Doing business in a changing China

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Finding the right partner and managing the alliance, however, can be tricky in China. Practices such as due diligence processes, financial reporting systems, and communication styles are often not only different from those in the US but also varied across different Chinese regions.

Forming strategic alliances with domestic Chinese companies

When it comes to dealing with fierce competition from domestic Chinese companies that are armed with capital, skills, and hard-to-beat knowledge of the local environment, a few US companies are beginning to think outside the box. “There are a lot more ways to structure synergistic relationships than just traditional joint ventures. You have to think about how to enter the market by bringing along allies who are seeking not to keep you out but, rather, to compete vigorously with their own domestic rivals,” says Robert Kuhn, author and advisor to Chinese and foreign firms in China. Take the case of General Motors (GM). Last December, the Detroit-headquartered company reduced its stake in Shanghai General Motors Company to 49 percent. Its Chinese partner SAIC will have the right to approve budgets, strategy, and senior management appointments, but GM is securing its place in a lucrative market. China is now the world’s largest auto market, and GM sells more cars there than in the US. The relationship with SAIC will also help GM make inroads into other high-growth regions such as India, where SAIC is investing up to $350 million in GM’s existing operations to produce and market low-cost vehicles already successful in China.12

Finding the right partner and managing the alliance, however, can be tricky in China. Practices such as due diligence processes, financial reporting systems, and communication styles are often not only different from those in the US, but also varied across different Chinese regions. Hsieh of Yum! Brands, describes her organization’s approach to finding partners in China: “Information accuracy and quality of management are the most important criteria. We find that companies already listed or on the path to be listed have better disclosure standards. We also spend a lot of time with senior management in order to understand their mind-set, sense of integrity, ground rules, and behavior styles.”

Preparing for more than one future in China

Ultimately, companies that are finding continued success or new opportunities in China’s evolving environment are those that are prepared for more than one future in China. “You have to be very adaptive and agile to be successful in China,” says Goodyear’s Cohade. “China forces you to change your business model; it forces you to acquire new competencies at a pace that is much faster than anywhere else.”

An expanding and stable Chinese economy means greater opportunity for US companies that have the flexibility not just to weather change but to prosper from it as well.

Business agility is the key to thriving amid China’s constant change and, as China has evolved, so has Goodyear’s business model. Just six years ago, the company was selling the vast majority of its products to Original Equipment (OE) customers such as automobile companies. Today, the company is catering to an increasingly sophisticated car market. In the process, Goodyear has built significant brand awareness and established a branded distribution network from scratch, by providing training, development, and assistance for retailers around the country. “So many people are first generation here—that is, first-generation driver, first-generation retailer, first-generation mechanic—so even though people are brand driven, in many ways you’re starting from a clean slate.” Confident in its brand power and robust distribution network, Goodyear is now focusing on using multiple channels such as its own retail outlets and independent dealers to target various market segments with differentiated products.

For Nike, being prepared for more than one future is also about continuously making strategic and operational adjustments to its supply chain. “We are comfortable having one foot on each side of the fence,” says Denson, explaining how the company’s two large manufacturing partners are choosing two different paths in response to China’s wage inflation, with one developing Vietnam as the new sourcing base and the other putting its faith in inland China. These leading companies know that accommodating the realities of China is not about embracing every difference. Rather, it means finding a common platform and recognizing China’s new priorities—whether that means developing the inland, generating employment, reducing inequalities, using resources more efficiently, or building up smart infrastructure. And it means partnering with China’s private and public sectors from a position of strength. An expanding and stable Chinese economy means greater opportunity for US companies that have the flexibility not just to weather change but to prosper from it as well.


12 Norihiko Shirozu and Patricia Jiayi Ho, “GM, SAIC Reshape Partnership,” Wall Street Journal, December 5, 2009.


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