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Case Studies on

MNCs in China – Vol.I

Edited by
Nagendra V Chowdary
Icfai Business School Case Development Centre

Icfai Books
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Case studies are intended to be used as a basis for class discussion rather than to illustrate
either effective or ineffective handling of a management situation.

Copies of individual case studies are available for purchase from www.ibscdc.org

ISBN : 81-314-1211-8

Editorial Team: K. Ramanathan and Radhika Nair M.K


Visualiser: Bangaru Babu
Designer: Cherukuri Chinna Mabu
Case Title Page No.

Hyundai’s Competitive Strategies in China 1


Burger King in China 17
Walt Disney Company in China 27
Carrefour in China: Savouring the Success 43
China’s Home Improvement Market: Should Home Depot
Enter or Will it Have a Late-mover (Dis)advantage? 59
AIG in China: The Expansion Strategies 85
KFC in China 95
IKEA in China: Competing through Low-Cost Strategies 111
Yahoo! In China 121
UBS in China: The Renaissance 143
Honda in China 157
FedEx in China: The Competitive Strategies 171
OVERVIEW

“Study the past if you would divine the future.”


— Confucius
It may not be an exaggeration to say that global companies are spending half their
strategic planning time on exploring growth opportunities in emerging markets. And in
that, not a single strategic planning session goes by without making a conscious reference
to China. China is a key market for all the multinational companies. The success in
China defines the bottom line success. The Boardrooms are filled with consultants,
market researchers, and go-getters. But, success in China is not to come by easily.
China decision is wrought with potential as well as peril. Navigating through the perils
would spell the success for the companies. This book primarily seeks to answer two
intriguing questions: why it makes sense to put China on the growth agenda, and what
it takes to be successful in China?
China is one of the most discussed topics in the multinational business community.
Because of the country’s vast size and huge development potential, many multinational
consumer product companies believe they must compete there. Yet the special
characteristics of the Chinese market have made a presence challenging at best and
often frustrating. China’s size, diversity and rapid change, not to mention its culture and
the broad influence of its government, all contribute to a difficult operating environment.
On top of these factors, competition in many consumer product sectors is intense.
Local players, leading multinationals and overseas Chinese companies are all vying for
business from the country’s huge pool of consumers.
In a recent McKinsey Survey1, just over a third of the survey’s respondents report that their
companies have operations in China, and almost 30 percent trade there (Exhibit I). Just
over half say their companies can earn some revenue from China. Two-thirds of large
companies – those with annual revenues of $1 billion or more – currently operate in
China, and 81 percent generate revenues from there. Perhaps most interestingly, at a
time when many companies are assessing whether they have concentrated too much of
their operations in China, only 14 percent of all survey respondents say their companies
own one or more manufacturing plants, service facilities, or retail stores there. Even
among companies in the production sectors (as opposed to service firms), the figure is
only 21 percent.
China is at a turning point and practices once good enough to support a market entry
strategy no longer assure success2. Whether a company views China as a manufacturing
base, an attractive market, or both, world-class execution will be necessary to succeed,
and success in China will be needed to survive not only there but also around the globe.
As China solidifies its roles as a market, a global manufacturer and a talent pool,
1
“Doing Business in China: A McKinsey Survey of Executives in Asia”, The McKinsey Quarterly, January 2007
2
“Bringing Best Practices to China”, The McKinsey Quarterly

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executives will find that they must lead in China to lead in the rest of the world. Unique
practices developed to enter the market will no longer suffice in China’s increasingly
competitive environment, particularly if Chinese operations are held to lower performance
standards. Instead, multinationals must lead with their strength: world-class processes
honed over many years in established markets and adapted to Chinese realities.

Exhibit I
Doing Business in China

Which of the following statements most accurately describes the majority of


% of respondents (n=191)1 your company’s operations in China?

34% of respondents Owns one or more manufacturing


have operations in plants, service facilities, or retail stores 14
China.... in China
Has one or more joint ventures in
China 9

Possesses one or more representative


offices in China 8

Has franchise or licensing


3
operations in China

...while 28% either Buys goods and/or services from


conduct trade with China 17
China
or invest in Chinese
companies Sells goods and/or services to
7
China

Has investments in a company in


4
China

None of the above 38

1
Includes respondents whose office locations are in Asia but not in China

Source: “Doing Business in China: A McKinsey Survey of Executives in Asia”, The McKinsey
Quarterly, January 2007

Multinational companies are shifting gears in China, turning away from entry strategies
and focusing instead on execution3. Innovative approaches to recruiting and retaining
managers are needed to counter expected staff shortages. Along with distribution and
marketing, recruitment will also pose a challenge for global companies as they reach
beyond China’s large cities. China has targeted innovation as a national priority, and
there are early signs that some domestic companies are becoming more creative. Foreign
companies should encourage this trend and find ways to benefit from it. As the importance
of personal contacts begins to fade, a systematic approach to government relations is
3
“What Executives Are Asking About China: From Entry To Execution”, The McKinsey Quarterly (2006 Special Edition)

ii
becoming a necessity. Many companies still face local corruption, although the situation
is improving. Executives see a variety of social, economic and environmental threats to
China’s continued growth and development (Exhibit II). They indicate that economic
and social issues are far more important than environment ones. About 63 percent of
respondents cite pollution as a threat to growth. But when asked to weigh it against
economic and social issues, 80 percent choose a threat other than pollution as the most
significant. Across all issues, pollution is the only health or environmental issue among
the top five. The others are rising income inequality, poor enforcement of commercial
laws and regulations, a shortage of qualified talent and weak financial institutions.
Some issues that are significant concerns in other regions – such as renminbi’s exchange
rate against the US dollar and rising energy prices – are, surprisingly, of very little concern
to the executives.

Exhibit II
Potential Threats

Top three threats, % of respondents (n=253)

Which of the following issues poses the greatest threat to


China’s continued growth and development?
Social Business and Economic Environmental
Poor or arbitrary
Rising income enforcement of
40 26 Pollution 63
inequality commercial laws
and regulations

Official Shortage
19 21 Pandemics 15
corruption of talent

Aging Weak financial Shortages of


15 institutions 20 20
population clean water

Source: “Doing Business in China: A McKinsey Survey of Executives in Asia”, The McKinsey
Quarterly, January 2007

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