Foreign companies must lose their arrogance to win big in China
Edward Tse says business models that worked elsewhere won't do well in complex local economy
A cover story earlier this year in The Economist featured the headline "China loses its allure". The key point was that, although in the past 30 years a large number of multinational companies have gone to mainland China to invest, this gold rush is now over, even though opportunities remain.
The key reasons, it said, include the slowdown of China's economy and continuously rising costs; the fact that, even today, many sectors are still not entirely open for foreign companies; the emergence of local competition that has created new competitive threats; and the fact that China's diversity across regions requires different strategies and operating models.
But has China really lost its allure? The answer depends on the type of company and its development strategies. In fact, for some multinationals, China may even be providing more allure today.
As China has opened up, so the importance of foreign companies in the nation's economy has increased. They have brought, among other things, capital, technology, management techniques, business models and ways to develop human resources.
After more than 20 years, the experience of multinationals in China is clearly divided. For quite a number, China has become their most important market in the world, or one of the most important. The most notable case is probably the Yum Group's KFC; more than half their global revenue and profit now come from China. Other notable examples include General Motors, Volkswagen, BMW and Apple.
At the same time, many others have tried their hand in China and eventually decided to leave. Some better-known cases include Best Buy, Mattel, Media Markt and eBay. Foreign multinationals' experience spans the entire spectrum. Why?
For many, a common mistake was to assume the China market was the same as their other markets in the rest of the world. They believed that since they have been successful elsewhere, it would be easy to do so in China as well. They tended to apply their global business model to China.