Conquering%20the%20China%20Market%20%20Topic:%20China%20

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Conquering the China MarketTopic China the
future battlefield Strategy Tactics.

• By Adjunct Professor - CBS, Visiting Senior
  Research Fellow - ISEAS, Jørgen Ørstrøm Møller.
  www.oerstroemmoeller.com
• Singapore September 10, 2005.

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Prelude

• The old Poodle, the Leopard, the Monkey.
• Wisdom, Strength, Smartness.
• Who are you? Virgin flight attendant.
• Key sentence Find your competitive parameter.

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1) Global trends controlling structure of
enterprises.

• - The economic gravity moves from goods to the
  immaterial economy service, entertainment,
  audio-visual world, infocom, dream society,
  education.
• - Consumption patterns changes from price and
  cost to values, set of values, ethics,
  preferences do we share the same basic
  attitude.

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1) Global trends controlling structure of
enterprises.

• - Consumers cease to be just that. Changes into
  an asset base for the enterprise taking a part,
  an interest, engage themselves in the evolution
  of the enterprise, congruous set of values. They
  become capital value to be listed on the asset
  side of the balance sheet.
• - Staff goes the other way. Less motivated to
  work HERE more interested in money. A transfer
  market for the best and the brightest. A wage
  squeeze for the water boy. In short
  Enterprise-staff becomes Economics/Costs.
• The trigger mechanism. Outsourcing and off
  shoring..

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1. Global trends ...

• Outsourcing.
• - No longer primarily lower end of the scale
  production. Moving
• upwards from simple production to IT to BPO to
  KPO.
• Newest trends are
• Diamond Cluster http//www.atimes.com/atimes/Chi
  na/GF09Ad01.html
• - Skepticism moves in. 2005 Global IT
  Outsourcing. The number of buyers
• prematurely terminating an outsourcing
  relationship has doubled to 51,.The
• number of buyers satisfied with their providers
  has plummeted from 79 to 62.
• - China moves in. In 2004, only 6 of survey
  respondents planned to establish
• operations in China. 2005 number is 40. China is
  starting to look like India did
• 10 years ago.
• - Contact to end users. Feed back

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1. Global trends ...

• b) Off Shoring
• Heard about Innocentive http//www.innocentive.com
  / ? You should.
• Big enterprises (Boeing, Dupont, Procter
  Gamble) start to put their research development
  jobs on the net. Auction. Who is offering the
  best and most cost effective solution. Out of the
  window own RD department. More than 100 labs in
  Bangalore live by off shoring. Prairie fire.

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1. Global trends ...

• c) Implications for enterprises
• Less horizontal. Less box the compass.
• Number of employees Down.
• Size of capital value Up.
• The virtual enterprise emerges.
• Controlled by values (customers), capital value
  (competitive
• parameter, ability to pay resource persons,
  transfer market),
• cost squeeze (outsourcing), RD ? off-shoring,
  hunt for talent
• and ideas (make one kill, not 100).

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1. Global trends ...

• c) Implications for enterprises
• The ownerless enterprise.
• Too much liquidity chasing too few assets. Too
  many enterprises bought at a too high price. By
  whom? Where is the money coming from?
• You feed the dog with its own tail. Three
  possibilities Run the enterprise better, split
  up the enterprise, discount in advance
  high/rising profits. Why? What happens if it goes
  wrong?

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2. Consumption

• Private consumption vital for sustainable growth
  in Asia and consequently vital for global growth.
• The middle class will be decisive.
• a) Few people realises what global cities
  signifies. The trendsetters live in global cities
  finding themselves at ease inside this cultural
  framework. The Hub concept. Branding, consumer
  preferences.
• - L'Oreal, Avon, Christian Dior, LVM.
• - Shanghai, Beijing, Guangzhou-Hong Kong-Macau,
  Mumbai, Calcutta, may be Tokyo. Sub-hubs Bangkok,
  Saigon, Singapore-Johore, Sydney. Many more.
• Centre-Periphery-Hinterland.
• All the new hubs will be in Asia. All. Not a
  single one outside Asia.

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2. Consumption

• b) Not only that. Mass consumption. Recall
  Rostows theory of economic development with mass
  consumption as the crucial stage? Ask Wal-Mart,
  Carrefour, Metro. They are here expanding like a
  sparkler. Or Wumart established in 1995, 453
  stores, revenue of more than 300 mio Us dollars,
  profitable (25 mio Us dollar) and Chinese.

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Table 2 Domestic Consumption
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Table 3 Consumption in the Middle Class
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2. Consumption

• c) Now listen to this. Every time consumption
  takes one percent point more of GNP consumption
  goes up with 70 billion Us dollars (approx 40 of
  DKs GNP).

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3. China as the spider in the net

• a) It is not China or India. It is China AND
  India.
• The political imperative will overshadow any
  misgivings.
• The figures. Trade beginning 90s approx 150 mio
  Us dollars. 2004
• 14,96 bio Us dollars equal multiplication by 100
  in about 12 years!
• China is negotiating a FTA with Asean.
• India has started to negotiate a FTA with Asean.
• March 2005 Chinese Prime Minister Wen Jiabao in
  India Start FTA.
• About 2012 a FTA with 3 bio people, average GNP
  pr capita about
• 1500 Us dollars, average growth 6-7.
• The Chinese look at integration in East Asia in a
  strategic perspective.
• This is the VISION for Asia in the next decades
  and it will change the
• world

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3. China as the spider in the net

• b) The Chinese currency - Yuan
• Asia was a de facto US dollar block.
• The US pressure for revaluation of the Yuan .
• Justified? May be but irrelevant.
• The rest of Asia did partly - follow Yuan.
• The end of Asia as a Us dollar zone.
• US policy He shot himself in his remaining foot!
  A seminal shift.

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4. One of the strongest consumption patterns the
world has ever seen will be triggered off by mass
emigration from Chinas countryside to the cities.

• There is not enough water to sustain development
  in the countryside and in the cities at the same
  time. China must choose.
• It will almost certainly choose the cities and
  industry, technology.
• Imagine, just think about it, what emigration of
  about 400 mio people will mean for consumption,
  investment, infrastructure.
• E (environment), E (energy, oil, LNG, nuclear,
  sustainable, coal), W (water).

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5) China and India jumps ahead in creating
multinational companies.

• Start by looking at Japan. Multinational
  companies? No way. Japanese companies operating
  worldwide.
• Chinas way. Buying. Lenovo-IBM. CNOOC-Unical.
  Haier-Maytag. But what do they buy? Knowledge,
  distribution network, consumer loyalty.
• India's way. Like Japan but smarter and more
  clever.
• Now Chinese and Indian companies entering each
  other markets. Infosys, Wipro, Tata become
  household names in software in China. Haier,
  Konka, Lenovo, TCL become household names in
  India.

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5) China and India jumps ahead in creating
multinational companies.

• China sees Indian consumer markets as springboard
  for expansion to other markets. India values
  software markets in China as a growth sector.
  China software yes domestic market and may be
  Korea, Japan. Indian software global potential
  power.
• Strategic perspective. Why jolly good old
  fellow when buying US government bonds but who
  the hell do you think you are? when trying to
  buy Unocal with only approx 0,3 of US oil
  consumption..
• The implications for Good Corporate Governance of
  emerging Chinese and Indian multinational
  enterprises.

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6) China Japan. Stumble or not?.

• The question remains however do we all want to be
  Japanese?
• Why did the Japanese growth machine come to a
  halt.
• The trends turned against Japan.
• Economic policy wrong.
• Too dependent on export.
• Japanese enterprises balance sheet focused.
• Why the Chinese growth machine may slow down but
  not stop.

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6) China Japan. Stumble or not?.

• China is a total global - economy in itself.
• A clear political objective.
• Extremely competent political leadership knowing
  the problems and trying to deal with them in
  time.
• Stick my neck out How will China look in one or
  two decades?
• Economic model
• Political system

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7) China India. Rivals, competitors or what?

• Energy. Trying to pool efforts. A long list of
  measures to ensure energy supply. Central Asia.
  Russia.
• China looking at the rest of South Asia. China
  looking at South East Asia. What is India looking
  at? Central Asia a pivotal role.

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8) CdI2E the keys on the managers control
panel.

• a) Communication. KISS. Customers Set of
  values, what do we stand for. Staff How do we do
  things here. Illustrations Intel inside, Runs on
  Oracle, Due diligence. The indirect
  communication SAS and environment.
• How to get across. Illustrations from military
  history.
• b) Command. Basically three models. Rule based,
  control based, value based. With the virtual
  enterprise only one is viable. Risk is the risk!
  The enterprise kept together by invisible
  strings/values and interacting with customers
  (new word sought please) on the basis of shared
  set of values. No control. No rules.
• Illustration. Every time something is done, not
  being output, ask the question why?

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8) CdI2E the keys

• Control. The odd word.
• Culture. The enterprise needs a cultural profile
  reflecting what it stands for.
• -God, Royalty, Sex, Mystery.
• - Set of values generally applicable, possessing
  survivability
• - Adaptable to local circumstances without
  sacrificing main principles.
• - Sex, race, religion, other taboos.
• There must be some mystique around the
  enterprise. The court jester.
• Oxford University philosophy exams.

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8) CdI2E the keys .

• e) Information. Need to know forget it
  fellows. Info all over the board. Capable of
  acting here and now. Cultural profile tells what
  to do, info tells when to do it.
• Contingency plan. It always go wrong in the
  cover up phase!
• f) Intelligence. Know your competitors, know the
  markets, know your surroundings? Nope fellows
  know about yourself. Spy on your own enterprise.
  Set up a guerrilla unit. CoC. ( Mao Zedongs
  cultural revolution, Schumpeter's creative
  destruction).
• Illustrations. IBM in early 90s. EAC in the
  70s. Company after company being outmanoeuvred
  by new technology. You name them.
• g) Entertainment. We need to have some fun here.
  Illustration Southwest Airlines in the US.

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9) The three cores

• Core business. What are we actually doing here.
  Directed at the staff. Production oriented.
  Inward looking. Improving our performance.
  Product concept.
• Core value added. Why the customer should buy our
  product instead of the competitors. Ever thought
  about that. Why our product, why not X or Y.
  Aiming at the costumer.
• c) Core message. What do we want the customer to
  associate us with. How do we want the staff to
  see the enterprise. Remember a crucial phrase
  from politics It goes wrong if a gap arises
  between how we (political leaders) present the
  reality and how it is perceived by the public.
  Precisely the same applies for business.

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10) The dirty linen

• Espionage and propaganda.
• OK OK OK
• You are all nice fellows we know that dont we?
• Do you recall the phrase spoken by president John
  F. Kennedys
• father the nice fellows are the losers.
• Business competition becomes more and more like
  war in the
• sense that the instruments and tactics of war
  find their way into
• the boardrooms. Prepare for it. The others do.
• J. Oerstroem Moeller, www.oerstroemmoeller.com