Suitable for Growth - All-in for China Page 13

Suitable for Growth |

CASE

burning platform in developed markets

One of the participating companies joined the SfG program because China
was defined by management as one of their future strategic markets for
growth. They had also recognized that their product assortment had become
rather advanced driving up costs and prices and positioning them in the
high-end segment, and thereby making it difficult for them to compete with
more low-cost competitors. Therefore, joining the SfG program was seen as
an opportunity to learn about the Chinese mid-market and to develop suitable
low-priced products for this market segment.

Shortly after joining the SfG program, the company experienced problems
on their very important US market, where they were losing market share to
a main competitor. As a reaction to this, they quickly set up and allocated
resources for a new strategic product development project, focusing on de-
veloping a new range of low-entry (low-cost) products for this specific market
segment. This decision had a huge impact on the SfG project in China, as
attention, critical resources and support from HQ were shifted toward the new
low-entry project. The consequence was lower attention and slower progress
of the China business development project.

Our company is very well-

known in China. The problem

is that competitors produce

and sell copies of our prod

ucts with our brand name

on these copies. W

e estimate

that there are 22 competitors

in China producing products

with our name on but in a

poor quality.

resources and attention are invested in the developed markets, where future growth
opportunities are low. Only a small share of resources is invested in China, where the
future growth opportunities are high. Obviously, this is the opposite of what would be
expected if the company were truly dedicated to creating new growth. However, the
reason for this prioritization is obvious: For most of the companies, the Chinese market
currently contributes only 5-10% of their global revenue and profits. If a company is
struggling on the larger, developed markets, it will most likely focus its energy and
resources there, despite the long-term opportunities in the emerging market.

In the short-term perspective of daily operations, succeeding in China is not seen as a
burning platform for the company. In other words, the mindset at HQ is that "China is
the future, but not tomorrow".

The decision described in the case above is understandable. Nevertheless, the case il-
lustrates a main challenge for many SME's trying to target China and other growth mar-
kets: Even though the Chinese market has been declared to be strategically important
for the future growth and has been given specific resources, it will always come second
for the management back at HQ. This is a fact and precondition that the local business
development project teams must be able to adapt and manage.