This revision presentation highlights the key opportunities and threats faced by firms outside China looking to do business in and with China. It also provides examples of businesses that have succeeded in China and those that have struggled!

1. China – Opportunities, Threats,
Success and Failure
AQA BUSS4 Research Theme 2014

2. The relentless rise of China is, perhaps, the
most important global business story currently

3. The opportunity in China
• The world’s 2nd largest economy
• Still growing much faster than developed economies
• Approaching 1 billion consumers as urbanisation
progresses
• Enlarged & increasingly affluent middle class
• Rapidly emerging market segments
• Strong demand for western brands, products &
services
• Massive investment in infrastructure, but now
looking to rebalance in favour of consumption
• Still a source of low-cost and high quality supply
despite rising wage costs

4. The threats in & from China
• Time and cost to establish profitable market
position
• Risks of loss of IP
• Growing & intense local competition
• Is competition fair in China?
• CSR – western firms under intense scrutiny
• A more hostile external environment for
western businesses?
• Chinese businesses now have their own global
ambitions

5. The following slides
guide you through
some examples of
the opportunities
and threats

6. China is big. Very big

7. China is complex
China is actually a
collection of
individual submarkets defined
by vastly differing
demographic,
economic and
cultural
characteristics.

8. China’s population is approaching 1.4 billion

9. And soon a billion Chinese will live in
urban environments…
If current trends hold, China's urban
population will hit the one
billion
mark by 2030.
In 20 years, China's cities will have
added 350 million people more than the
entire population of the United States
today. By 2025, China will have 221
cities with one million–plus inhabitants—
compared with 35 cities of this size in
Europe today—and 23 cities with more
than five million. For companies in
China and around the world, the scale
of China’s urbanization promises
substantial new markets and
investment opportunities.
http://www.mckinsey.com/insights/urbanization/preparing_for_urban_billion_in_china

10. …driving the growth of a huge and
increasingly affluent middle class

11. A key evaluation point to consider: is China
now simply too big to ignore?

12. More than half of multinationals consider China to be the
most important emerging market for their growth strategy
Source: Boston Consulting Group, 2013

13. Most Western multinationals still expect to gain market
share in China – but face tough local competition
Source: Boston Consulting Group, 2013

14. The world’s largest businesses already see China
as a key opportunity

15. …but many have come unstuck as they try to build
profitable businesses and gain market share in China

16. Businesses outside China face intensive competition
inside and China, increasingly in their domestic markets

17. Foreign brands are still hugely popular in China

18. Chinese consumers are increasingly looking to
buy branded goods and services

19. Differences still exist between brands, whether they are
multinationally or domestically owned particularly when it
comes to recognition, popularity and trust
Source: Ipsos Survey of Chinese Consumers 2013

20. Rebalancing - a process of increasing the proportion of GDP
generated from consumption - offers significant
opportunities for consumer brands and services

21. E-commerce offer huge opportunities. China currently
has more than 500 million internet users.
Source: BCG

22. However, the Chinese e-commerce market is
already dominated by one firm - Alibaba

23. The obstacles for businesses outside China exploiting
the opportunities remain tough

24. China’s economic transformation has created
many giant companies

25. SOE's are leading the international expansion of
Chinese firms outside China

26. The scale of State-Owned Enterprises poses significant
competitive challenges for businesses outside China
27,000 branches throughout China
Employees: 447,401
Sales: $103 B (2012)

27. Domestic competitors are growing rapidly and increasingly
turning their attention towards international markets

28. China is creating its own generation of entrepreneurs
who have global aspirations for their own brands

29. The scale of the transformation means that businesses
outside China face lots of new competition

30. Many of the emerging global Chinese businesses used to
be Original Equipment Manufacturers (OEMs)

31. Chinese firms have acquired / developed expertise and are
no longer content to stay at the bottom of the value chain

32. China's domestic firms are closer to customers, may have
better marketing & distribution and are usually lower-cost

33. Chinese firms are not yet achieving strong brand
recognition in developed economies, but they may soon!

34. Western consumers are open to Chinese brands,
but they have reservations about quality

35. The challenge to businesses outside China will
come from takeovers as well as organic growth

36. The shift in China to a higher-wage economy will put
pressure on existing business models there

37. As China’s industries move up the value chain,
businesses outside China are “re-shoring”

38. For many businesses outside China, the risks of
doing business with China still outweigh the rewards

39. However, for other businesses the risks of China
outweighed the rewards

40. Let’s look at a few
examples of businesses
that have succeeded in
China…and a few that
have struggled!

41. Lessons to learn from businesses that
have succeeded
Yum Brands!
P&G
Starbucks

42. 5 sources of advantage for KFC
• Localised the product, reinventing the menu, adding lots
of choice and varying the menu by region within China
• Moved quickly to establish scale in China. Identified 16
key cities as the base from which they could expand
rapidly
• Created own distribution system to ensure that it could
rely on supplies reaching the expanding store network
• Emphasised staff and management training
• Owned rather than franchised the outlets in China

43. Localisation was key to success for KFC

44. However, localisation doesn’t always go to
plan…as McDonald’s found out
http://www.businessinsider.com/mcdonalds-rice-based-menu-for-china-2013-6

45. Multinationals that “localise” their products and
services for China tend to be more successful

46. P&G and the Power of Branding in China
http://www.bbc.co.uk/news/business-23364230

47. China crucial to P&G achieving an
ambitious corporate objective
1 billion
customers
worldwide by
2015 (a 25%
increase)

48. Key success factors for P&G in China
• Already a global brand & world-class
manufacturer
• Invested for long-term (entered 1985)
• Focused on promotion to build company and
brand awareness
• Massive investment in local production
• Recruitment & training of locals
• Localisation ($2 a day programme)

49. P&G: a great case study in how to succeed
in China

50. Starbucks creates – and takes leadership of
– a market for coffee in China
• Think different: China =
tea?
• Exploit brand
awareness & aspiration
• Deliver high quality
• Work with local
partners
• Commit & invest for
long-term

51. Read more about Starbucks strategy in China

52. IKEA has also developed a winning formula
in China

53. Ikea’s long-term strategy of localisation and building
brand loyalty in China is starting to pay off

54. For BMW, China is now the biggest market

55. Other businesses outside China that have
succeeded in China

56. However, being a global brand or retail
giant doesn’t guarantee success in China

57. Well known brands and firms tried and failed…

58. A high failure rate illustrates the risks of
doing business in China
48% of foreign businesses,
including leading multinational
corporations, fail and withdraw
from the China market within
two years of establishing
operations there
Source: WeberShandwick 2013

59. What usually goes wrong?
• Employee pilfering and theft, including theft of critical
intellectual property (IP)
• Failure to localise and customise products and services to
suit the domestic market
• Failure to seek or to heed local advice
• Poor senior management appointments
• Underestimating local competition
• Insufficient or improper market research
• Inability to communicate with the local market in culturally
appropriate and sensitive ways
• Underestimating the important role the government plays
at every level of society including commerce
Source: WeberShandwick 2013

60. Lessons learned?
Multinational companies hoping to
succeed in China can’t treat it as an
interesting side bet any longer;
they need to take China as seriously
as they do their home market.
Source: McKinsey

61. Lessons learned?
"Never assume what works for
your mature markets will work for
China. Success comes for those
who stay relevant to the needs of
the Chinese consumer."
Source: MillwardBrand - How to win in China: Top brands share tips for success