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
2009年1月21日
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.
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