The easiest way to "sell" the need for a China strategy is to pose the prospect of close competitors suddenly enjoying 30% to 40% reductions in labor costs from China sourcing. Almost as easy to document is evidence that 1.3 billion consumers of increasing affluence await the luxury of Western brands. (By 2025 China is predicted to become the world's largest economy).
Consider the approaches taken by the large multinational corporations (MNCs). In China, General Motors Corp. has become a market leader with its Buick brand, and General Electric Co. -- with nearly a century of involvement with China -- values the country as a market for both end products and low-cost sourcing. In 2002, GE trumpeted its 2005 China goals to generate "$5 billion in revenues and $5 billion in sourcing." That represented a doubling of GE's 2002 revenues, and the company succeeded.
By 2002, four of GE's businesses already had service and production capabilities in China. And GE Plastics had as many salespeople in China as it did in the U.S. Also, that was the year GE announced its intent to save big by China-sourcing 25% of its consumer-products business. In 2003, CEO and chairman Jeffrey Immelt told shareholders: "Keep in mind, $5 billion in sourcing from China generates $1 billion in cost savings for GE."
GM and GE deservedly get high marks. "Among China players, the experts consider their strategies as role-model highlights of the last decade's China 'gold rush,'" says consultant Steven H. Ganster, CEO, Technomic Asia (Shanghai, Chicago and Minneapolis).
The last decade's China metrics are impressive. "From 1994 to 2004, U.S. companies alone invested more than $43 billion in China, exported $200 billion in goods to China and imported a staggering $1 trillion from China."
But not everyone experiences role-model success, and Ganster expects the failure rate to rapidly increase as more inexperienced players seek a China presence. In 1984 his client list -- those seeking a China connection -- were primarily multinationals such as GM and DuPont & Co. "Even though they sought help, they already had a global perspective and base of experience to draw on."
Ganster now notes an accelerating interest from smaller organizations. "At present approximately half of our clients are small- and medium-sized enterprises that have never ventured beyond the continental U.S." He says the change reflects a fundamental shift in U.S. manufacturing. "SMEs today are motivated not in terms of the 1990s China gold rush, but as a business imperative tied to today's business needs. Their immediate reasons to come to China are much more complicated, difficult and often defensive as they follow their customer base."
First Step In Strategy: He says the growing truth is that more and more companies are beginning to recognize that they have no choice but to pursue a China connection. "China is no longer a discrete strategy -- the global supply chain is much more integrated. Even those not seizing the China market opportunity have to deal with the country as both a source and as a competitor. It's important to appreciate why China's position represents both an opportunity and a threat."
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