With high levels of investment the government in Beijing is trying to ensure that the west can compensate its greatest disadvantage as soon as possible. In addition to the new infrastructure, the low wage costs — when compared to the coastal regions — and the attractive tax benefits represent further essential incentives for foreign investment. The authors Ming Zeng and Peter J. After competing for decades with global leaders selling products on their home turf, some Chinese companies decided to concentrate on developing and selling products not just in the domestic market but also overseas.
These national champions have tested the waters confidently, because they have successfully kept their multinational rivals at bay at home. But overseas, they do not challenge their larger opponents head on. Instead, they scout for segments that the market leaders have vacated or are not interested in serving because profit margins or volumes are low. They use their experience in adapting technologies and features to meet the price points of cost-conscious buyers to develop products for those segments.
Not surprisingly, low manufacturing costs allow these national champions to turn a profit where their rivals cannot. Haier exemplifies this strategy. By the early s, the company had battled Whirlpool, Electrolux, Siemens, and Matsushita to become the leader in China's market for household appliances.
The company manufactures types of refrigerators, air conditioners, dishwashers, and ovens. When it entered the U. For five years, it focused on selling only compact refrigerators — units smaller than litres — which could be used as mini-bars in hotel rooms or students could squeeze into dorm rooms. The incumbent leaders had dismissed these market segments as peripheral, but they proved to be quite profitable for Haier, which last year had about half of the mini-fridge market.
The company's second strategy foray was equally cautious: Like Haier, many Chinese companies can deliver such products in both low-tech and high-tech industries. This allows them to surprise their rivals, who are more worried about disruptive technologies and breakthrough innovations. The national champions produce very large unit quantities. Exports are carried out practically along the way; at the same time they have already gained a large share of the world market.
Since these companies are represented on the world market and most operate sales offices abroad, there are no major procurement problems for European buyers. No direct investment in China is necessary.
Despite the lure of the domestic market, some Chinese companies set their sights squarely on the external market when the government opened the economy. These dedicated exporters were probably motivated by the prospect of reaping global economies of scale or the knowledge that competition in their businesses was inherently global. Some of them attacked the overseas market from the start; others, which were subcontractors to big international players, had to think small at first to ensure that they did not jeopardise their supplier relationships.
As they develop expertise with crucial technologies, they migrate to specialised, high-value segments. They are not shy about striking partnerships or acquiring rivals to move up the value chain. Over the next five years, CIMC captured half the world market for refrigerated containers.
By , the Chinese company had developed the ability to design and manufacture a full range of refrigerated containers — for air, sea, road, and rail — and is still the only company in the industry to have done so. In the city of Wenzhou population about 7 million in the Zhejiang province, south of Shanghai, the manufacture of cigarette lighters began in the mids, when locals brought them back from Japan as gifts.
The enterprising Wenzhouers broke the gadgets down into components and learned to produce replicas. By , more than families in the city were making lighters. The intense competition among them soon forced a shakeout. The smaller family businesses switched to make components for the lighters, and the larger companies focused on assembling them.
This allowed the Wenzhou network to enter the international market. It sold units based on price at first but earned higher margins as it learned to produce new designs more quickly. There are a number of competitive networks, or clusters, in China, each made up of hundreds of small entrepreneurial companies and their families located in one geographical area and operating as a cohesive, interdependent entity.
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