How can Chinese companies compete globally?

With one of the fastest-growing economies and a GDP growth rate of over 9%, China has some real challenges to face. One of the key challenges for local companies is to build a global organisation. China is becoming more independent of the West and not only expanding its own markets but also expanding into the rest of Asia Pacific. However, Chinese companies still very much rely on the West for growth and access to opportunities to move up the value chain. They are now realising that this expansion relies on having good trading relations with the rest of the world. To be able to gain trust and business, and therefore compete globally, Chinese companies will have to develop a large-scale presence by playing to international rules.

Until now, Chinese companies have enjoyed a high growth rate mainly due to price advantages but they now face the new challenge of how to scale their businesses globally. This involves not only establishing the necessary infrastructure, including distribution networks, an integrated supply chain and an international, multi-cultural team but also global sales and R&D teams. Currently about three-quarters of companies operate only through export agents rather than through business units they might have set up.

True organic global growth can only be achieved by full integration into target markets which means more than just relying on exports as this tends to limit companies to low-margin products. However, it is also more than just setting up subsidiaries across the world. To gain access to a larger part of the value chain, Chinese companies will need to establish their integrated business divisions across the world alongside a sustainable supply chain. Good corporate governance will also be critical to allow Chinese companies to develop relationships with partners and customers. This will involve understanding the complex international business environment and its range of cultures, political views and policies and economic elements.

To succeed in the international market place, Chinese companies will have to develop and nurture relationships with a range of stakeholders, whether they are governments, communities, suppliers, partners or customers. Building this trust and buy-in into their brands will involve strong corporate communication to promote the value proposition to these external stakeholders. Taking this a step further and as part of the plan for market entry, companies will also have their public affairs teams establishing government relations to allow trading within the target country. Combined with a competitive communication strategy, these companies will be able to promote their brands and value as dependable business partners and good community players from which they can gain market share.

A more recent change is the changing view that the growth of large emerging countries puts too large a strain on resources as well as the environment which is not maintainable. China has no choice but to follow sustainable development especially as it manages its global image but also the health of its own people who are now dealing with high rates of cancer. The rate of China’s industrialisation is faster than any other country has experienced but it is also happening at a time when competition is high and resources are low. It therefore makes common business sense for companies to manage their resources, supply chains and workforce in order to limit waste and increase productivity and efficiency. This will impact the bottom line with hard results and has the added benefit of endorsing Chinese companies onto the global stage.

Another important aspect of the globalisation strategy is to set up a leadership team who understands these issues and can implement a global vision. They should be multi-cultural with international work experience, a strong understanding of building out sustainable and integrated distribution networks as well as the ability to operate at the level of multi-nationals and manage partnerships with these. They must be able to understand local hubs, how to attract talent and manage resources and innovation. By leveraging a strong team and creativity, combined with an integrated and sustainable global presence, Chinese companies will transform their businesses and offer a wider range of new opportunities for customers and other businesses across the world.

 By Anne Duvaux

March 2012

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