualify for the Architecture Design Competition for Asian Games Village
Theatre Stage Lighting and Acoustics Design and Consulting
Joint Ventured Opportunity in Instant Noodles Production Equipment
Wasdon wishes to import UK leisure food
Joint training programme on recycling economy education
Shenzhen Gas Looking for Training Opportunities in UK
Changsha healthcare company seeks UK JV partner
Partner with Chinese firms on Electrical Switchgear
Partner with Chinese firms in software industry
China Polysilicon Mine Seeking UK investment partners (feasibility study available)
Bus Manufacturing Joint Ventures Opportunity
Seeking partnership in WEEE project
CNOOC Blue Chemical Ltd is looking for UK technologies in acetic acid
Culture and Art Centre Planning and Construction Design Competition
Partnership for Agriculture Project
Guangzhou leisure food company looks for marrowfat pea suppliers from the UK
Asian Games Architecture Design Competition
Procurement of Sewage Disposal Equipment
Procurement of Acid Oil
Xiamen East Ocean Fishery Co. seeks JV partner for a natural taurine extraction project
SAMIC looking for UK Aeroengine Parts sub-contractors
Procurement of Sewage Pumps, Mixers, Blowers, Dewatering and Disinfection Systems
Procurement of Solid Waste Vertical Compression Transfer Station
Sofa Manufacturer Wants Leather Sofa Design Service For Export to European Market
Rolling stock for inter-city transit of Guangzhou - Foshan Section
Baiyun New City Urban Design and Planning Competition
Office/Interior Space Design
Technical Transfer on New Building Material
Treatment and recycling of solid waste
Technology/solution required for utilisation of geo-thermal energy
Procurement of Waste Incinerators, Fume Cleaning Systems, Steam Turbine Power Generators
Business Opportunities
Please do not contact the East Midlands China Business Bureau in regards to these opportunities. Appropriate contact details can be found within the opportunity details.
Export Opportunities
Wed, 07 Jan 2009
UK furniture retailing, accessories design and children's furniture design opportunities
Large furniture manufacturing and retailing companies and export-oriented furniture companies in China require UK design to enhance their competitiveness. Children's furniture also in great demand.
Mon, 05 Jan 2009
New energy vehicle research & development
It is the first company in China focusing on new energy vehicle research and development. It is attached to a local group company who plans to mass produce.
Chongqing Online Gaming Developer seeks International Cooperation
U-Soft is a local online gaming developer with overseas background in the US. It seeks international cooperation in terms of Business Inteligence, ERP, CRM, MIS, HIS and etc either via technology transfer or co-development. It also wishes to represent international online game products in local region and China at large and seeks agents for its own products in overseas market at the same time.
Opportunity for UK Brands of Mattresses & Bed Linen
A local retailer and importer in China would like to be the licensee promoting a selected UK brand of spring mattresses and bed linen products to China market. Their plan is to purchase products, which are designed and made in the UK, at the initial years and market them in the China market. A few years later, they are happy to introduce the production to their plant in Shenzhen City, China with an agreement aligned by both parties.
Fri, 02 Jan 2009
Industrial design development
With support from Tianjin municipality, Tianjin Internal Combustion Engine Research Institute is looking for foreign industrial design companies to work with its member companies to develop the city development not only in automotive sector but also include all the other sectors.
All Export Opportunities
Import Opportunities
Wed, 10 Dec 2008
Chinese Telecommunications Company Seeks UK Agent
Nanjing Putian Telecommunications Co., Ltd is looking for UK partners to distribute their products, and potential co-operation opportunities in products and technologies in high-tech telecommunication field.
Thu, 23 Oct 2008
Partners/Distributors Sought for Ultrasound Medical/Surgical Equipment
A Chongqing company is looking for distributors/partners for it's ultrasound medical/surgical devices
Thu, 27 Sep 2007
Distributors for machinery and electronic connectors
Huafeng group is looking for distributers dealing with machinery and electronic connectors to open its European market. The company is also interested in cooperating with connector manufactures for technology cooperation and best practice sharing.
Fri, 24 Aug 2007
Integrator/Distributor for Routers/VOIP equipment required
Chengdu based company looking for a UK distributor.
Tue, 27 Mar 2007
Organic chemical company looking for CERs Buyers
An company in Guiyang, Guizhou Province is looking for buyers of CERs that will be generated from a CDM project developed by the company's own funding.
All Import Opportunities
Projects for Tendering
Page:123456»
Displaying results 1-10 of 57
Tue, 20 Jan 2009
Procurement of Airport Weather Observation for Changsha Huanghua Airport
International tender for procurement of airport weather observation equipment
Mon, 05 Jan 2009
Tender of the Design Contract of Sewage Treatment Projects
Guangzhou Construction Engineering and Trading Centre (www.gzzb.gd.cn), entrusted by the purchaser – Guangzhou Sewage Treatment Co. Ltd, invite sealed bids from a consortium of domestic and overseas design companies, for studying and designing the two sewage treatment projects in Guangzhou, i.e. Phase IV of Lie De Sewage Treatment Plant and Phase II of Li Jiao Sewage Treatment Plant.
Wed, 10 Dec 2008
Procurement of Airport Seating for Baiyun International Airport
International tender for procurement of airport seating at East 3 and West 3 Corridors and some connection areas of Guangzhou Baiyun International Airport expansion project.
Wed, 12 Nov 2008
Procurement of Wheelchair Lifts for Guangzhou Metro Line
Guangdong Machinery & Electric Equipment Terdering Center entrusted by the purchaser, invites sealed bids from eligible suppliers home and abroad for the supply of the following goods and/or service by way of International Competitive Bidding.
Tue, 09 Sep 2008
City Plan and Design of the four banks of the two rivers in Chongqing
Chongqing Urban Planning Bureau and Chongqing Yuzhong District Government are inviting companies to join the planning and design of further development of the four banks of the two rivers, Yangtze River and Jialing River for the Yuzhong District section.
Mon, 01 Sep 2008
Procurement of Metro Trains for Guangzhou Metro Line
China CNTC International Tendering Corporation entrusted by the purchaser, invites sealed bids from eligible suppliers home and abroad for the supply of the metro trains by way of International Competitive Bidding.
Tue, 15 Jul 2008
Sightseeing Facilities on Top of the New TV Tower Project
GZ new TV tower, the world’s tallest TV tower and the future architectural symbol and tourist attraction of Guangzhou city is now seeking the sightseeing facilities design and equipment procurement within the permissible range of top construction, structure and site conditions of the outer shell steel structure.
Fri, 27 Jun 2008
Procurement of Aircraft Parking Guidance System at Baiyun International Airport
Guangzhou Baiyun International Airport is one of the major gateways to China. The airport is currently the second busiest in China based on passenger flow, and the third largest based on cargo movement. GMG International Tendering Co.,Ltd. entrusted by the purchaser, invites sealed bids from eligible suppliers home and abroad.
Wed, 11 Jun 2008
Procurement of pig waste treatment systems
GMG International Tendering Co., Ltd, entrusted by the purchaser – Guangdong Agriculture Environment and Energy General Office, invites sealed bids from domestic and overseas suppliers by way of international competitive bidding, for the supply of pig waste treatment systems to a demonstration project of animal waste management in Guangdong using the World Bank Global Environment Fund.
China National Pension Fund Seeks Global Equity Managers
According to the "Interim Provisions on the Administration of Overseas Investment by National Social Security Fund", National Council for Social Security Fund intends to select a group of external investment managers to provide global investment management services.
Page:123456»
Displaying results 1-10 of 57
Investment Opportunities
Tue, 20 Jan 2009
Qingdao helicopters company looking for investment and technology partners
Apart from trying to set up a service centre in the UK, Haili is also seeking to attract investment and advance technology to support its development in China and regional markets. They are looking for potential partners from the UK who will consider investing in the company, they are particularly interested in venture capital investment, as well as potential technology partners.
Mon, 12 Jan 2009
Partnership with Chinese Automobile Group
ShaanXi Auto Group is seeking collaboration with foreign companies in areas such as whole vehicle manufactures or suppliers of design and component parts.
Oil Storage Project Opportunity in Chaozhou
A state-owned reorganized stock company in China is looking for foreign partner to set up an oil storage reserves in Chaozhou, Guangdong, China.
Mon, 05 Jan 2009
Partner sought for pharmaceutical project
Hubei Jinggong Bioengineering Co Ltd is seeking for a partner on a project to produce 100 tons of pharmaceutical intermediate.
Partnership with XAC/China super large company
XAC, established in 1958, is a super-sized aviation industry enterprise integrated with scientific R&D and production, is a base for developing and manufacturing large and medium-sized aircrafts in China.
All Investment Opportunities
Technology Transfer Opportunities
Wed, 10 Jan 2007
Click here for a list of technologies that Chinese companies are seeking to co-operate with British firms on
New Project for the Production of High-Purity Yellow Phosphorous
Chinese company expanding production of computerised car washing machines
Joint Venture project on chemical preparation for locust preventing and controlling
Project on Cambrian Period Park
Technical Support for Life Style Management Project
Industrial company seeks liquid injection related equipment
R&D, Manufacturer system of digital watermarking anti-forgery in printing (Chengdu)
Distributor of telecommunication products sought
Loncin seeks cooperation with a Motorcycle design company
Retail business seeking strategic partner
Electronics company looking to work with UK firms
Coal Mine Methane Development Project
New Chendgu Sports Centre
Chengdu electronics company seeking partner
Motorcycle Factory looking for Joint Venture Partners
Agricultural Firm Seeking Foreign Management Expertise
Chinese company is seeking a partner to develop motorcycle engines
Shineray looking for technical support for engine development
Listing, Venture Capital and Banking Services for a Leading Minerals Manufacturer
B-ray Media company seeking strategic partner
Manufacture and sale of electronics and telecommunication products
Seeking Financial Services Consultancy to help list overseas
Retail Business Seeking Strategic Partner
Organic chemical company looking for CERs Buyers
Supply and Delivery of Railway Materials
Mobile light measurement equipment required
Tenders for the Supply & Installation of Passenger Boarding Bridges invited
Medical company looking for partners in product development
Guangzhou Surexam seeks UK Suppliers for Biomaterial
Ball valves used in Oil and Gas Sector required
Air Disk Brake Project
450cc Motorcycle Engine Technology needed
Film Distributor seeking UK films
Game Publisher to Localise and Distribute Foreign Console and PC Games
UK investor for a JV hospital sought
Opportunity to export Bullet-proof steel plate/Glass
JV opportunity in pharmaceutical development
Pharmaceutical Development Project
Central Yunnan Roads Development Project
Jonway Auto is looking for strategic investor
Virtual Reality Technology Partnership Opportunity
Coal Mine Methane CDM Project
Non-Oil ignition Technology and Systems Sought
UK Mobile Single games are Required
Mobile Value Added Services, Interactive TV and Programs Are Required
Fume denox technology required
Automotive and Motorcycle Gear Manufacturer looking for financial services
Skyman Industrial Group Seeking Strategic partnership
Southern Sichuan Road Development Project
White Goods Treatment Technology Required
Invitation for Bids on Coal Mine Methane Development Project
JV opportunity for heavy load trucks - Guangzhou
Elevator company seeks to distribute European goods
Integrator/Distributor for Routers/VOIP equipment required
Opportunity to jointly research and develop, Manufacture, and sell communication equipment
Partnership with UK firms in animation sector sought
Medical Waste Treatment Solution Required
Aircraft Engines and Industrial Gas Turbo Manufacturing Equipment required
Sichuan company looking for production line for disposable glass tubes
Guangzhou legal service provider seeks overseas partner
Solid waste separation & remediation technology required
Joint Venture opportunity for furniture manufacture
Wind Power CDM Project
Footwear designers / company needed in China
Short-Term Training for Auto Engineers in China
New Hope Group seeking international partnership and financial services
JV engineering laboratory
Chicken feet for Eastern China
Milk transport trucks required
Distributors for machinery and electronic connectors
Chinese paint and coating company seeking UK partner
Iron & Steel Financial Expertise sought
China-end-of-life vehicle treatment required
Technology for utilisation of gas with low methane concentration required
China (Chongqing) - Tourism Development Planning
Chuan Wei Looking for Financial Service
Pre-qualify for the Architecture Design Competition for Asian Games Village
Theatre Stage Lighting and Acoustics Design and Consulting
Joint Ventured Opportunity in Instant Noodles Production Equipment
Wasdon wishes to import UK leisure food
Joint training programme on recycling economy education
Shenzhen Gas Looking for Training Opportunities in UK
Changsha healthcare company seeks UK JV partner
Partner with Chinese firms on Electrical Switchgear
Partner with Chinese firms in software industry
China Polysilicon Mine Seeking UK investment partners (feasibility study available)
Bus Manufacturing Joint Ventures Opportunity
Seeking partnership in WEEE project
CNOOC Blue Chemical Ltd is looking for UK technologies in acetic acid
Culture and Art Centre Planning and Construction Design Competition
Partnership for Agriculture Project
Guangzhou leisure food company looks for marrowfat pea suppliers from the UK
Asian Games Architecture Design Competition
Procurement of Sewage Disposal Equipment
Procurement of Acid Oil
Xiamen East Ocean Fishery Co. seeks JV partner for a natural taurine extraction project
SAMIC looking for UK Aeroengine Parts sub-contractors
Procurement of Sewage Pumps, Mixers, Blowers, Dewatering and Disinfection Systems
Procurement of Solid Waste Vertical Compression Transfer Station
Sofa Manufacturer Wants Leather Sofa Design Service For Export to European Market
Rolling stock for inter-city transit of Guangzhou - Foshan Section
Baiyun New City Urban Design and Planning Competition
Office/Interior Space Design
Technical Transfer on New Building Material
Treatment and recycling of solid waste
Technology/solution required for utilisation of geo-thermal energy
Procurement of Waste Incinerators, Fume Cleaning Systems, Steam Turbine Power Generators
New Resources Consulting
Greetings, Oliver:
As an independent consultant, you work hard to maintain and expand your network. Your clients have learned to trust your judgment, and you take your relationship with them very seriously. While working with them, you identify opportunities to add resources to their projects. You see the potential to increase your income, but you know how much more work that this will add to your already overbooked schedule.
If this sounds like you, New Resources would like to invite you to become part of ConsultantConnection. As a member of this community, we’ll partner with you to bring creative solutions to your clients. And the best part? We share the margin with you to bring you additional revenue. We’ve seen consultants add tens of thousands of dollars to their bottom line through this program and would like to add you to our list of happy partners.
Please visit www.nrconsults.com/consultants for more information. We look forward to a mutually prosperous relationship!
Best Regards,
Michael A. Stone
Vice President, New Resources Consulting
As an independent consultant, you work hard to maintain and expand your network. Your clients have learned to trust your judgment, and you take your relationship with them very seriously. While working with them, you identify opportunities to add resources to their projects. You see the potential to increase your income, but you know how much more work that this will add to your already overbooked schedule.
If this sounds like you, New Resources would like to invite you to become part of ConsultantConnection. As a member of this community, we’ll partner with you to bring creative solutions to your clients. And the best part? We share the margin with you to bring you additional revenue. We’ve seen consultants add tens of thousands of dollars to their bottom line through this program and would like to add you to our list of happy partners.
Please visit www.nrconsults.com/consultants for more information. We look forward to a mutually prosperous relationship!
Best Regards,
Michael A. Stone
Vice President, New Resources Consulting
Looking at acquiring a business or working on big government projects in China?
Looking at acquiring a business or working on big government projects in China?
China is not just the World Factory, most booming market for resources and consumer goods and the fastest growing economy in the world with an average GDP of over 10% in the past decade. It is also the most attractive destination for foreign investment since China opened its door to foreign businesses in 1978. With China’s access to WTO in 2000, less restriction on foreign investment, new infrastructure, supply of abundant quality and cheap labour, there are good opportunities to invest in a quality business or acquire businesses in China.
Acquiring an existing business is a way to quickly establish your own presence in China and leverage its facilities, resources and networks to access the Chinese market or conduct low-cost manufacturing in China and then export to the global market. Working with Chinese government on big projects is another avenue to develop your market in China.
Australian Business International Trade Services has acquired a list of Chinese businesses (PDF) that are looking for business partners and acquisitions and government projects. The businesses and projects cover mining, agricultural, high tech, environmental protection, food and beverage, bio-technology, construction, manufacturing, etc.
Heilongjiang provincial government is organising a delegation including some of the businesses in the list to visit Australia mid this year.
If you are interested in these opportunities and would like to meet with the delegation or intend to identify other quality investment projects in China, please email
China is not just the World Factory, most booming market for resources and consumer goods and the fastest growing economy in the world with an average GDP of over 10% in the past decade. It is also the most attractive destination for foreign investment since China opened its door to foreign businesses in 1978. With China’s access to WTO in 2000, less restriction on foreign investment, new infrastructure, supply of abundant quality and cheap labour, there are good opportunities to invest in a quality business or acquire businesses in China.
Acquiring an existing business is a way to quickly establish your own presence in China and leverage its facilities, resources and networks to access the Chinese market or conduct low-cost manufacturing in China and then export to the global market. Working with Chinese government on big projects is another avenue to develop your market in China.
Australian Business International Trade Services has acquired a list of Chinese businesses (PDF) that are looking for business partners and acquisitions and government projects. The businesses and projects cover mining, agricultural, high tech, environmental protection, food and beverage, bio-technology, construction, manufacturing, etc.
Heilongjiang provincial government is organising a delegation including some of the businesses in the list to visit Australia mid this year.
If you are interested in these opportunities and would like to meet with the delegation or intend to identify other quality investment projects in China, please email
2009年1月20日
Chinese Companies Go Abroad (Part 1: The Auto Sector)
Part 1: Auto Sector
The following is part one of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series here). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's automobile industry.
The auto industry is one of the most advanced Chinese industries in the move to expand overseas. As recently as 2001, many companies were reluctant to begin the move. Today, Chinese brand autos are sold in 188 countries and regions worldwide, for a total of 54.38 billion RMB ($7.23 billion USD) in 2007. While overseas demand for Chinese autos has slowed dramatically in recent months due to effects of the financial crisis on key markets, both auto companies like Chery and the Chinese government will continue to prioritize expansion overseas going forward as it is considered crucial to the continued growth of the Chinese auto sector, for reasons to be described below. 10 out of 10 respondents have started moving overseas, and all consider further development abroad a high priority.
Motivations
From Ford (F) and GM (GM) to Bentley and Rolls Royce, auto companies worldwide have been keen to leverage China as a key source of growth where growth rates have hovered at a 20% clip the last several years before sales slowed dramatically in Q4 of 2008. At home, domestic Chinese auto companies are having difficulty competing with international companies in terms of reliability, safety, and emissions control, and are increasingly looking abroad for growth opportunities. Nearly all respondent companies mentioned fierce domestic competition from international and other domestic auto companies as a top factor motivating their expansion overseas.
While demand has dropped steeply in recent months due to the financial crisis, respondents also mentioned high demand as a top factor motivating their overseas expansion; exports reached 557,736 units in the first three quarters of 2008, up 34.9 from the previous year. Because Chinese cars have significant price advantages in foreign markets, companies are finding large demand for their autos overseas, in emerging markets in particular where cheaper and smaller cars are popular. While the financial crisis has slowed demand in many of China's key overseas markets such as Vietnam, Russia, and Ukraine, overseas markets will remain crucial to Chinese auto companies' long term growth plans.
Chinese auto companies are also looking to move abroad as a way to build their brand image, a top priority to nearly all respondents, before refocusing on the domestic China market. By moving abroad, respondents felt, they could evolve from being "simply a Chinese domestic company" to becoming a true an international brand. They feel being able to call themselves "international" will add prestige and cache to the brand, which they can leverage via marketing to compete better both abroad and at home. In the words of one respondent, "selling to so many countries makes us more than a Chinese company. Different countries get to know us and we become an 'international' brand, which is really good for our image."
Current and Future Operations
Emerging markets are currently the top destinations for Chinese auto companies like Chery which just secured a billion + USD loan soley for overseas expansion. 100% of respondents have already established operations in such areas as Russia, the Middle East and Southeast Asia. These emerging markets have less stringent rules and regulations than North America and Western Europe, meaning Chinese companies can more easily enter the market with their existing technologies. Because Chinese cars can be priced considerably lower than others, there is considerable demand for Chinese cars in these areas.
In addition to meeting the rising demand for cheaper but "good enough" vehicles in emerging markets, Chinese auto companies are seizing the opportunity to sell to markets not open to other countries. For example, two industry leaders interviewed are expanding operations in North Korea: one is exporting and one has a complete knockdown (CKD) factory there.
While emerging markets are the primary target for Chinese auto companies now, the vast majority of respondents have as their goal to enter North American and Western European markets in the future, though most lack specific plans at the moment. Chinese companies value these areas not only because of the market size, but because they feel selling in these markets, meeting the array of rules and regulations, and passing the extensive quality and safety tests, signifies their brands have moved up to the next level, achieved truly global status, and they can compete meaningfully in any market.
Thus far, the vast majority of companies interviewed have chosen to develop their presence abroad by finding a partner in the target country. These partnerships can allow Chinese companies access to a wide range of resources and information, such as factories and the partner's own technical knowledge and networks.
Access to factories in the target countries is a crucial step for Chinese auto companies' move abroad. Nearly every respondent company is using access to their partner's factories as their method of bringing their vehicles to market. To avoid the hefty taxes involved with shipping whole vehicles abroad, Chinese companies are exporting via complete knockdown (CKD) or semi knockdown (SKD) – manufacturing auto parts in China and shipping the unassembled or partially assembled parts abroad for final assembly in the target market. Access to these factories in the target market is also crucial in that it allows Chinese companies to provide after-sales services, which cannot easily be supported by export alone. Having a factory abroad also allows Chinese companies to ease rising costs due to RMB appreciation, a key concern for all respondents.
In addition to factory access, Chinese companies are seeking partnerships and setting up R&D centers abroad to help build their own technical and managerial skills. One respondent company has set up an R&D center in Italy, for example, where they have hired professionals to focus on appearance and design, and an R&D center in Japan to focus on design of technological and electrical components.
A minority of companies interviewed are also using M&A as a way of building their presence abroad. With the help of a 2 billion RMB low-interest loan from China Exim Bank—the kind of governmental support described in China's "Going Out" (Zou Chu Qu) policy—Nanjing Auto Group purchased British auto company MG in 2006 as a way to gain access into foreign markets. As the company told us, "the MG brand already has channels in foreign markets, and it is already famous, so we don't need to start from scratch with marketing." While it allows quick access to existing resources, M&A has been a less popular choice for Chinese auto companies due to its capital intensive nature. This past December, Chery received another loan from China Exim, this time totaling 10 billion RMB ($1.5 billion USD), to help support continued international expansion.
Challenges
Respondent companies reported getting autos past international rules and regulations as the biggest challenge in entering overseas markets, and North America and Western Europe in particular due to their strict quality standards. Nearly all companies also complained of serious challenges in finding the appropriate talent to lead development in both technical and managerial aspects, as well as experts with cross-cultural experience who can help lead the push abroad and develop long-term strategy. As one respondent told us, "We have talented people now but they are young and lack experience. We have problems that need solving now, and we cannot wait until they get more experience to fix them." Thus, some Chinese auto companies like Jianghuai Auto and Nanjing Auto have invested and established R&D abroad and hired foreign talent to do interior designing and development, so that they can produce automotives with world class advanced technology.
Going Forward
While 2009 will be a tough year for Chinese automakers, both in exports and domestic sales, expansion overseas will remain a key long term goal. Chinese auto companies should not be too hasty in their rush to grow abroad. Rather, they should focus energy and resources now on improving their quality and safety, and building the right brand image from the start. While it is possible for brand image to deteriorate quickly from good to bad, it is much harder to build from weaker brand image to good, especially with records of mediocre performance on quality and safety tests.
The following is part one of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series here). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's automobile industry.
The auto industry is one of the most advanced Chinese industries in the move to expand overseas. As recently as 2001, many companies were reluctant to begin the move. Today, Chinese brand autos are sold in 188 countries and regions worldwide, for a total of 54.38 billion RMB ($7.23 billion USD) in 2007. While overseas demand for Chinese autos has slowed dramatically in recent months due to effects of the financial crisis on key markets, both auto companies like Chery and the Chinese government will continue to prioritize expansion overseas going forward as it is considered crucial to the continued growth of the Chinese auto sector, for reasons to be described below. 10 out of 10 respondents have started moving overseas, and all consider further development abroad a high priority.
Motivations
From Ford (F) and GM (GM) to Bentley and Rolls Royce, auto companies worldwide have been keen to leverage China as a key source of growth where growth rates have hovered at a 20% clip the last several years before sales slowed dramatically in Q4 of 2008. At home, domestic Chinese auto companies are having difficulty competing with international companies in terms of reliability, safety, and emissions control, and are increasingly looking abroad for growth opportunities. Nearly all respondent companies mentioned fierce domestic competition from international and other domestic auto companies as a top factor motivating their expansion overseas.
While demand has dropped steeply in recent months due to the financial crisis, respondents also mentioned high demand as a top factor motivating their overseas expansion; exports reached 557,736 units in the first three quarters of 2008, up 34.9 from the previous year. Because Chinese cars have significant price advantages in foreign markets, companies are finding large demand for their autos overseas, in emerging markets in particular where cheaper and smaller cars are popular. While the financial crisis has slowed demand in many of China's key overseas markets such as Vietnam, Russia, and Ukraine, overseas markets will remain crucial to Chinese auto companies' long term growth plans.
Chinese auto companies are also looking to move abroad as a way to build their brand image, a top priority to nearly all respondents, before refocusing on the domestic China market. By moving abroad, respondents felt, they could evolve from being "simply a Chinese domestic company" to becoming a true an international brand. They feel being able to call themselves "international" will add prestige and cache to the brand, which they can leverage via marketing to compete better both abroad and at home. In the words of one respondent, "selling to so many countries makes us more than a Chinese company. Different countries get to know us and we become an 'international' brand, which is really good for our image."
Current and Future Operations
Emerging markets are currently the top destinations for Chinese auto companies like Chery which just secured a billion + USD loan soley for overseas expansion. 100% of respondents have already established operations in such areas as Russia, the Middle East and Southeast Asia. These emerging markets have less stringent rules and regulations than North America and Western Europe, meaning Chinese companies can more easily enter the market with their existing technologies. Because Chinese cars can be priced considerably lower than others, there is considerable demand for Chinese cars in these areas.
In addition to meeting the rising demand for cheaper but "good enough" vehicles in emerging markets, Chinese auto companies are seizing the opportunity to sell to markets not open to other countries. For example, two industry leaders interviewed are expanding operations in North Korea: one is exporting and one has a complete knockdown (CKD) factory there.
While emerging markets are the primary target for Chinese auto companies now, the vast majority of respondents have as their goal to enter North American and Western European markets in the future, though most lack specific plans at the moment. Chinese companies value these areas not only because of the market size, but because they feel selling in these markets, meeting the array of rules and regulations, and passing the extensive quality and safety tests, signifies their brands have moved up to the next level, achieved truly global status, and they can compete meaningfully in any market.
Thus far, the vast majority of companies interviewed have chosen to develop their presence abroad by finding a partner in the target country. These partnerships can allow Chinese companies access to a wide range of resources and information, such as factories and the partner's own technical knowledge and networks.
Access to factories in the target countries is a crucial step for Chinese auto companies' move abroad. Nearly every respondent company is using access to their partner's factories as their method of bringing their vehicles to market. To avoid the hefty taxes involved with shipping whole vehicles abroad, Chinese companies are exporting via complete knockdown (CKD) or semi knockdown (SKD) – manufacturing auto parts in China and shipping the unassembled or partially assembled parts abroad for final assembly in the target market. Access to these factories in the target market is also crucial in that it allows Chinese companies to provide after-sales services, which cannot easily be supported by export alone. Having a factory abroad also allows Chinese companies to ease rising costs due to RMB appreciation, a key concern for all respondents.
In addition to factory access, Chinese companies are seeking partnerships and setting up R&D centers abroad to help build their own technical and managerial skills. One respondent company has set up an R&D center in Italy, for example, where they have hired professionals to focus on appearance and design, and an R&D center in Japan to focus on design of technological and electrical components.
A minority of companies interviewed are also using M&A as a way of building their presence abroad. With the help of a 2 billion RMB low-interest loan from China Exim Bank—the kind of governmental support described in China's "Going Out" (Zou Chu Qu) policy—Nanjing Auto Group purchased British auto company MG in 2006 as a way to gain access into foreign markets. As the company told us, "the MG brand already has channels in foreign markets, and it is already famous, so we don't need to start from scratch with marketing." While it allows quick access to existing resources, M&A has been a less popular choice for Chinese auto companies due to its capital intensive nature. This past December, Chery received another loan from China Exim, this time totaling 10 billion RMB ($1.5 billion USD), to help support continued international expansion.
Challenges
Respondent companies reported getting autos past international rules and regulations as the biggest challenge in entering overseas markets, and North America and Western Europe in particular due to their strict quality standards. Nearly all companies also complained of serious challenges in finding the appropriate talent to lead development in both technical and managerial aspects, as well as experts with cross-cultural experience who can help lead the push abroad and develop long-term strategy. As one respondent told us, "We have talented people now but they are young and lack experience. We have problems that need solving now, and we cannot wait until they get more experience to fix them." Thus, some Chinese auto companies like Jianghuai Auto and Nanjing Auto have invested and established R&D abroad and hired foreign talent to do interior designing and development, so that they can produce automotives with world class advanced technology.
Going Forward
While 2009 will be a tough year for Chinese automakers, both in exports and domestic sales, expansion overseas will remain a key long term goal. Chinese auto companies should not be too hasty in their rush to grow abroad. Rather, they should focus energy and resources now on improving their quality and safety, and building the right brand image from the start. While it is possible for brand image to deteriorate quickly from good to bad, it is much harder to build from weaker brand image to good, especially with records of mediocre performance on quality and safety tests.
Chinese Companies Go Abroad (Part 2: The Consumer Electronics Sector)
Part 2: Consumer Electronics
The following is part two of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series and part 1). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's consumer electronics industry.
Consumer electronics is one of China's most mature industries, and one of its most developed in terms of overseas expansion. For some Chinese consumer electronics companies, the move abroad started as early as the 1990s, and even the late 1980s. 100% of large industry leaders interviewed have already started moving abroad, as have 80% of smaller leading companies.
Motivations
80% of large industry leaders interviewed consider building their brand image from domestic Chinese to global name brand their primary goal in expanding abroad. Respondents hope to establish themselves as a top-rate international brand not only to build their reputation for quality, reliability, and innovation, but for reasons of national pride, to become "a Chinese brand known to all the world" that can compete with Japanese and Korean brands like Sony (SNE) and LG. Many respondents indicated they were willing to spend up to 10 percent of their annual budget on marketing efforts abroad to build this sort of brand awareness.
While overseas sales have slowed recently for companies including Haier (600690) and TCL (000100) due to the financial crisis, a large majority of respondent companies are moving overseas in response to strong demand for their products, especially from emerging markets which have been less afflicted and still expect to see positive economic growth in 2009.
Current and Future Operations
Chinese consumer electronics companies strategies differ greatly as to which overseas markets they choose to target, and when. Some larger industry leaders such as Haier chose to go straight to the developed markets of North America and Europe to build their image as top rate international brand and facilitate later transition into other developed and/ or emerging markets. Other large companies such as TCL and the majority of smaller company respondents have chosen to enter emerging markets in places such as southeast Asia and Africa first, where their brands are more competitive with their existing technology, quality, and brand image. All respondent companies hope ultimately to establish a profitable presence in Europe and America, and will establish more R&D centers in these areas to better utilize the talent and technology advantages there and expedite the improvements in technology, durability, and brand image that will enable them to compete in these developed markets.
Many respondent companies began their move overseas exporting as original equipment manufacturers (OEM). Larger and smaller industry leaders alike are now pushing their own brands overseas. As one respondent told us, "the whole home appliance industry has realized that selling their own branded products is the only way a company can succeed in the long run. Selling OEM is more profitable than trying to sell with our own brand in the short term, but in the long run, we must build up our own brand."
Establishing partnerships and joint ventures was by far the most commonly pursued method by respondent companies in getting their branded products to market overseas. By partnering with a company already successful in the target market, Chinese consumer electronics companies can utilize the partner's pre-existing distribution and retail networks to bring their products to market, saving the time and expenses of building these key resources from scratch. Haier, for example, teamed up with Japan's SANYO (SANYY.PK) in 2002 to form joint venture SANYO Haier Co. Ltd. and used SANYO's sales network to sell Haier branded products in Japan. The JV was liquidated in 2007, but only because both companies shared agreed "it had fulfilled its role of permeating the Haier brand into the Japanese market".
In addition to selling their products overseas, Chinese consumer electronic companies are increasingly investing in moving production closer to their target markets. Industry leaders such as Haier, TCL, Gree, Changhong (SHA:600839), Hisense (SHA:600060), for example, have all already established factories overseas in order to expedite and improve profitability of their expansion. Having factories abroad lets these companies avoid anti-dumping and tariff barriers, and reduces exchange rate risk. As inflation and labor costs rise in China, the move abroad also helps these companies keep costs down. As one respondent company told us, "inflation in China has increased production costs for air conditioners 20% year on year. We really don't have a choice—producing in lower-cost countries is becoming more and more important to growing profit."
Challenges
Respondents feel the biggest challenge in moving abroad is understanding and adapting to a new business environment—learning the ropes, for example, in how to work with local distributors, and other local business practices and routines essential to smooth and successful operations abroad.
Working under international regulations and laws is another top challenge, getting the various certifications required by different countries for market entry in particular. This is most challenging for smaller and medium-sized companies, for whom the high fees of applying for these certifications alone are restrictive.
For larger companies involved in a wide array of partnerships, joint ventures, and different ownership strategies, building the right organizational structure to manage these company sub-segments has also proven difficult.
A related challenge is differences in culture. Cultural differences have proved challenging not only in efforts to tailor a product or marketing campaign to local tastes, but when working with and managing local team members.
Finally, and crucial to solving the above problems, Chinese consumer electronics companies are having a hard time finding the talent they need to expand abroad, both in terms of technological capability and experience leading and managing in a cross-cultural environment.
Going Forward
These challenges are not insurmountable; Chinese consumer electronics companies already compete with other multinational brands in developed and developing markets all over the world. Going forward, in addition to maintaining strict dedication to quality control and innovation, Chinese consumer electronics brands should learn from companies like Haier, for example, and work to develop deep understanding of their target markets in order to best meet needs of local consumers.
They also need to learn how to create long-term brand value and not compete solely on price.
The following is part two of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series and part 1). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's consumer electronics industry.
Consumer electronics is one of China's most mature industries, and one of its most developed in terms of overseas expansion. For some Chinese consumer electronics companies, the move abroad started as early as the 1990s, and even the late 1980s. 100% of large industry leaders interviewed have already started moving abroad, as have 80% of smaller leading companies.
Motivations
80% of large industry leaders interviewed consider building their brand image from domestic Chinese to global name brand their primary goal in expanding abroad. Respondents hope to establish themselves as a top-rate international brand not only to build their reputation for quality, reliability, and innovation, but for reasons of national pride, to become "a Chinese brand known to all the world" that can compete with Japanese and Korean brands like Sony (SNE) and LG. Many respondents indicated they were willing to spend up to 10 percent of their annual budget on marketing efforts abroad to build this sort of brand awareness.
While overseas sales have slowed recently for companies including Haier (600690) and TCL (000100) due to the financial crisis, a large majority of respondent companies are moving overseas in response to strong demand for their products, especially from emerging markets which have been less afflicted and still expect to see positive economic growth in 2009.
Current and Future Operations
Chinese consumer electronics companies strategies differ greatly as to which overseas markets they choose to target, and when. Some larger industry leaders such as Haier chose to go straight to the developed markets of North America and Europe to build their image as top rate international brand and facilitate later transition into other developed and/ or emerging markets. Other large companies such as TCL and the majority of smaller company respondents have chosen to enter emerging markets in places such as southeast Asia and Africa first, where their brands are more competitive with their existing technology, quality, and brand image. All respondent companies hope ultimately to establish a profitable presence in Europe and America, and will establish more R&D centers in these areas to better utilize the talent and technology advantages there and expedite the improvements in technology, durability, and brand image that will enable them to compete in these developed markets.
Many respondent companies began their move overseas exporting as original equipment manufacturers (OEM). Larger and smaller industry leaders alike are now pushing their own brands overseas. As one respondent told us, "the whole home appliance industry has realized that selling their own branded products is the only way a company can succeed in the long run. Selling OEM is more profitable than trying to sell with our own brand in the short term, but in the long run, we must build up our own brand."
Establishing partnerships and joint ventures was by far the most commonly pursued method by respondent companies in getting their branded products to market overseas. By partnering with a company already successful in the target market, Chinese consumer electronics companies can utilize the partner's pre-existing distribution and retail networks to bring their products to market, saving the time and expenses of building these key resources from scratch. Haier, for example, teamed up with Japan's SANYO (SANYY.PK) in 2002 to form joint venture SANYO Haier Co. Ltd. and used SANYO's sales network to sell Haier branded products in Japan. The JV was liquidated in 2007, but only because both companies shared agreed "it had fulfilled its role of permeating the Haier brand into the Japanese market".
In addition to selling their products overseas, Chinese consumer electronic companies are increasingly investing in moving production closer to their target markets. Industry leaders such as Haier, TCL, Gree, Changhong (SHA:600839), Hisense (SHA:600060), for example, have all already established factories overseas in order to expedite and improve profitability of their expansion. Having factories abroad lets these companies avoid anti-dumping and tariff barriers, and reduces exchange rate risk. As inflation and labor costs rise in China, the move abroad also helps these companies keep costs down. As one respondent company told us, "inflation in China has increased production costs for air conditioners 20% year on year. We really don't have a choice—producing in lower-cost countries is becoming more and more important to growing profit."
Challenges
Respondents feel the biggest challenge in moving abroad is understanding and adapting to a new business environment—learning the ropes, for example, in how to work with local distributors, and other local business practices and routines essential to smooth and successful operations abroad.
Working under international regulations and laws is another top challenge, getting the various certifications required by different countries for market entry in particular. This is most challenging for smaller and medium-sized companies, for whom the high fees of applying for these certifications alone are restrictive.
For larger companies involved in a wide array of partnerships, joint ventures, and different ownership strategies, building the right organizational structure to manage these company sub-segments has also proven difficult.
A related challenge is differences in culture. Cultural differences have proved challenging not only in efforts to tailor a product or marketing campaign to local tastes, but when working with and managing local team members.
Finally, and crucial to solving the above problems, Chinese consumer electronics companies are having a hard time finding the talent they need to expand abroad, both in terms of technological capability and experience leading and managing in a cross-cultural environment.
Going Forward
These challenges are not insurmountable; Chinese consumer electronics companies already compete with other multinational brands in developed and developing markets all over the world. Going forward, in addition to maintaining strict dedication to quality control and innovation, Chinese consumer electronics brands should learn from companies like Haier, for example, and work to develop deep understanding of their target markets in order to best meet needs of local consumers.
They also need to learn how to create long-term brand value and not compete solely on price.
Chinese Companies Go Abroad (Part 3: The Financial Services Sector)
Part 3: Financial Services
The following is part three of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1 and part 2). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's financial services industry.
Expansion abroad is a top priority for China's financial institutions. Given the current worldwide financial crisis, and relatively large amounts of liquidity at their disposal, Chinese banks are in a good position to make meaningful progress towards this goal. 100% of large industry leaders interviewed have already started moving overseas, and all respondents have either begun the move or plan to begin within the next five years.
However, there is fear right now by the Chinese Government that too much losses will be incurred by financial institutions if they go abroad and buy non-transparent financial assets which will slow some of the acquisitions. Perhaps their experience with Non-performing Loans (NPLs) make them cautious. For instance, the Bank of China has not gotten final approval yet for its announced 20% stake in Rothschild. Expect this cautious note to prevail for the next several months as the China Investment Corporation (CIC) has been burned with investments in Morgan Stanley (MS) and Blackstone (BX). While the CIC is an investment vehicle and not an actual bank like an ICBC, the experiences of CIC clearly is influencing all relevant regulatory bodies in China and making them think thrice before giving approvals.
Motivations
Chinese financial institutions initially moved overseas to serve corporate clients expanding their businesses abroad. Maintaining these clients' business is a top priority today as well, as increasing numbers of Chinese companies move overseas, and competition increases at home with the influx of foreign banks like Citigroup (C) and Standard Chartered. These initial moves abroad came about via organic growth as well as M&A.
Perhaps most importantly, Chinese banks are viewing expansion abroad as a way to get training in management, organization, and risk assessment. ICBC [1398.HK] paid $5.6 billion USD for a 20% stake in South Africa's Standard Bank [JNB:SBK] last year, for example, not only to better serve the growing ranks of Chinese companies doing business in the region, but to learn technical skills, management and operation techniques directly from their partners. These ventures are opportunities to train their own talent and to attract foreign talent for their future oversea expansions.
Current Situation and Methods of Expansion
Chinese financial institutions are using M&A to build more quickly a meaningful strategic presence abroad. The first major stake by a mainland Chinese bank in a European bank was made in July, 2007, when the China Development Bank (CDB) purchased a stake in Barclays Bank [LON:BARC] in order to help finance the British group's bid for Dutch ABN AMRO (ABN). While Barclays did not ultimately win the bid, CDB successfully established partnership with one of the top global commodity banks. CDB expects to learn from Barclays expertise in global commodity markets, investment banking, and risk management.
The first strategic investment by a mainland Chinese bank in a U.S. bank was made last October when China Minsheng Bank bought 5% of UCBH Holdings, the holding company of San Francisco's United Commercial Bank, a bank catering mainly to small and medium-sized local Chinese-American run businesses. Minsheng purchased another share in March for a total 9.9 percent share valued at 2.5 billion RMB ($317 USD). Minsheng intends to purchase another 10 percent before the end of 2009.
Last November, China's Ping An Insurance Company [SHA:601318] became the largest shareholder in Belgian financial company Fortis N.V., having acquired a 4.18% stake for €1.81 billion ($2.7 billion). This past March they upped that stake to 4.99%, in addition to purchasing half of Fortis' asset management business for €2.15 billion. The business will be rebranded as Fortis Ping An Investments.
As recently as September 2008, Bank of China announced its plans to purchase a 20% stake in French bank LCF Rothschild for 236.3 million euros ($340 million USD). The two banks will work together to develop asset management services for China's newly wealthy once approval is given.
Challenges
Chinese financial institutions' push overseas will not be without its challenges. Chinese banks still face significant rules and regulations, as well as a degree of suspicion and protectionism as they move to expand abroad. One of the main reasons UCBH was willing to partner with Minsheng Bank, for example, was, as a private bank Minsheng had minimal connections to the government, and thus the partnership was more likely to be approved by the Fed. Satisfying requirements of regulatory bodies like the Fed, and learning how to operate under these rules in a new business environment were considered key challenges by a majority of respondents.
As mentioned previously, in addition to financial return on investment, Chinese financial institutions' push to acquire stakes in international heavyweights is in large part to get access to management, organizational, and technical expertise not yet fully developed at home, and assistance in developing new service areas, such as wealth management in the case of Bank of China and LCF Rothschild. Respondent companies overwhelmingly agreed that finding people with experience leading a cross-cultural operation overseas, and people with the necessary technical, managerial, and/ or operational skills is a top challenge in their push abroad. With the Wall Street calamity, Chinese financial institutions have been increasing their recruiting of mainland Chinese who work(ed) in Wall Street and are now vying to come back to China.
Going Forward
While Chinese financial institutions are still in the early stages of moving abroad, this presence was increasing rapidly as Chinese banks conduct M&A in target areas until the financial crisis. These institutions are generally moving first to developing regions, where the business of their Chinese clients is increasing most rapidly, though they continue to work towards building presence in North American and Western European countries as their ultimate goal. Expect the pace of M&A to slow down in 2009 as a note of caution prevails but the long-term trend is clear.
Chinese financial institutions need time to find and train the right talent, as well as time to improve operations and organizational structure to be competitive in international markets. Banks should continue to view expansion methods such as M&A as an opportunity to learn and strengthen the skills they currently lack in addition to a fruitful investment.
It is also important for the larger banks to adapt and become more client focused. Too many of the big banks -- Bank of China and ICBC for instance -- focus more on State-Run Enterprises and on political issues than on developing the services that cater to the needs of SMEs and retail clients. In the China market, they lag behind nimbler private banks like China Merchants Bank in customer satisfaction.
The following is part three of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1 and part 2). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's financial services industry.
Expansion abroad is a top priority for China's financial institutions. Given the current worldwide financial crisis, and relatively large amounts of liquidity at their disposal, Chinese banks are in a good position to make meaningful progress towards this goal. 100% of large industry leaders interviewed have already started moving overseas, and all respondents have either begun the move or plan to begin within the next five years.
However, there is fear right now by the Chinese Government that too much losses will be incurred by financial institutions if they go abroad and buy non-transparent financial assets which will slow some of the acquisitions. Perhaps their experience with Non-performing Loans (NPLs) make them cautious. For instance, the Bank of China has not gotten final approval yet for its announced 20% stake in Rothschild. Expect this cautious note to prevail for the next several months as the China Investment Corporation (CIC) has been burned with investments in Morgan Stanley (MS) and Blackstone (BX). While the CIC is an investment vehicle and not an actual bank like an ICBC, the experiences of CIC clearly is influencing all relevant regulatory bodies in China and making them think thrice before giving approvals.
Motivations
Chinese financial institutions initially moved overseas to serve corporate clients expanding their businesses abroad. Maintaining these clients' business is a top priority today as well, as increasing numbers of Chinese companies move overseas, and competition increases at home with the influx of foreign banks like Citigroup (C) and Standard Chartered. These initial moves abroad came about via organic growth as well as M&A.
Perhaps most importantly, Chinese banks are viewing expansion abroad as a way to get training in management, organization, and risk assessment. ICBC [1398.HK] paid $5.6 billion USD for a 20% stake in South Africa's Standard Bank [JNB:SBK] last year, for example, not only to better serve the growing ranks of Chinese companies doing business in the region, but to learn technical skills, management and operation techniques directly from their partners. These ventures are opportunities to train their own talent and to attract foreign talent for their future oversea expansions.
Current Situation and Methods of Expansion
Chinese financial institutions are using M&A to build more quickly a meaningful strategic presence abroad. The first major stake by a mainland Chinese bank in a European bank was made in July, 2007, when the China Development Bank (CDB) purchased a stake in Barclays Bank [LON:BARC] in order to help finance the British group's bid for Dutch ABN AMRO (ABN). While Barclays did not ultimately win the bid, CDB successfully established partnership with one of the top global commodity banks. CDB expects to learn from Barclays expertise in global commodity markets, investment banking, and risk management.
The first strategic investment by a mainland Chinese bank in a U.S. bank was made last October when China Minsheng Bank bought 5% of UCBH Holdings, the holding company of San Francisco's United Commercial Bank, a bank catering mainly to small and medium-sized local Chinese-American run businesses. Minsheng purchased another share in March for a total 9.9 percent share valued at 2.5 billion RMB ($317 USD). Minsheng intends to purchase another 10 percent before the end of 2009.
Last November, China's Ping An Insurance Company [SHA:601318] became the largest shareholder in Belgian financial company Fortis N.V., having acquired a 4.18% stake for €1.81 billion ($2.7 billion). This past March they upped that stake to 4.99%, in addition to purchasing half of Fortis' asset management business for €2.15 billion. The business will be rebranded as Fortis Ping An Investments.
As recently as September 2008, Bank of China announced its plans to purchase a 20% stake in French bank LCF Rothschild for 236.3 million euros ($340 million USD). The two banks will work together to develop asset management services for China's newly wealthy once approval is given.
Challenges
Chinese financial institutions' push overseas will not be without its challenges. Chinese banks still face significant rules and regulations, as well as a degree of suspicion and protectionism as they move to expand abroad. One of the main reasons UCBH was willing to partner with Minsheng Bank, for example, was, as a private bank Minsheng had minimal connections to the government, and thus the partnership was more likely to be approved by the Fed. Satisfying requirements of regulatory bodies like the Fed, and learning how to operate under these rules in a new business environment were considered key challenges by a majority of respondents.
As mentioned previously, in addition to financial return on investment, Chinese financial institutions' push to acquire stakes in international heavyweights is in large part to get access to management, organizational, and technical expertise not yet fully developed at home, and assistance in developing new service areas, such as wealth management in the case of Bank of China and LCF Rothschild. Respondent companies overwhelmingly agreed that finding people with experience leading a cross-cultural operation overseas, and people with the necessary technical, managerial, and/ or operational skills is a top challenge in their push abroad. With the Wall Street calamity, Chinese financial institutions have been increasing their recruiting of mainland Chinese who work(ed) in Wall Street and are now vying to come back to China.
Going Forward
While Chinese financial institutions are still in the early stages of moving abroad, this presence was increasing rapidly as Chinese banks conduct M&A in target areas until the financial crisis. These institutions are generally moving first to developing regions, where the business of their Chinese clients is increasing most rapidly, though they continue to work towards building presence in North American and Western European countries as their ultimate goal. Expect the pace of M&A to slow down in 2009 as a note of caution prevails but the long-term trend is clear.
Chinese financial institutions need time to find and train the right talent, as well as time to improve operations and organizational structure to be competitive in international markets. Banks should continue to view expansion methods such as M&A as an opportunity to learn and strengthen the skills they currently lack in addition to a fruitful investment.
It is also important for the larger banks to adapt and become more client focused. Too many of the big banks -- Bank of China and ICBC for instance -- focus more on State-Run Enterprises and on political issues than on developing the services that cater to the needs of SMEs and retail clients. In the China market, they lag behind nimbler private banks like China Merchants Bank in customer satisfaction.
Chinese Companies Go Abroad: (Part 5: The Alcohol Sector) | Reuters
Part 4: Internet and Software
The following is part four of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2 and part 3). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's internet and software industry.
Chinese' increasing access to personal computers and the internet combined with domestic companies' increasing use of complex software in day-to-day business operations have spurred significant growth of China's internet and software companies. Sales in China's software industry have increased nearly tenfold since 2000 from 59.3 billion RMB to 580 billion RMB in 2007. China's online population surpassed the United States' in February 2008, making it the world's largest with approximately 300 million. The fact that around 20% of China's total population is online, versus 71.4% of the US's, suggests the remarkable growth opportunities still present at home.
While many Chinese internet and software companies have decided to focus on skyrocketing demand at home as their main source of growth in the near future, a majority of companies interviewed by CMR have established or plan to establish presence abroad within the next five years, and consider overseas expansion an important part of their strategic growth plans going forward. The internet sector especially will be able to handle the financial downturn better than most sectors as younger, middle class consumers who populate most of the Chinese internet community have indicated to us that they expect to spend the same if not more in 2009 on online games sites like Netease (NTES) or QQ.
Motivations
For those respondents choosing to go abroad, the majority have done so due to demand for their products and services in overseas markets. B2B website Alibaba (HKG:1688) for example, launched a Japanese language version of its website back in 2002 to tap into the enormous growing trade volume between Japan and China--China surpassed the United States to become Japan's largest trading partner in 2006. Baidu (BIDU) announced plans to move its search engine capabilities into Japan to take advantage of similarities in written Chinese and Japanese while firms like news portal Sina (SINA) long have had operations in the US, originally to cater to overseas Chinese.
Software companies in particular also consider brand building a top motivator in the move overseas. Respondents feel developing an international brand image will help them gain the reputation for high end technology and high value-added products that will enable them to charge higher premiums and grow faster at home. They also feel that they won't run into the same piracy problems abroad that they face in China where piracy remains rampant despite an increase in recent years of prosecution by the Chinese Government, such as the recent long-term jail sentences handed out to a group pirating Microsoft's (MSFT) products where their production facilities were larger than Microsoft's own.
Current and Future Operations
Software companies' strategies for going abroad vary by technology and focus area. For example, those producing high-tech, cutting edge software are prioritizing the American and European markets where demand is higher, and clients are willing to pay more for top products. Many companies producing enterprise management software target mainly the Southeast Asian market due to strong demand from the region's manufacturing industry.
Software respondents often choose partnerships and/ or M&A to build their presence abroad. Langchao, for example, formed a joint venture with Japanese software company Shinwa in 2006 to expand its outsourcing market in Japan, and tap into Shinwa's experience in industries including transportation, finance, manufacturing, and education. Global expansion is a top priority for Langchao, which changed its name to Inspur (600756) in April 2006 to make its name easier for foreign clients to pronounce. Inspur hopes to increase sales from overseas markets by as much as 30% by 2010.
The vast majority of internet companies have chosen to target overseas markets via local partnership or M&A. In May 2008 Alibaba announced operations of its Japanese language website would be taken over by a joint venture between Alibaba and Japan's Softbank, a telecommunications and media corporation with operations in broadband, fixed-line telecom, finance, media, e-commerce, and other businesses. Cooperation with Softbank greatly helps Alibaba in all aspects of management and business operations on the ground in Japan, and allows Alibaba direct access to local talent and knowledge of the target market. As explained by Alibaba, "Softbank just knows Japanese people and culture that much better than we do."
Thus far, internet company respondents have typically chosen countries which they believe, rightly or wrongly, have a similar culture to China, such as Japan and Southeast Asian countries. Social networking respondents in particular target countries with large overseas Chinese communities. Understanding local cultures will be especially critical for internet companies.
Challenges
Both internet and software company respondents consider finding the right talent mix the biggest challenge in overseas expansion. Most Chinese software companies are still in the stage of doing low value-added processing jobs and producing lower end products, and cannot easily find the talent at home to lead competition with cutting edge international companies. These companies are also having problems finding team members who can liaise between their home and target markets, have the management skills to lead the company in a foreign business environment, or the ability to spearhead marketing efforts abroad.
Many companies look to directly hire foreign talent to help overcome the need for technical skill and gain understanding of the new business environment. One company explained how they recruit heavily from Japan, the USA, and Canada to improve software development capabilities and program management expertise. Another respondent told us, "Right now we hire Chinese people who live or have studied abroad, but that's not enough to really open the main stream market."
Cultural differences are also a major challenge for Chinese software and internet companies, due to varying local needs and tastes, and language barriers in particular. Chinese companies have a hard time competing with Indian companies for language reasons, for example, and while roughly one in five of China's registered software companies have engaged in exporting or outsourcing partnerships, a full 60% of outsourcing business is from Japan, where cultural and language similarities make cooperation much easier.
Going Forward
Finding and keeping the talent necessary to develop localized products and services, and lead companies as they expand in a cross cultural environment will be the top priority as their globalization continues. Chinese companies also cannot make the same mistakes that Ebay (EBAY) and Google (GOOG) made in China, where they were slow to delegate power and localize services for the local communities. This failure to localize and react quickly to local wants is why most foreign internet companies have failed in China. Chinese companies will face the same problems as they move into overseas markets.
Companies should also invest in improving their understanding of the local market and culture, both to facilitate smooth business operations and better tailor products and services to local needs. Overcoming these challenges may require a large initial investment outlay, especially as companies look to increase number of foreign hires while cost of recruiting and retaining labor is increasing dramatically. However, given China's increasingly integrated role in the global market and the consequent demand for products to facilitate communication and trade, such as Alibaba's Japanese website, software and internet companies that make this investment wisely can expect to be rewarded as they expand overseas. But certainly not at Chinese software and internet companies should move abroad -- the difficulty in moving abroad is considerable and the China market might remain the best avenue for growth.
The following is part four of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2 and part 3). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's internet and software industry.
Chinese' increasing access to personal computers and the internet combined with domestic companies' increasing use of complex software in day-to-day business operations have spurred significant growth of China's internet and software companies. Sales in China's software industry have increased nearly tenfold since 2000 from 59.3 billion RMB to 580 billion RMB in 2007. China's online population surpassed the United States' in February 2008, making it the world's largest with approximately 300 million. The fact that around 20% of China's total population is online, versus 71.4% of the US's, suggests the remarkable growth opportunities still present at home.
While many Chinese internet and software companies have decided to focus on skyrocketing demand at home as their main source of growth in the near future, a majority of companies interviewed by CMR have established or plan to establish presence abroad within the next five years, and consider overseas expansion an important part of their strategic growth plans going forward. The internet sector especially will be able to handle the financial downturn better than most sectors as younger, middle class consumers who populate most of the Chinese internet community have indicated to us that they expect to spend the same if not more in 2009 on online games sites like Netease (NTES) or QQ.
Motivations
For those respondents choosing to go abroad, the majority have done so due to demand for their products and services in overseas markets. B2B website Alibaba (HKG:1688) for example, launched a Japanese language version of its website back in 2002 to tap into the enormous growing trade volume between Japan and China--China surpassed the United States to become Japan's largest trading partner in 2006. Baidu (BIDU) announced plans to move its search engine capabilities into Japan to take advantage of similarities in written Chinese and Japanese while firms like news portal Sina (SINA) long have had operations in the US, originally to cater to overseas Chinese.
Software companies in particular also consider brand building a top motivator in the move overseas. Respondents feel developing an international brand image will help them gain the reputation for high end technology and high value-added products that will enable them to charge higher premiums and grow faster at home. They also feel that they won't run into the same piracy problems abroad that they face in China where piracy remains rampant despite an increase in recent years of prosecution by the Chinese Government, such as the recent long-term jail sentences handed out to a group pirating Microsoft's (MSFT) products where their production facilities were larger than Microsoft's own.
Current and Future Operations
Software companies' strategies for going abroad vary by technology and focus area. For example, those producing high-tech, cutting edge software are prioritizing the American and European markets where demand is higher, and clients are willing to pay more for top products. Many companies producing enterprise management software target mainly the Southeast Asian market due to strong demand from the region's manufacturing industry.
Software respondents often choose partnerships and/ or M&A to build their presence abroad. Langchao, for example, formed a joint venture with Japanese software company Shinwa in 2006 to expand its outsourcing market in Japan, and tap into Shinwa's experience in industries including transportation, finance, manufacturing, and education. Global expansion is a top priority for Langchao, which changed its name to Inspur (600756) in April 2006 to make its name easier for foreign clients to pronounce. Inspur hopes to increase sales from overseas markets by as much as 30% by 2010.
The vast majority of internet companies have chosen to target overseas markets via local partnership or M&A. In May 2008 Alibaba announced operations of its Japanese language website would be taken over by a joint venture between Alibaba and Japan's Softbank, a telecommunications and media corporation with operations in broadband, fixed-line telecom, finance, media, e-commerce, and other businesses. Cooperation with Softbank greatly helps Alibaba in all aspects of management and business operations on the ground in Japan, and allows Alibaba direct access to local talent and knowledge of the target market. As explained by Alibaba, "Softbank just knows Japanese people and culture that much better than we do."
Thus far, internet company respondents have typically chosen countries which they believe, rightly or wrongly, have a similar culture to China, such as Japan and Southeast Asian countries. Social networking respondents in particular target countries with large overseas Chinese communities. Understanding local cultures will be especially critical for internet companies.
Challenges
Both internet and software company respondents consider finding the right talent mix the biggest challenge in overseas expansion. Most Chinese software companies are still in the stage of doing low value-added processing jobs and producing lower end products, and cannot easily find the talent at home to lead competition with cutting edge international companies. These companies are also having problems finding team members who can liaise between their home and target markets, have the management skills to lead the company in a foreign business environment, or the ability to spearhead marketing efforts abroad.
Many companies look to directly hire foreign talent to help overcome the need for technical skill and gain understanding of the new business environment. One company explained how they recruit heavily from Japan, the USA, and Canada to improve software development capabilities and program management expertise. Another respondent told us, "Right now we hire Chinese people who live or have studied abroad, but that's not enough to really open the main stream market."
Cultural differences are also a major challenge for Chinese software and internet companies, due to varying local needs and tastes, and language barriers in particular. Chinese companies have a hard time competing with Indian companies for language reasons, for example, and while roughly one in five of China's registered software companies have engaged in exporting or outsourcing partnerships, a full 60% of outsourcing business is from Japan, where cultural and language similarities make cooperation much easier.
Going Forward
Finding and keeping the talent necessary to develop localized products and services, and lead companies as they expand in a cross cultural environment will be the top priority as their globalization continues. Chinese companies also cannot make the same mistakes that Ebay (EBAY) and Google (GOOG) made in China, where they were slow to delegate power and localize services for the local communities. This failure to localize and react quickly to local wants is why most foreign internet companies have failed in China. Chinese companies will face the same problems as they move into overseas markets.
Companies should also invest in improving their understanding of the local market and culture, both to facilitate smooth business operations and better tailor products and services to local needs. Overcoming these challenges may require a large initial investment outlay, especially as companies look to increase number of foreign hires while cost of recruiting and retaining labor is increasing dramatically. However, given China's increasingly integrated role in the global market and the consequent demand for products to facilitate communication and trade, such as Alibaba's Japanese website, software and internet companies that make this investment wisely can expect to be rewarded as they expand overseas. But certainly not at Chinese software and internet companies should move abroad -- the difficulty in moving abroad is considerable and the China market might remain the best avenue for growth.
Chinese Companies Go Abroad: (Part 5: The Alcohol Sector)
Part 5: Alcohol
The following is part four of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3 and part 4). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's alcohol industry.
Reductions in the import tax on foreign-made alcohol from 65% to 14% in the wake of China's entry into the WTO, in combination with RMB appreciation have led to dramatic increase in imports of alcoholic beverages. Foreign drinks currently comprise 10% of the Chinese market from brands like Johnnie Walker (DEO). Wine for instance is becoming more popular a drink during business meetings even if there is still low understanding of how to drink wine. For example, many businessmen will order $1000 USD + bottles of red wine, put in ice cubes, and drink as shots.
As the alcohol market gets increasingly competitive at home, many Chinese liquor companies are looking to expand their own presence overseas.
In interviews with industry leaders, a full 100% of larger respondents had already developed operations overseas. 40% of smaller industry leaders interviewed had either begun the process of moving abroad or planned to begin within the next five years.
Motivations
In addition to seeking opportunities outside the increasingly competitive domestic market, Chinese alcohol companies are going abroad in order to build their brand image, from "simply a Chinese brand" to a "truly international brand". Many respondents are willing to sacrifice short term profits in order to build larger brand awareness and a profitable, international brand image. This is most true in the beer sector, as brands like Tsingtao and Snow compete with foreign makers like InBev (even though foreign firms like InBev (AHBIF.PK) hold stakes in some Chinese producers).
A majority of respondents going abroad also cited large overseas demand as a motivating factor, especially in overseas Chinese communities. Those companies making traditional Chinese alcoholic beverages such as baijiu (white wine) and huangjiu (yellow wine) in particular enjoy strong demand from Asian countries and can target overseas Chinese communities in particular without the investment in marketing and consumer education that would be needed elsewhere.
Methods of Expansion
The majority of companies going abroad have initialized or plan to begin their overseas development in Southeast Asia, where traditional Chinese alcohol already is very popular. Many also already export to the more developed markets of North America and Europe. The majority view gaining market share in developed markets as an important long term goal, as they consider presence there an opportunity to establish a very "premium" brand image and increase brand awareness worldwide.
All respondents plan to export branded products as their main means of developing their overseas presence. A minority of those companies already going abroad are also considering ODI and M&A. Tsingtao Beer, for example, is building a plant in Thailand in order to avoid import duties on beer.
Respondents also mention rising production costs at home due to RMB appreciation and inflation as a factor pushing them abroad; a minority of respondents have plans to establish production facilities in nearby low cost regions to avoid these issues. This shift awy from production facilities in China can explain to some degree why Guangdong's export sector has been hit hard in recent months -- the shift away from China was already occurring before the financial crisis hit due to rising costs and the push by the Chinese Government to transition from an export to a service oriented economy. It has accelerated because of the financial crisis but the trend was already obvious.
Challenges
While demand in nearby Asian countries is encouraging a majority of respondents to expand overseas, cultural differences pose a significant challenge to many respondents as they look to enter non-Asian markets, particularly those whose major products are traditional Chinese alcohols. Liquors such as baijiu and huangjiu are very different in taste and smell from beverages traditionally consumed in the West and other parts of the world. For many potential target markets, respondents feel that increasing sales beyond overseas Chinese communities will involve significant outlay of resources for marketing and consumer education.
Respondents also face the challenge of getting products past international rules and regulations and operating in a new business environment. Most markets, for example, require that all ingredients used in alcohol production be clearly listed on packaging. Many Chinese liquor companies prefer not to reveal all ingredients for the sake of preserving the company's individuality, and the "secrecy of key ingredients", as one respondent explained. Even if they do publish all ingredients, customs duties in markets with huge potential demand prevent respondents from growing as quickly as they might like overseas.
While demand for comparatively cheap Chinese alcohol is huge in Russia, for example, customs duties of 280% limit nearly all import to smuggling.
Going Forward
While baijiu and huangjiu may not fly off the shelves worldwide in the near future, demand for traditional Chinese alcohols in neighboring countries will provide respondents with the opportunity to overcome other challenges described above. We believe Chinese wine is still far away from being accepted by Western palates. The most promising international growth will come from beer companies like Tsingtao and Snow.
Ultimately, marketing and consumer education as well as the inroads provided by overseas Chinese communities will make sale of traditional liquors in markets of different cultural backgrounds a very real opportunity.
The following is part four of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3 and part 4). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's alcohol industry.
Reductions in the import tax on foreign-made alcohol from 65% to 14% in the wake of China's entry into the WTO, in combination with RMB appreciation have led to dramatic increase in imports of alcoholic beverages. Foreign drinks currently comprise 10% of the Chinese market from brands like Johnnie Walker (DEO). Wine for instance is becoming more popular a drink during business meetings even if there is still low understanding of how to drink wine. For example, many businessmen will order $1000 USD + bottles of red wine, put in ice cubes, and drink as shots.
As the alcohol market gets increasingly competitive at home, many Chinese liquor companies are looking to expand their own presence overseas.
In interviews with industry leaders, a full 100% of larger respondents had already developed operations overseas. 40% of smaller industry leaders interviewed had either begun the process of moving abroad or planned to begin within the next five years.
Motivations
In addition to seeking opportunities outside the increasingly competitive domestic market, Chinese alcohol companies are going abroad in order to build their brand image, from "simply a Chinese brand" to a "truly international brand". Many respondents are willing to sacrifice short term profits in order to build larger brand awareness and a profitable, international brand image. This is most true in the beer sector, as brands like Tsingtao and Snow compete with foreign makers like InBev (even though foreign firms like InBev (AHBIF.PK) hold stakes in some Chinese producers).
A majority of respondents going abroad also cited large overseas demand as a motivating factor, especially in overseas Chinese communities. Those companies making traditional Chinese alcoholic beverages such as baijiu (white wine) and huangjiu (yellow wine) in particular enjoy strong demand from Asian countries and can target overseas Chinese communities in particular without the investment in marketing and consumer education that would be needed elsewhere.
Methods of Expansion
The majority of companies going abroad have initialized or plan to begin their overseas development in Southeast Asia, where traditional Chinese alcohol already is very popular. Many also already export to the more developed markets of North America and Europe. The majority view gaining market share in developed markets as an important long term goal, as they consider presence there an opportunity to establish a very "premium" brand image and increase brand awareness worldwide.
All respondents plan to export branded products as their main means of developing their overseas presence. A minority of those companies already going abroad are also considering ODI and M&A. Tsingtao Beer, for example, is building a plant in Thailand in order to avoid import duties on beer.
Respondents also mention rising production costs at home due to RMB appreciation and inflation as a factor pushing them abroad; a minority of respondents have plans to establish production facilities in nearby low cost regions to avoid these issues. This shift awy from production facilities in China can explain to some degree why Guangdong's export sector has been hit hard in recent months -- the shift away from China was already occurring before the financial crisis hit due to rising costs and the push by the Chinese Government to transition from an export to a service oriented economy. It has accelerated because of the financial crisis but the trend was already obvious.
Challenges
While demand in nearby Asian countries is encouraging a majority of respondents to expand overseas, cultural differences pose a significant challenge to many respondents as they look to enter non-Asian markets, particularly those whose major products are traditional Chinese alcohols. Liquors such as baijiu and huangjiu are very different in taste and smell from beverages traditionally consumed in the West and other parts of the world. For many potential target markets, respondents feel that increasing sales beyond overseas Chinese communities will involve significant outlay of resources for marketing and consumer education.
Respondents also face the challenge of getting products past international rules and regulations and operating in a new business environment. Most markets, for example, require that all ingredients used in alcohol production be clearly listed on packaging. Many Chinese liquor companies prefer not to reveal all ingredients for the sake of preserving the company's individuality, and the "secrecy of key ingredients", as one respondent explained. Even if they do publish all ingredients, customs duties in markets with huge potential demand prevent respondents from growing as quickly as they might like overseas.
While demand for comparatively cheap Chinese alcohol is huge in Russia, for example, customs duties of 280% limit nearly all import to smuggling.
Going Forward
While baijiu and huangjiu may not fly off the shelves worldwide in the near future, demand for traditional Chinese alcohols in neighboring countries will provide respondents with the opportunity to overcome other challenges described above. We believe Chinese wine is still far away from being accepted by Western palates. The most promising international growth will come from beer companies like Tsingtao and Snow.
Ultimately, marketing and consumer education as well as the inroads provided by overseas Chinese communities will make sale of traditional liquors in markets of different cultural backgrounds a very real opportunity.
Chinese Companies Go Abroad (Part 6: The Pharmaceutical Sector)
Part 6: Pharmaceutical
The following is part six of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3, part 4 and part 5). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's pharmaceutical industry.
China's pharmaceutical market will likely become the world's fifth largest by 2010, up from its current rank as ninth, due to rising demand from China's large population and rapidly growing middle class. In light of the financial crisis, the Government has also outlined increased medical coverage and investment as a key priority so that older Chinese feel more comfortable about covering skyrocketing medical costs and start fueling domestic consumption, which should also provide a boost to the sector.
While the industry is still young—90% of China's pharmaceutical manufacturers are small or medium-sized enterprises, and the ten largest companies generate only 13% of the industry's overall revenue, versus 40-50% in developed markets from firms like Merck (MRK) and Pfizer (PFE) — many companies are already looking overseas for their next growth opportunities going forward. Of industry leaders interviewed, all large industry leaders have either already gone abroad or plan to go abroad within the next five years. Sixty percent of smaller industry leaders have also begun the push overseas.
Motivations
Nearly all respondents who have begun the process of moving overseas or plan to begin within the next five years cite building brand awareness and a trusted brand image domestically as their top priority in the move abroad. Trust is incredibly important as Chinese consumers do not trust many brands -- especially the quality of the ingredients. Most consumers we interviewed were not surprised that there was a dairy scandal here. They were surprised that it was melamine and that certain "trusted" brands like Mengniu and Yili got caught up in the mess.
Pharmaceutical company respondents understood that they operate in a low trust environment and hope that a strong brand image can be used for strategic purposes to increase market share. As one respondent explained, "we believe in winning by the brand. Once you develop a good brand image you can use it as a tool to open further opportunities and create a bigger market." Creating a strong brand image and building brand awareness is especially critical to China's pharmaceutical companies as they look to win consumers' trust in the quality, safety, and effectiveness of their products.
Current Operations
The vast majority of respondents who have begun to move overseas have currently established presence in emerging markets such as Russia, Central and Southeast Asia, and Africa. Emerging markets are a popular destination for Chinese pharmaceutical companies due to their less-strict product requirements and regulatory mechanisms, which often bar entry to more developed markets. Emerging markets are also attractive due to high demand for drugs treating illnesses specific to those areas.
For those respondents mainly producing traditional Chinese medicine (TCM), Asian countries with cultural background similar to China for TCM such as Japan, Korea, and Southeast Asia have been the main targets for overseas expansion due to their large existing demand.
Still, all respondents consider developing a profitable presence in the developed American and/ or European markets their ultimate goal in going abroad. Many have already begun to establish themselves in these markets. As one respondent explained, "the American and European markets together dominate over 70% of the global pharmaceutical industry. If you want to be a truly global brand, you must have presence there." In addition to sheer size of the markets, Chinese pharmaceuticals seek entry into these countries where product standards and regulations are higher as a way of proving the quality of their products and further strengthening brand image, which they hope to use to gain influence and credibility in other markets worldwide.
Methods of Expansion
While respondents are using a variety of different strategies to enter overseas markets, all those that have already established presence abroad have begun by pure export of branded products. One respondent's exports to Russia, Europe, Africa, and America totaled $100 million in 2007.
Going forward, many of the larger industry leaders plan to develop partnerships in their target markets, usually via joint venture or collaboration with research institutions or other MNCs, and/ or set up production and R&D centers abroad. Respondents value such partnerships as easier access routes to worldwide markets, allowing them to build their understanding of the local consumer product demand and the regulatory environment without having to start from scratch. Guangzhou Pharmaceutical Company Ltd., for example, recently established a joint venture with English pharmaceutical giant Alliance Boots. Among other things, their venture provides avenues for both companies' product distribution through wholesale and retail channels in their respective target markets.
Challenges
Respondents identify cultural differences as the most challenging obstacle facing them in their move overseas. TCM manufacturers in particular fear difficulty finding demand for their drugs in Western markets, given that raw ingredients, and medicine characteristics such as taste and smell differ greatly from Western medicine's. Thus, while a full 80% of respondents produce TCM for the domestic market, only 20% of respondents are looking to take their TCM products abroad.
Chinese pharmaceutical companies also face challenges in obtaining official drug certifications especially in developed markets like Europe and the U.S., where they must go above and beyond what is necessary to meet standards of their own State Food and Drug Administration at home.
75% of respondents moving abroad also feel finding top talent with innovative ability and cutting edge technical knowledge to be a major challenge going forward.
Going Forward
While the Chinese pharmaceutical industry is still quite young and in many ways underdeveloped at home, many companies are already making meaningful inroads into overseas markets. This presence will increase going forward as respect for intellectual property grows and China's innovative capabilities improve in turn, and Chinese who have spent years training abroad return to take advantage of opportunities at home. Together with the Chinese government's dedication to improving R&D capabilities of Chinese universities and research institutions, China is poised to become a leader of innovation in the not so distant future. In the meantime, continued partnerships with MNCs and leading research institutions will offer Chinese pharma companies insight into the workings of international pharmaceutical markets, and access to advanced technology and resources that will further strengthen their abilities as innovators and leaders of the global pharmaceutical industry.
The following is part six of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3, part 4 and part 5). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's pharmaceutical industry.
China's pharmaceutical market will likely become the world's fifth largest by 2010, up from its current rank as ninth, due to rising demand from China's large population and rapidly growing middle class. In light of the financial crisis, the Government has also outlined increased medical coverage and investment as a key priority so that older Chinese feel more comfortable about covering skyrocketing medical costs and start fueling domestic consumption, which should also provide a boost to the sector.
While the industry is still young—90% of China's pharmaceutical manufacturers are small or medium-sized enterprises, and the ten largest companies generate only 13% of the industry's overall revenue, versus 40-50% in developed markets from firms like Merck (MRK) and Pfizer (PFE) — many companies are already looking overseas for their next growth opportunities going forward. Of industry leaders interviewed, all large industry leaders have either already gone abroad or plan to go abroad within the next five years. Sixty percent of smaller industry leaders have also begun the push overseas.
Motivations
Nearly all respondents who have begun the process of moving overseas or plan to begin within the next five years cite building brand awareness and a trusted brand image domestically as their top priority in the move abroad. Trust is incredibly important as Chinese consumers do not trust many brands -- especially the quality of the ingredients. Most consumers we interviewed were not surprised that there was a dairy scandal here. They were surprised that it was melamine and that certain "trusted" brands like Mengniu and Yili got caught up in the mess.
Pharmaceutical company respondents understood that they operate in a low trust environment and hope that a strong brand image can be used for strategic purposes to increase market share. As one respondent explained, "we believe in winning by the brand. Once you develop a good brand image you can use it as a tool to open further opportunities and create a bigger market." Creating a strong brand image and building brand awareness is especially critical to China's pharmaceutical companies as they look to win consumers' trust in the quality, safety, and effectiveness of their products.
Current Operations
The vast majority of respondents who have begun to move overseas have currently established presence in emerging markets such as Russia, Central and Southeast Asia, and Africa. Emerging markets are a popular destination for Chinese pharmaceutical companies due to their less-strict product requirements and regulatory mechanisms, which often bar entry to more developed markets. Emerging markets are also attractive due to high demand for drugs treating illnesses specific to those areas.
For those respondents mainly producing traditional Chinese medicine (TCM), Asian countries with cultural background similar to China for TCM such as Japan, Korea, and Southeast Asia have been the main targets for overseas expansion due to their large existing demand.
Still, all respondents consider developing a profitable presence in the developed American and/ or European markets their ultimate goal in going abroad. Many have already begun to establish themselves in these markets. As one respondent explained, "the American and European markets together dominate over 70% of the global pharmaceutical industry. If you want to be a truly global brand, you must have presence there." In addition to sheer size of the markets, Chinese pharmaceuticals seek entry into these countries where product standards and regulations are higher as a way of proving the quality of their products and further strengthening brand image, which they hope to use to gain influence and credibility in other markets worldwide.
Methods of Expansion
While respondents are using a variety of different strategies to enter overseas markets, all those that have already established presence abroad have begun by pure export of branded products. One respondent's exports to Russia, Europe, Africa, and America totaled $100 million in 2007.
Going forward, many of the larger industry leaders plan to develop partnerships in their target markets, usually via joint venture or collaboration with research institutions or other MNCs, and/ or set up production and R&D centers abroad. Respondents value such partnerships as easier access routes to worldwide markets, allowing them to build their understanding of the local consumer product demand and the regulatory environment without having to start from scratch. Guangzhou Pharmaceutical Company Ltd., for example, recently established a joint venture with English pharmaceutical giant Alliance Boots. Among other things, their venture provides avenues for both companies' product distribution through wholesale and retail channels in their respective target markets.
Challenges
Respondents identify cultural differences as the most challenging obstacle facing them in their move overseas. TCM manufacturers in particular fear difficulty finding demand for their drugs in Western markets, given that raw ingredients, and medicine characteristics such as taste and smell differ greatly from Western medicine's. Thus, while a full 80% of respondents produce TCM for the domestic market, only 20% of respondents are looking to take their TCM products abroad.
Chinese pharmaceutical companies also face challenges in obtaining official drug certifications especially in developed markets like Europe and the U.S., where they must go above and beyond what is necessary to meet standards of their own State Food and Drug Administration at home.
75% of respondents moving abroad also feel finding top talent with innovative ability and cutting edge technical knowledge to be a major challenge going forward.
Going Forward
While the Chinese pharmaceutical industry is still quite young and in many ways underdeveloped at home, many companies are already making meaningful inroads into overseas markets. This presence will increase going forward as respect for intellectual property grows and China's innovative capabilities improve in turn, and Chinese who have spent years training abroad return to take advantage of opportunities at home. Together with the Chinese government's dedication to improving R&D capabilities of Chinese universities and research institutions, China is poised to become a leader of innovation in the not so distant future. In the meantime, continued partnerships with MNCs and leading research institutions will offer Chinese pharma companies insight into the workings of international pharmaceutical markets, and access to advanced technology and resources that will further strengthen their abilities as innovators and leaders of the global pharmaceutical industry.
Chinese Companies Go Abroad (Part 6: The Pharmaceutical Sector)
Part 6: Pharmaceutical
The following is part six of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3, part 4 and part 5). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's pharmaceutical industry.
China's pharmaceutical market will likely become the world's fifth largest by 2010, up from its current rank as ninth, due to rising demand from China's large population and rapidly growing middle class. In light of the financial crisis, the Government has also outlined increased medical coverage and investment as a key priority so that older Chinese feel more comfortable about covering skyrocketing medical costs and start fueling domestic consumption, which should also provide a boost to the sector.
While the industry is still young—90% of China's pharmaceutical manufacturers are small or medium-sized enterprises, and the ten largest companies generate only 13% of the industry's overall revenue, versus 40-50% in developed markets from firms like Merck (MRK) and Pfizer (PFE) — many companies are already looking overseas for their next growth opportunities going forward. Of industry leaders interviewed, all large industry leaders have either already gone abroad or plan to go abroad within the next five years. Sixty percent of smaller industry leaders have also begun the push overseas.
Motivations
Nearly all respondents who have begun the process of moving overseas or plan to begin within the next five years cite building brand awareness and a trusted brand image domestically as their top priority in the move abroad. Trust is incredibly important as Chinese consumers do not trust many brands -- especially the quality of the ingredients. Most consumers we interviewed were not surprised that there was a dairy scandal here. They were surprised that it was melamine and that certain "trusted" brands like Mengniu and Yili got caught up in the mess.
Pharmaceutical company respondents understood that they operate in a low trust environment and hope that a strong brand image can be used for strategic purposes to increase market share. As one respondent explained, "we believe in winning by the brand. Once you develop a good brand image you can use it as a tool to open further opportunities and create a bigger market." Creating a strong brand image and building brand awareness is especially critical to China's pharmaceutical companies as they look to win consumers' trust in the quality, safety, and effectiveness of their products.
Current Operations
The vast majority of respondents who have begun to move overseas have currently established presence in emerging markets such as Russia, Central and Southeast Asia, and Africa. Emerging markets are a popular destination for Chinese pharmaceutical companies due to their less-strict product requirements and regulatory mechanisms, which often bar entry to more developed markets. Emerging markets are also attractive due to high demand for drugs treating illnesses specific to those areas.
For those respondents mainly producing traditional Chinese medicine (TCM), Asian countries with cultural background similar to China for TCM such as Japan, Korea, and Southeast Asia have been the main targets for overseas expansion due to their large existing demand.
Still, all respondents consider developing a profitable presence in the developed American and/ or European markets their ultimate goal in going abroad. Many have already begun to establish themselves in these markets. As one respondent explained, "the American and European markets together dominate over 70% of the global pharmaceutical industry. If you want to be a truly global brand, you must have presence there." In addition to sheer size of the markets, Chinese pharmaceuticals seek entry into these countries where product standards and regulations are higher as a way of proving the quality of their products and further strengthening brand image, which they hope to use to gain influence and credibility in other markets worldwide.
Methods of Expansion
While respondents are using a variety of different strategies to enter overseas markets, all those that have already established presence abroad have begun by pure export of branded products. One respondent's exports to Russia, Europe, Africa, and America totaled $100 million in 2007.
Going forward, many of the larger industry leaders plan to develop partnerships in their target markets, usually via joint venture or collaboration with research institutions or other MNCs, and/ or set up production and R&D centers abroad. Respondents value such partnerships as easier access routes to worldwide markets, allowing them to build their understanding of the local consumer product demand and the regulatory environment without having to start from scratch. Guangzhou Pharmaceutical Company Ltd., for example, recently established a joint venture with English pharmaceutical giant Alliance Boots. Among other things, their venture provides avenues for both companies' product distribution through wholesale and retail channels in their respective target markets.
Challenges
Respondents identify cultural differences as the most challenging obstacle facing them in their move overseas. TCM manufacturers in particular fear difficulty finding demand for their drugs in Western markets, given that raw ingredients, and medicine characteristics such as taste and smell differ greatly from Western medicine's. Thus, while a full 80% of respondents produce TCM for the domestic market, only 20% of respondents are looking to take their TCM products abroad.
Chinese pharmaceutical companies also face challenges in obtaining official drug certifications especially in developed markets like Europe and the U.S., where they must go above and beyond what is necessary to meet standards of their own State Food and Drug Administration at home.
75% of respondents moving abroad also feel finding top talent with innovative ability and cutting edge technical knowledge to be a major challenge going forward.
Going Forward
While the Chinese pharmaceutical industry is still quite young and in many ways underdeveloped at home, many companies are already making meaningful inroads into overseas markets. This presence will increase going forward as respect for intellectual property grows and China's innovative capabilities improve in turn, and Chinese who have spent years training abroad return to take advantage of opportunities at home. Together with the Chinese government's dedication to improving R&D capabilities of Chinese universities and research institutions, China is poised to become a leader of innovation in the not so distant future. In the meantime, continued partnerships with MNCs and leading research institutions will offer Chinese pharma companies insight into the workings of international pharmaceutical markets, and access to advanced technology and resources that will further strengthen their abilities as innovators and leaders of the global pharmaceutical industry.
The following is part six of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3, part 4 and part 5). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's pharmaceutical industry.
China's pharmaceutical market will likely become the world's fifth largest by 2010, up from its current rank as ninth, due to rising demand from China's large population and rapidly growing middle class. In light of the financial crisis, the Government has also outlined increased medical coverage and investment as a key priority so that older Chinese feel more comfortable about covering skyrocketing medical costs and start fueling domestic consumption, which should also provide a boost to the sector.
While the industry is still young—90% of China's pharmaceutical manufacturers are small or medium-sized enterprises, and the ten largest companies generate only 13% of the industry's overall revenue, versus 40-50% in developed markets from firms like Merck (MRK) and Pfizer (PFE) — many companies are already looking overseas for their next growth opportunities going forward. Of industry leaders interviewed, all large industry leaders have either already gone abroad or plan to go abroad within the next five years. Sixty percent of smaller industry leaders have also begun the push overseas.
Motivations
Nearly all respondents who have begun the process of moving overseas or plan to begin within the next five years cite building brand awareness and a trusted brand image domestically as their top priority in the move abroad. Trust is incredibly important as Chinese consumers do not trust many brands -- especially the quality of the ingredients. Most consumers we interviewed were not surprised that there was a dairy scandal here. They were surprised that it was melamine and that certain "trusted" brands like Mengniu and Yili got caught up in the mess.
Pharmaceutical company respondents understood that they operate in a low trust environment and hope that a strong brand image can be used for strategic purposes to increase market share. As one respondent explained, "we believe in winning by the brand. Once you develop a good brand image you can use it as a tool to open further opportunities and create a bigger market." Creating a strong brand image and building brand awareness is especially critical to China's pharmaceutical companies as they look to win consumers' trust in the quality, safety, and effectiveness of their products.
Current Operations
The vast majority of respondents who have begun to move overseas have currently established presence in emerging markets such as Russia, Central and Southeast Asia, and Africa. Emerging markets are a popular destination for Chinese pharmaceutical companies due to their less-strict product requirements and regulatory mechanisms, which often bar entry to more developed markets. Emerging markets are also attractive due to high demand for drugs treating illnesses specific to those areas.
For those respondents mainly producing traditional Chinese medicine (TCM), Asian countries with cultural background similar to China for TCM such as Japan, Korea, and Southeast Asia have been the main targets for overseas expansion due to their large existing demand.
Still, all respondents consider developing a profitable presence in the developed American and/ or European markets their ultimate goal in going abroad. Many have already begun to establish themselves in these markets. As one respondent explained, "the American and European markets together dominate over 70% of the global pharmaceutical industry. If you want to be a truly global brand, you must have presence there." In addition to sheer size of the markets, Chinese pharmaceuticals seek entry into these countries where product standards and regulations are higher as a way of proving the quality of their products and further strengthening brand image, which they hope to use to gain influence and credibility in other markets worldwide.
Methods of Expansion
While respondents are using a variety of different strategies to enter overseas markets, all those that have already established presence abroad have begun by pure export of branded products. One respondent's exports to Russia, Europe, Africa, and America totaled $100 million in 2007.
Going forward, many of the larger industry leaders plan to develop partnerships in their target markets, usually via joint venture or collaboration with research institutions or other MNCs, and/ or set up production and R&D centers abroad. Respondents value such partnerships as easier access routes to worldwide markets, allowing them to build their understanding of the local consumer product demand and the regulatory environment without having to start from scratch. Guangzhou Pharmaceutical Company Ltd., for example, recently established a joint venture with English pharmaceutical giant Alliance Boots. Among other things, their venture provides avenues for both companies' product distribution through wholesale and retail channels in their respective target markets.
Challenges
Respondents identify cultural differences as the most challenging obstacle facing them in their move overseas. TCM manufacturers in particular fear difficulty finding demand for their drugs in Western markets, given that raw ingredients, and medicine characteristics such as taste and smell differ greatly from Western medicine's. Thus, while a full 80% of respondents produce TCM for the domestic market, only 20% of respondents are looking to take their TCM products abroad.
Chinese pharmaceutical companies also face challenges in obtaining official drug certifications especially in developed markets like Europe and the U.S., where they must go above and beyond what is necessary to meet standards of their own State Food and Drug Administration at home.
75% of respondents moving abroad also feel finding top talent with innovative ability and cutting edge technical knowledge to be a major challenge going forward.
Going Forward
While the Chinese pharmaceutical industry is still quite young and in many ways underdeveloped at home, many companies are already making meaningful inroads into overseas markets. This presence will increase going forward as respect for intellectual property grows and China's innovative capabilities improve in turn, and Chinese who have spent years training abroad return to take advantage of opportunities at home. Together with the Chinese government's dedication to improving R&D capabilities of Chinese universities and research institutions, China is poised to become a leader of innovation in the not so distant future. In the meantime, continued partnerships with MNCs and leading research institutions will offer Chinese pharma companies insight into the workings of international pharmaceutical markets, and access to advanced technology and resources that will further strengthen their abilities as innovators and leaders of the global pharmaceutical industry.
Chinese Companies Go Abroad (Part 7: The Fast Moving Consumer Goods Sector)
Part 7: Fast Moving Consumer Goods (FMCG)
The following is part seven of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3, part 4, part 5 and part 6). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's FMCG industry.
The Chinese FMCG industry has grown dramatically over the past decade in step with rapidly increasing disposable incomes and improving economic conditions. Not only are China's 250 million strong middle class buying more products from companies like Estee Lauder (EL) and Johnson & Johnson (JNJ), but China's 800 million new consumer, formerly peasants, are now just becoming part of the global ecosystem and buying products from P&G (PG) and Clorox (CLX). Chinese FMCG companies are increasingly looking to go abroad in search of profit and growth opportunities. A full 100% of large industry leaders interviewed by CMR have already started moving overseas, and nearly half of smaller industry leaders plan to start moving overseas within the next five years.
Motivations
Of those companies who have already started to move overseas, the majority are doing so in response to large demand for their products, particularly from emerging markets. Given increasing competition at home from both domestic and international rivals, these markets are an attractive place for companies to grow, increase competitiveness and profits.
Respondents also hope establishing overseas presence will help them build brand awareness and improve brand image by adding cache to their brand, allowing them to market themselves as a true international brand, both abroad and at home. "We need to enhance our brand's image and build up brand loyalty among consumers, which is a key for FMCG company to grow big and stay alive," explained one large industry leader.
Current Situation
The majority of respondents have started their move overseas by targeting emerging markets, where regulations and quality standards for imported goods are more lenient and consumers seek cheaper but "good enough" products. Respondents can easily undersell the competition in emerging markets and win market share, helping to generate revenues and brand awareness. Neighboring areas such as Russia and Mongolia, and Southeast Asian countries are particularly attractive due to the comparatively low cost of transport and the desire for consumers to buy on price rather than brand.
Still, respondents consider establishing brand image and winning market share in developed markets their ultimate goal. Most respondents have already begun to target North American, European, and Japanese markets; the remainder of those respondents who have started to move abroad plan to target these markets within the next five years.
Most respondents are relying on pure export strategy to grow their presence overseas, of branded products or a combination of branded and OEM products. Two respondents have also set up R&D centers abroad to build the technological capabilities and consumer insights that will allow them to better serve local markets and build a profitable brand image.
Future Expansion
Respondents plan to enter developed markets via export and establishment of R&D centers, production facilities, partnerships and/ or joint ventures for product marketing and distribution, and local insight. As one respondent company stated, "establishing a joint venture with the right contracted partner would be extremely helpful for us because they will provide the necessary network and expertise for local success."
Challenges
Respondents feel passing international rules and regulations will pose the biggest challenge in moving overseas, and into developed markets in particular. For instance, exported cosmetics must be approved by the FDA if meant for sale in the U.S. market. Some interviewees have also mentioned that the fees for obtaining product certifications, especially in the U.S. and Europe, are high enough to pose a barrier to entry in and of themselves. As one respondent explained, "if we want to enter American or European market, we need to pay several hundred thousand dollars or Euros to get the right certification. The issue is the money, not the technology." Respondents also reported understanding local culture and business environment, as well as finding the right talent to lead their companies overseas to be considerable challenges.
Many respondents complained about the rising costs of raw materials at home, and RMB appreciation, factors that are motivating some companies to develop production facilities abroad.
The other critical challenge for many Chinese FMCG companies is creating a brand image that is not just about price. Many companies compete in China on price, essentially commoditizing themselves, or by positioning themselves as the best Chinese brand so patriotic Chinese should consumer their products. While a low-pricing strategy might trigger short-term sales, it is not a long-term strategy in markets where consumers are gettting wealthier and will not create brand loyalty. Clearly, the patriotic card won't work outside of China.
Going Forward
Chinese FMCG companies have already made significant progress in establishing overseas presence. Going forward, they should continue to establish partnerships and/ or joint ventures in their target markets in order to better understand local conditions and overcome the challenges of cultural differences, new business environment, and how to pass international regulations and laws. Partnering with third party experts such as law firms and marketing agencies can also help provide necessary insight into how best to operate in the target market and reach its consumers.
Most importantly, they need to learn how to compete on more than just price and learn how to connect emotionally with Western consumers. This starts with analying their brand positioning at home and creating a global brand image.
The following is part seven of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3, part 4, part 5 and part 6). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's FMCG industry.
The Chinese FMCG industry has grown dramatically over the past decade in step with rapidly increasing disposable incomes and improving economic conditions. Not only are China's 250 million strong middle class buying more products from companies like Estee Lauder (EL) and Johnson & Johnson (JNJ), but China's 800 million new consumer, formerly peasants, are now just becoming part of the global ecosystem and buying products from P&G (PG) and Clorox (CLX). Chinese FMCG companies are increasingly looking to go abroad in search of profit and growth opportunities. A full 100% of large industry leaders interviewed by CMR have already started moving overseas, and nearly half of smaller industry leaders plan to start moving overseas within the next five years.
Motivations
Of those companies who have already started to move overseas, the majority are doing so in response to large demand for their products, particularly from emerging markets. Given increasing competition at home from both domestic and international rivals, these markets are an attractive place for companies to grow, increase competitiveness and profits.
Respondents also hope establishing overseas presence will help them build brand awareness and improve brand image by adding cache to their brand, allowing them to market themselves as a true international brand, both abroad and at home. "We need to enhance our brand's image and build up brand loyalty among consumers, which is a key for FMCG company to grow big and stay alive," explained one large industry leader.
Current Situation
The majority of respondents have started their move overseas by targeting emerging markets, where regulations and quality standards for imported goods are more lenient and consumers seek cheaper but "good enough" products. Respondents can easily undersell the competition in emerging markets and win market share, helping to generate revenues and brand awareness. Neighboring areas such as Russia and Mongolia, and Southeast Asian countries are particularly attractive due to the comparatively low cost of transport and the desire for consumers to buy on price rather than brand.
Still, respondents consider establishing brand image and winning market share in developed markets their ultimate goal. Most respondents have already begun to target North American, European, and Japanese markets; the remainder of those respondents who have started to move abroad plan to target these markets within the next five years.
Most respondents are relying on pure export strategy to grow their presence overseas, of branded products or a combination of branded and OEM products. Two respondents have also set up R&D centers abroad to build the technological capabilities and consumer insights that will allow them to better serve local markets and build a profitable brand image.
Future Expansion
Respondents plan to enter developed markets via export and establishment of R&D centers, production facilities, partnerships and/ or joint ventures for product marketing and distribution, and local insight. As one respondent company stated, "establishing a joint venture with the right contracted partner would be extremely helpful for us because they will provide the necessary network and expertise for local success."
Challenges
Respondents feel passing international rules and regulations will pose the biggest challenge in moving overseas, and into developed markets in particular. For instance, exported cosmetics must be approved by the FDA if meant for sale in the U.S. market. Some interviewees have also mentioned that the fees for obtaining product certifications, especially in the U.S. and Europe, are high enough to pose a barrier to entry in and of themselves. As one respondent explained, "if we want to enter American or European market, we need to pay several hundred thousand dollars or Euros to get the right certification. The issue is the money, not the technology." Respondents also reported understanding local culture and business environment, as well as finding the right talent to lead their companies overseas to be considerable challenges.
Many respondents complained about the rising costs of raw materials at home, and RMB appreciation, factors that are motivating some companies to develop production facilities abroad.
The other critical challenge for many Chinese FMCG companies is creating a brand image that is not just about price. Many companies compete in China on price, essentially commoditizing themselves, or by positioning themselves as the best Chinese brand so patriotic Chinese should consumer their products. While a low-pricing strategy might trigger short-term sales, it is not a long-term strategy in markets where consumers are gettting wealthier and will not create brand loyalty. Clearly, the patriotic card won't work outside of China.
Going Forward
Chinese FMCG companies have already made significant progress in establishing overseas presence. Going forward, they should continue to establish partnerships and/ or joint ventures in their target markets in order to better understand local conditions and overcome the challenges of cultural differences, new business environment, and how to pass international regulations and laws. Partnering with third party experts such as law firms and marketing agencies can also help provide necessary insight into how best to operate in the target market and reach its consumers.
Most importantly, they need to learn how to compete on more than just price and learn how to connect emotionally with Western consumers. This starts with analying their brand positioning at home and creating a global brand image.
Chinese Companies Go Abroad (Part 8: The Apparel Sector)
Part 8: Apparel
The following is part eight of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3, part 4, part 5, part 6 and part 7). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's apparel industry.
CMR interviews with leading Chinese clothing companies found that all large industry leaders have either started moving overseas or plan to begin the move within the next five years. Smaller industry leaders are also moving abroad – 40% have already established an overseas presence.
Motivations
In order to fully take advantage of overseas growth opportunities, respondent companies are focusing now on building brand awareness and a profitable brand image worldwide; five out of seven respondents with plans to move abroad consider brand building their number one priority in the process. Respondents are willing to forego short term revenue growth in order to gain overseas brand awareness.
Respondents are also moving overseas to escape fierce domestic competition, and capitalize on demand for their products in overseas markets. The apparel market is growing quickly in China with retail sales growing around 20% in 2008. While we expect sales will drop due to the financial crisis, the apparel sector remains relatively robust. Brands like Zara, H&M (HMRZF.PK) , C&A, and Uniqlo are capturing considerable market share while luxury brands like Zegna and Louis Vuitton still expect positive growth in 2009.
Current Situation
All respondents that have already started moving overseas have established presence in North American markets, mainly the United States. 80% have operations in Europe, and 80% have operations in emerging markets.
In addition to the sheer size of the markets, Chinese textile companies are targeting Europe and America to add prestige to their brands and prove to consumers worldwide that their products are of top quality and style. As one respondent explained, "if you want to be successful, you cannot miss out on the European and American markets. For one, the markets are huge, but also being able to sell in the US and Europe is good for brand image."
Nearly all respondents are also targeting emerging markets, hoping to tap into rapidly growing demand for good quality products at slightly lower prices. Most respondents believe that the "Made in China" label will not hurt their chances for moving abroad as most foeign brands, even high-end ones, manufacture all or part of their apparel in China.
The vast majority of respondent companies started their expansion overseas via OEM exports, as a way to not only tap into overseas demand but to learn about market characteristics and gain experience operating in a new business environment. Respondents have gradually been switching to export of their own branded products, as well as establishing joint ventures with international organizations and corporations to ensure a more sustainable overseas growth path.
All respondents consider American and European markets their highest priority target markets for the next five years, for reasons described above. Roughly half of respondents are also prioritizing emerging markets for their rapid economic growth, such as Russia, Vietnam, and South Korea.
The majority of respondents intend to continue pursuing an export-focused plan for growth abroad. Half of respondents are also choosing partnership as a means of expansion, either through establishment of joint venture companies or less formal cooperation. One respondent, for example, is collaborating with Italian and German designers in order to better cater its products to the taste of the local target market. A minority of respondents are actively pursing M&A as a means of gaining market access and further insight into local tastes and effective marketing strategies. Li-Ning (02331) has chosen to raise brand awareness overseas and compete against Nike (NKE) and Reebok (RBK) through sponsorship of NBA athletes Shaquille O'Neal, Damon Jones, and Chuck Hayes. Company founder and Olympic gold medalist Li Ning also drew significant attention to the company when he lit the torch during the opening ceremony of the 2008 Beijing Olympics.
Challenges
A majority of respondents consider overcoming cultural differences one of the largest challenges they face in moving abroad, since taste in style and fashion vary greatly between markets. Thus companies that tout the "Chinese" appearance of their products as a selling point at home may have a harder time selling abroad in markets with different style preferences.
Over half of respondents consider finding employees with the appropriate skill set a big problem in expanding overseas. Many respondents are looking abroad to hire employees with knowledge of local taste in products and fashion trends, experience in innovation and design, as well as the managerial skills needed to lead company development.
Over half of respondents going abroad also consider getting past international regulations and laws to be a significant challenge. Quotas and other import restrictions, for example, seriously limit the amount of goods respondents can sell in many of their target markets. The fear of trade protectionism is rising with the financial crisis as local constituents push Governments to preserves jobs and implement quotas.
Respondents also mentioned other important challenges including learning how to operate in a new business environment and setting up the appropriate organization structure to ensure smooth coordination between home and overseas offices, rising wages and raw materials costs, and appreciation of the RMB.
Going Forward
Still, respondents are optimistic in their abilities to overcome these challenges going forward. Those that have already gone abroad or plan to begin the move within the next five years consider overseas expansion very important to their companies' development, and are willing to sacrifice where need be in order to realize their goals. To be successful, companies will need to determine the right brand image and marketing communication strategy and cater the designs for local tastes.
The following is part eight of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3, part 4, part 5, part 6 and part 7). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's apparel industry.
CMR interviews with leading Chinese clothing companies found that all large industry leaders have either started moving overseas or plan to begin the move within the next five years. Smaller industry leaders are also moving abroad – 40% have already established an overseas presence.
Motivations
In order to fully take advantage of overseas growth opportunities, respondent companies are focusing now on building brand awareness and a profitable brand image worldwide; five out of seven respondents with plans to move abroad consider brand building their number one priority in the process. Respondents are willing to forego short term revenue growth in order to gain overseas brand awareness.
Respondents are also moving overseas to escape fierce domestic competition, and capitalize on demand for their products in overseas markets. The apparel market is growing quickly in China with retail sales growing around 20% in 2008. While we expect sales will drop due to the financial crisis, the apparel sector remains relatively robust. Brands like Zara, H&M (HMRZF.PK) , C&A, and Uniqlo are capturing considerable market share while luxury brands like Zegna and Louis Vuitton still expect positive growth in 2009.
Current Situation
All respondents that have already started moving overseas have established presence in North American markets, mainly the United States. 80% have operations in Europe, and 80% have operations in emerging markets.
In addition to the sheer size of the markets, Chinese textile companies are targeting Europe and America to add prestige to their brands and prove to consumers worldwide that their products are of top quality and style. As one respondent explained, "if you want to be successful, you cannot miss out on the European and American markets. For one, the markets are huge, but also being able to sell in the US and Europe is good for brand image."
Nearly all respondents are also targeting emerging markets, hoping to tap into rapidly growing demand for good quality products at slightly lower prices. Most respondents believe that the "Made in China" label will not hurt their chances for moving abroad as most foeign brands, even high-end ones, manufacture all or part of their apparel in China.
The vast majority of respondent companies started their expansion overseas via OEM exports, as a way to not only tap into overseas demand but to learn about market characteristics and gain experience operating in a new business environment. Respondents have gradually been switching to export of their own branded products, as well as establishing joint ventures with international organizations and corporations to ensure a more sustainable overseas growth path.
All respondents consider American and European markets their highest priority target markets for the next five years, for reasons described above. Roughly half of respondents are also prioritizing emerging markets for their rapid economic growth, such as Russia, Vietnam, and South Korea.
The majority of respondents intend to continue pursuing an export-focused plan for growth abroad. Half of respondents are also choosing partnership as a means of expansion, either through establishment of joint venture companies or less formal cooperation. One respondent, for example, is collaborating with Italian and German designers in order to better cater its products to the taste of the local target market. A minority of respondents are actively pursing M&A as a means of gaining market access and further insight into local tastes and effective marketing strategies. Li-Ning (02331) has chosen to raise brand awareness overseas and compete against Nike (NKE) and Reebok (RBK) through sponsorship of NBA athletes Shaquille O'Neal, Damon Jones, and Chuck Hayes. Company founder and Olympic gold medalist Li Ning also drew significant attention to the company when he lit the torch during the opening ceremony of the 2008 Beijing Olympics.
Challenges
A majority of respondents consider overcoming cultural differences one of the largest challenges they face in moving abroad, since taste in style and fashion vary greatly between markets. Thus companies that tout the "Chinese" appearance of their products as a selling point at home may have a harder time selling abroad in markets with different style preferences.
Over half of respondents consider finding employees with the appropriate skill set a big problem in expanding overseas. Many respondents are looking abroad to hire employees with knowledge of local taste in products and fashion trends, experience in innovation and design, as well as the managerial skills needed to lead company development.
Over half of respondents going abroad also consider getting past international regulations and laws to be a significant challenge. Quotas and other import restrictions, for example, seriously limit the amount of goods respondents can sell in many of their target markets. The fear of trade protectionism is rising with the financial crisis as local constituents push Governments to preserves jobs and implement quotas.
Respondents also mentioned other important challenges including learning how to operate in a new business environment and setting up the appropriate organization structure to ensure smooth coordination between home and overseas offices, rising wages and raw materials costs, and appreciation of the RMB.
Going Forward
Still, respondents are optimistic in their abilities to overcome these challenges going forward. Those that have already gone abroad or plan to begin the move within the next five years consider overseas expansion very important to their companies' development, and are willing to sacrifice where need be in order to realize their goals. To be successful, companies will need to determine the right brand image and marketing communication strategy and cater the designs for local tastes.
Chinese Companies Go Abroad (Part 9: The Food and Beverage Sector)
Part 9: Food and Beverage
The following is part nine of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3, part 4, part 5, part 6, part 7 and part 8). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's food and beverage industry.
The food and beverage industry is another Chinese industry in which the vast majority of large industry leaders—80% in this case— have already taken meaningful steps in the move to expand overseas.
Motivations
Even after transport, Chinese-produced food and beverage products have a considerable price advantage in overseas markets. All respondent companies who had begun the move cited large demand for such cheaper but comparable quality products as the main reason for their push abroad. Some respondents are using high demand in overseas Chinese communities in particular to make inroads into foreign markets. Beverage company Wahaha, for example, has gotten onto shelves in the US by selling their children's protein and vitamin drinks in Asian specialty stores despite getting embroiled in a nasty and debilitating legal fight with its partner Danone.
In addition to tapping overseas demand, 75% of respondents moving overseas considered building brand reputation a top motivating factor in the move abroad. Passing the strict tests required for entry into overseas markets and being able to label themselves "international" lends a certain amount of status and cache they then hope to use for marketing and further brand building, both abroad and at home. Building trust within the domestic home market is critically important for these brands and Chinese consumers are as worried as American and European consumers about the safety of the products they ingest.
The majority of respondent companies without plans to move abroad in the near future cited the potential of the domestic Chinese market as the main factor keeping their attention at home. Many regional leaders, for example, see a higher return on investment from expansion into other profitable regions within China than from moving into another country as China's 800 million new consumers, formerly peasants, have more disposable incomes and start to drive sales in 4th and 5th tier cities. Smart multinational firms like P&G (PG), Coke (KO), and Cadbury (CBY) are already moving into these areas and targeting these new consumers.
Current Operations
All respondent companies interviewed are taking an export-based approach to going overseas, using distributors to help them identify retailers and establish sales networks in their target markets. Often these companies will choose to partner with overseas Chinese distributors to help bridge cultural gaps and other communication challenges. Distributors often also fill a more general, all-purpose advisor role, advising companies on how to best to move forward given local laws and market conditions.
In addition to exporting under their own brand, 50% of respondents going abroad are selling generic products to local retailers. While this does not directly help build brand reputation, it helps companies gain experience in an international business environment. Furthermore, working with a major retail partner like Wal-Mart (WMT) provides an opportunity to learn from a market leader. In general, these sort of partnerships are a good opportunity to learn about foreign regulations, market conditions, and consumer preferences without having to cough up for marketing or worry about finding the right sales channels.
Currently the most popular destination for Chinese food and beverage exports is emerging markets. 100% of respondent companies moving abroad export to countries and regions such as Southeast Asia, Eastern Europe, Russia, and Africa. The majority also export to developed markets in Europe and North America, and all plan to increase their focus there going forward.
While these companies plan to continue to use export as their main method of overseas expansion for near future, they are exploring ways other ways of pushing their overseas development. One respondent, for example, is currently considering developing a factory abroad to help reduce transportation costs and the trouble of import/export rules and tariffs.
Challenges
Maintaining a top quality product is the highest concern for companies going abroad. Especially in light of recent negative incidents involving China food exports, these companies want to ensure their clients and customers are consistently 100% satisfied with their product, and are exceeding the requirements of regulatory bodies like the FDA to ensure quality consistency.
For many respondents that have not yet started moving abroad, meeting international regulations and laws is a considerable challenge. Some companies might want to export products containing meat, for example, but are constrained by complex regulations in the target market on how meat can be imported, and from where. As one frozen dumpling company explained, "we'd really like to export our dumplings abroad, but our best-selling dumplings contain meat, and many of our target markets ban the import of meat in this form." Many respondent companies have invested in R&D and hired experts from abroad to help them overcome the challenges these rules and regulations present.
Learning the ropes and business ground rules in their target markets is another significant challenge facing these companies, and a main reason most respondents have chosen to move abroad via export, at least initially. Closely related is the problem of cultural differences, both in business and in adapting product taste to local markets. As mentioned previously, many respondents hire overseas Chinese as their distributors to help bridge gaps in business culture. Many companies are also investing in R&D to help better tailor their products to local consumer preferences.
Going Forward
CMR also encourages companies not to stop at OEM as their main way of tapping overseas markets. Though establishing the correct brand image abroad can be time consuming and costly, CMR research has found that Chinese brands are very competitive in certain overseas markets where they can capitalize on their price advantages. However, more than other industries, Chinese food producers must be careful to "get it right" the first time when building their brand image in overseas markets. Given widespread fear of imports from China due to the recent tainted milk scandal which has hurt the reputations of even leading producers Mengniu and Yili, these companies must be extra certain they get nothing but good press. Companies should not be overly reliant on distributors as they develop their entry strategies; it is worth the investment in a larger on-the-ground advisory team than distributor alone.
The following is part nine of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3, part 4, part 5, part 6, part 7 and part 8). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's food and beverage industry.
The food and beverage industry is another Chinese industry in which the vast majority of large industry leaders—80% in this case— have already taken meaningful steps in the move to expand overseas.
Motivations
Even after transport, Chinese-produced food and beverage products have a considerable price advantage in overseas markets. All respondent companies who had begun the move cited large demand for such cheaper but comparable quality products as the main reason for their push abroad. Some respondents are using high demand in overseas Chinese communities in particular to make inroads into foreign markets. Beverage company Wahaha, for example, has gotten onto shelves in the US by selling their children's protein and vitamin drinks in Asian specialty stores despite getting embroiled in a nasty and debilitating legal fight with its partner Danone.
In addition to tapping overseas demand, 75% of respondents moving overseas considered building brand reputation a top motivating factor in the move abroad. Passing the strict tests required for entry into overseas markets and being able to label themselves "international" lends a certain amount of status and cache they then hope to use for marketing and further brand building, both abroad and at home. Building trust within the domestic home market is critically important for these brands and Chinese consumers are as worried as American and European consumers about the safety of the products they ingest.
The majority of respondent companies without plans to move abroad in the near future cited the potential of the domestic Chinese market as the main factor keeping their attention at home. Many regional leaders, for example, see a higher return on investment from expansion into other profitable regions within China than from moving into another country as China's 800 million new consumers, formerly peasants, have more disposable incomes and start to drive sales in 4th and 5th tier cities. Smart multinational firms like P&G (PG), Coke (KO), and Cadbury (CBY) are already moving into these areas and targeting these new consumers.
Current Operations
All respondent companies interviewed are taking an export-based approach to going overseas, using distributors to help them identify retailers and establish sales networks in their target markets. Often these companies will choose to partner with overseas Chinese distributors to help bridge cultural gaps and other communication challenges. Distributors often also fill a more general, all-purpose advisor role, advising companies on how to best to move forward given local laws and market conditions.
In addition to exporting under their own brand, 50% of respondents going abroad are selling generic products to local retailers. While this does not directly help build brand reputation, it helps companies gain experience in an international business environment. Furthermore, working with a major retail partner like Wal-Mart (WMT) provides an opportunity to learn from a market leader. In general, these sort of partnerships are a good opportunity to learn about foreign regulations, market conditions, and consumer preferences without having to cough up for marketing or worry about finding the right sales channels.
Currently the most popular destination for Chinese food and beverage exports is emerging markets. 100% of respondent companies moving abroad export to countries and regions such as Southeast Asia, Eastern Europe, Russia, and Africa. The majority also export to developed markets in Europe and North America, and all plan to increase their focus there going forward.
While these companies plan to continue to use export as their main method of overseas expansion for near future, they are exploring ways other ways of pushing their overseas development. One respondent, for example, is currently considering developing a factory abroad to help reduce transportation costs and the trouble of import/export rules and tariffs.
Challenges
Maintaining a top quality product is the highest concern for companies going abroad. Especially in light of recent negative incidents involving China food exports, these companies want to ensure their clients and customers are consistently 100% satisfied with their product, and are exceeding the requirements of regulatory bodies like the FDA to ensure quality consistency.
For many respondents that have not yet started moving abroad, meeting international regulations and laws is a considerable challenge. Some companies might want to export products containing meat, for example, but are constrained by complex regulations in the target market on how meat can be imported, and from where. As one frozen dumpling company explained, "we'd really like to export our dumplings abroad, but our best-selling dumplings contain meat, and many of our target markets ban the import of meat in this form." Many respondent companies have invested in R&D and hired experts from abroad to help them overcome the challenges these rules and regulations present.
Learning the ropes and business ground rules in their target markets is another significant challenge facing these companies, and a main reason most respondents have chosen to move abroad via export, at least initially. Closely related is the problem of cultural differences, both in business and in adapting product taste to local markets. As mentioned previously, many respondents hire overseas Chinese as their distributors to help bridge gaps in business culture. Many companies are also investing in R&D to help better tailor their products to local consumer preferences.
Going Forward
CMR also encourages companies not to stop at OEM as their main way of tapping overseas markets. Though establishing the correct brand image abroad can be time consuming and costly, CMR research has found that Chinese brands are very competitive in certain overseas markets where they can capitalize on their price advantages. However, more than other industries, Chinese food producers must be careful to "get it right" the first time when building their brand image in overseas markets. Given widespread fear of imports from China due to the recent tainted milk scandal which has hurt the reputations of even leading producers Mengniu and Yili, these companies must be extra certain they get nothing but good press. Companies should not be overly reliant on distributors as they develop their entry strategies; it is worth the investment in a larger on-the-ground advisory team than distributor alone.
Chinese Companies Go Abroad (Part 10: The Retail Sector)
Part 10: Retail
The following is part ten of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3, part 4, part 5, part 6, part 7, part 8 and part 9). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's retail industry.
China's retail industry has been changing rapidly since the institution of China's economic reform policies in the early eighties. "Retail" was fundamentally different prior, when demand consistently outstripped supply and retailers merely sold whatever factories produced without concern for consumer preferences or competition from other retailers. Before the 1990s, consumers went to department and mom & pop stores for any/ all of their shopping needs. Only in the early 1990s did other types of retail stores such as supermarkets, convenience stores, and specialty stores come into being. Retail revenue growth has substantially outpaced China's rapid annual GDP growth since. In 2007 retail revenues totaled 8,921 billion RMB, a 16.8% year on year increase. We expect 2009 to see 16-18% retail sales growth, even in the face of a global recession as Chinese consumers continue to spend and remain relatively optimistic.
Even compared to other mainland Chinese industries, the retail industry is quite young, and farther behind in the move abroad. However, while only one of ten respondents had made a meaningful push into overseas markets, expansion abroad is on the minds of many respondents, and many are already developing plans as to how to best realize this goal.
Reasons for Staying Home
Of those companies who do not plan to move overseas within the next five years, most companies' main reason is that they are prioritizing opportunities at home. As one company told us, "the domestic market itself is still large for us. Our current market share is only about 10%. We want to gain more market share at home before we make any plans to go abroad." Given the young status of the domestic Chinese retail industry, many companies feel there is much more work to be done at home in terms of building capital and resources before they can begin to consider moving overseas.
Currently the majority of Chinese retailers are still regional. Given the tremendous diversity between regions in China in terms of disposable income, consumer sophistication and product needs, competition, local government policy and a host of other factors, expanding domestically can be a big enough challenge in and of itself. Many companies have had enough trouble managing their supply chains as they expand throughout China to discourage them from making the move overseas in the near future. Even Bailian Group, China's largest retail company, is still working to establish itself as a truly national chain, currently focusing on strengthening operations in Shanghai and the surrounding Yangtze delta area. As competition increases at home especially due to market entry of foreign chains such as Wal-Mart (WMT), Home Depot (HD), and BestBuy (BBY), companies like Hualian, Lianhua, Suning and Gome have their hands full operating at home, let alone going abroad.
Furthermore, many of these companies feel development across China is a crucial step that must be taken before any meaningful attempt can be made to move overseas. Unlike in other industries where companies can rely on OEM or pure export at first, retail companies must start straightaway with the more challenging steps of localizing management, developing and managing local supply chains, managing logistics, and a wide range of company-specific issues to begin the process of moving overseas. The initial investment too is enormous and has to fit local tastes right away as it is hard to resurrect a failing retail outlet. Many respondents figure that developing first into other regions of China will help them gain experience in managing cross-regional operations and develop skills crucial to expanding abroad.
Retail Pioneers
The difficulties China's young retail industry faces at home have limited Chinese retail companies' expansion abroad to date. Still, the majority of large industry leaders consider expansion abroad an important future goal. One pioneering company, the Beijing Hualian Group (SHA:600361), is already succeeding overseas, and China's largest appliance retailers, Gome and Suning, are taking steps to prepare for their own move. However, Gome's development plans might be curtailed as its founder, Huang Guangyou, has just been arrested for reputed financial improprieties.
Leading retailer Beijing Hualian Group took its first step overseas in 2005, when it purchased Seiyu-Wing On, a Singapore department store chain, for S$4 million SGD ($2.36 million USD). Hualian chose to make Singapore its first stop overseas due to lack of language barrier and cultural similarities with China, especially in retailing culture. In order to learn more about the local market and guarantee stability in terms of procurement, sales, and marketing, Beijing Hualian kept Seiyu's local executives and employees and only changed the store name in 2007 from Seiyu to BHG ("Be Here for Good Things", and Beijing Hualian Group). BHG smartly hired a PR company to help with its re-branding campaign. In addition to orchestrating events and promotions in-house, BHG tasked its PR partner with communicating its growth and success to consumers by publicizing its corporate strength, excellent service, and innovations in retail.
Since 2005, BHG has opened another store in Singapore and brought the international brand name back to China to help boost sales in a struggling Hualian, as the mainland locations are called, in Guangzhou. BHG hopes to move into other markets in Southeast Asia such as Thailand and Malaysia when the timing is right.
BHG's success should be inspiring to companies like Gome and Suning. China's largest appliance retailer, Gome opened its first store in Hong Kong in 2003, where it now has fourteen locations including one flagship, and over 30% of total market share. It entered Macao in 2006, where it currently has three locations. Suning, China's second largest appliance retailer, plans to open locations in Hong Kong in 2010. While neither of these respondents expressed specific plans to begin the move outside China within the next five years, both retailers plan to use their experience in the Hong Kong and Macao markets as a tool to prepare themselves for such expansion.
Going Forward
While the challenges facing China's retail industry are not insignificant, CMR is optimistic for these companies in their move abroad long-term, once international consumer spending picks up again. Many international chains like Sears (SHLD) or Macy's (M) will have difficulties in the recession which will give Chinese firms the opening to move abroad. Going forward, Chinese retailers should learn from what companies like BHG have done well. In particular, BHG was smart in the careful and deliberate way it established itself in Singapore. Like BHG, retail companies going abroad should consider M&A or partnerships with an existing local retailer, keeping the local executives and management team for at least two years after entering the market, waiting to change the store name until new operations are running smoothly, and hiring third party advisors such as a PR team on the ground to help win the hearts of local consumers and team members.
The following is part ten of a ten part report evaluating the progress of key Chinese industries as they expand overseas (see the introduction to this series, part 1, part 2, part 3, part 4, part 5, part 6, part 7, part 8 and part 9). CMR interviewed several hundred key executives in each of ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. This section describes the opportunities and challenges facing China's retail industry.
China's retail industry has been changing rapidly since the institution of China's economic reform policies in the early eighties. "Retail" was fundamentally different prior, when demand consistently outstripped supply and retailers merely sold whatever factories produced without concern for consumer preferences or competition from other retailers. Before the 1990s, consumers went to department and mom & pop stores for any/ all of their shopping needs. Only in the early 1990s did other types of retail stores such as supermarkets, convenience stores, and specialty stores come into being. Retail revenue growth has substantially outpaced China's rapid annual GDP growth since. In 2007 retail revenues totaled 8,921 billion RMB, a 16.8% year on year increase. We expect 2009 to see 16-18% retail sales growth, even in the face of a global recession as Chinese consumers continue to spend and remain relatively optimistic.
Even compared to other mainland Chinese industries, the retail industry is quite young, and farther behind in the move abroad. However, while only one of ten respondents had made a meaningful push into overseas markets, expansion abroad is on the minds of many respondents, and many are already developing plans as to how to best realize this goal.
Reasons for Staying Home
Of those companies who do not plan to move overseas within the next five years, most companies' main reason is that they are prioritizing opportunities at home. As one company told us, "the domestic market itself is still large for us. Our current market share is only about 10%. We want to gain more market share at home before we make any plans to go abroad." Given the young status of the domestic Chinese retail industry, many companies feel there is much more work to be done at home in terms of building capital and resources before they can begin to consider moving overseas.
Currently the majority of Chinese retailers are still regional. Given the tremendous diversity between regions in China in terms of disposable income, consumer sophistication and product needs, competition, local government policy and a host of other factors, expanding domestically can be a big enough challenge in and of itself. Many companies have had enough trouble managing their supply chains as they expand throughout China to discourage them from making the move overseas in the near future. Even Bailian Group, China's largest retail company, is still working to establish itself as a truly national chain, currently focusing on strengthening operations in Shanghai and the surrounding Yangtze delta area. As competition increases at home especially due to market entry of foreign chains such as Wal-Mart (WMT), Home Depot (HD), and BestBuy (BBY), companies like Hualian, Lianhua, Suning and Gome have their hands full operating at home, let alone going abroad.
Furthermore, many of these companies feel development across China is a crucial step that must be taken before any meaningful attempt can be made to move overseas. Unlike in other industries where companies can rely on OEM or pure export at first, retail companies must start straightaway with the more challenging steps of localizing management, developing and managing local supply chains, managing logistics, and a wide range of company-specific issues to begin the process of moving overseas. The initial investment too is enormous and has to fit local tastes right away as it is hard to resurrect a failing retail outlet. Many respondents figure that developing first into other regions of China will help them gain experience in managing cross-regional operations and develop skills crucial to expanding abroad.
Retail Pioneers
The difficulties China's young retail industry faces at home have limited Chinese retail companies' expansion abroad to date. Still, the majority of large industry leaders consider expansion abroad an important future goal. One pioneering company, the Beijing Hualian Group (SHA:600361), is already succeeding overseas, and China's largest appliance retailers, Gome and Suning, are taking steps to prepare for their own move. However, Gome's development plans might be curtailed as its founder, Huang Guangyou, has just been arrested for reputed financial improprieties.
Leading retailer Beijing Hualian Group took its first step overseas in 2005, when it purchased Seiyu-Wing On, a Singapore department store chain, for S$4 million SGD ($2.36 million USD). Hualian chose to make Singapore its first stop overseas due to lack of language barrier and cultural similarities with China, especially in retailing culture. In order to learn more about the local market and guarantee stability in terms of procurement, sales, and marketing, Beijing Hualian kept Seiyu's local executives and employees and only changed the store name in 2007 from Seiyu to BHG ("Be Here for Good Things", and Beijing Hualian Group). BHG smartly hired a PR company to help with its re-branding campaign. In addition to orchestrating events and promotions in-house, BHG tasked its PR partner with communicating its growth and success to consumers by publicizing its corporate strength, excellent service, and innovations in retail.
Since 2005, BHG has opened another store in Singapore and brought the international brand name back to China to help boost sales in a struggling Hualian, as the mainland locations are called, in Guangzhou. BHG hopes to move into other markets in Southeast Asia such as Thailand and Malaysia when the timing is right.
BHG's success should be inspiring to companies like Gome and Suning. China's largest appliance retailer, Gome opened its first store in Hong Kong in 2003, where it now has fourteen locations including one flagship, and over 30% of total market share. It entered Macao in 2006, where it currently has three locations. Suning, China's second largest appliance retailer, plans to open locations in Hong Kong in 2010. While neither of these respondents expressed specific plans to begin the move outside China within the next five years, both retailers plan to use their experience in the Hong Kong and Macao markets as a tool to prepare themselves for such expansion.
Going Forward
While the challenges facing China's retail industry are not insignificant, CMR is optimistic for these companies in their move abroad long-term, once international consumer spending picks up again. Many international chains like Sears (SHLD) or Macy's (M) will have difficulties in the recession which will give Chinese firms the opening to move abroad. Going forward, Chinese retailers should learn from what companies like BHG have done well. In particular, BHG was smart in the careful and deliberate way it established itself in Singapore. Like BHG, retail companies going abroad should consider M&A or partnerships with an existing local retailer, keeping the local executives and management team for at least two years after entering the market, waiting to change the store name until new operations are running smoothly, and hiring third party advisors such as a PR team on the ground to help win the hearts of local consumers and team members.
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