The subject of the classic 1973 Bruce Lee movie Enter the Dragon involves unforeseen risks developing when seeking opportunities. Likewise, companies seeking to sell their products and services in the Chinese marketplace have encountered unforeseen obstacles in implementing successful strategies. While many companies such as Proctor & Gamble Co., Honda Motor Co., Ltd. and Motorola, Inc. have enjoyed success, some have suffered costly struggles. Success in the Chinese marketplace requires a comprehensive understanding of markets, channels, competitors, and customers in order to implement a strategy with the appropriate risk-and-return profile.
Recently, I joined Stout Risius Ross (SRR), a financial and operational advisory firm. We partner with companies and their suppliers to transform operations and develop a roadmap for remaining competitive long term. When it comes to being an automotive supplier, we have identified several key factors that should be considered when developing long-term strategies. One key opportunity to remain competitive in a global market is expanding into developing regions such as China.
In a recent conversation with my colleague Jeffery Pluto, managing director of SRR Asia, we discussed what an organization should consider when developing a strategy for entering the Chinese market. Ultimately it boils down to three fundamental questions.
Any assessment of the market opportunity requires a thorough understanding of the “3 C’s”: Customers, Competitors and Channels.
The best entry options depend upon five primary factors:
Three to five alternatives are typically developed for each factor. The alternatives are analyzed in terms of Conservative, Realistic and Aggressive approaches and lay the foundation for several market entry strategy options, which are mapped against the client’s risk profile, return objective, available resources and time horizon.
A “de novo market entry” strategy is extremely difficult to achieve in China. The challenges of identifying and hiring local talent—in addition to understanding the maze of laws (local and national) and regulations—are daunting. As a result, many companies strongly consider establishing a relationship with a Chinese partner to smooth the entry process. However, working with a partner requires addressing several key issues, including:
While the Chinese marketplace provides excellent opportunities for the right automotive company, it is not a solution for reducing operational costs. Only with careful consideration of China’s unique risks may a Chinese market strategy achieve success.