Академический Документы
Профессиональный Документы
Культура Документы
Winning in
China’s mass
markets
New business models,
new operations for
profitable growth
Participation by Industry
13% - Other 13% -
non-manufacturing Automotive
4% - Other 18% -
manufacturing Consumer
11% - Retail packaged
goods
41% -
Electronics
n=180
IBMGlobal
IBM Global Business
Business Services
Services
Winning in China's mass markets
New business models, new operations for profitable growth
FIGURE 1.
Multinationals in China – the long march to profitability.
Percent
Beijing
Tianjin
Shanghai
Note:
1 China’s National Statistics Bureau classifies 654 cities that in aggregate account for 92% of GDP. Hong Kong and Taiwan excluded
from analysis.
2 2003-4 figures. 149 county-level cities and rural areas were excluded due to data limitations.
3 Population and salary ranges exclude the top 10% and bottom 10% of values to minimize impact of cities with outlying values;
population figures are generally for cities only, not for their metropolitan areas.
4 Number of registered dedicated broadband lines divided by population.
5 Number of SIM cards sold (representing new mobile numbers) divided by population.
Source: “China Statistical Yearbook.” 2005. IBM Institute for Business Value analysis.
FIGURE 4.
Are your business models and operations aligned with your China strategy?
Service and
R&D Procurement Manufacturing Sales Distribution
support
Human Resources
Prosperous
China Globally Tier 1 and 2 “Buying”
Global, driven, Specialized Primarily talent from
- Premium In-house cities, direct
market higher cost global specs logistics in-house Tier 1 and 2
channels
strategy
? ? ? ?
? ? ?
“Emerging”
China Localized, Locally Outsourced Tier 1 to Vast but Both in- “Building”
- Mass lower cost managed, 5 cities, improved house and talent
market China specs diverse sales traditional outsourced nationwide
strategy channels network
China’s multi-layered Historical roots sales and distribution. These large distributors
China’s multi-layered legacy distribution focused on product delivery to major cities and
legacy distribution structures are the product of central planning extended credit to 20 regional distributors who, in
system is giving which impeded effectiveness, efficiency and turn, managed distribution within cities. Beneath
way to new, flatter scale. Until recently, poor infrastructure and them, a network of 200 resellers and wholesalers
outdated inter-provincial regulations exacer- managed sales and distribution to retailers, and
channels - essential
bated the problem. This resulted in a system provided service and technical support.
changes that will
with national, regional and local distributors
provide greater each playing a small role in moving products Multiple layers, no visibility, high costs
visibility to companies from factories to market. Information sharing In our discussions with executives and opera-
and enable them to between parties was virtually non-existent. tional managers, their number one challenge
was how to “flatten” channels to lower costs
sell more effectively Due to government regulations in force until and gain visibility. Our analysis shows that as
and profitably. 2005, most MNCs had little choice but to much as 42 percent of survey respondents’
rely on the equivalent of a cash and carry revenues flow through three or more distribu-
model with national and regional distributors. tion layers. Furthermore, only 10 percent have
Despite the inefficiencies, MNCs adapted to visibility of sales at the store level and 33
the arrangement and focused their efforts on percent can only view sales down to national
manufacturing and branding. distributors (see Figure 5).
Percent
Percent 3 layers
50 50 23% - Regional
2 layers
40 40 distributors or
1 layer wholesalers
30 0 layers - direct sales 30
20 0 layers - online 20 36% - National
10 10 distributor(s) only
0 0
Automotive Electronics Consumer products
Not surprisingly, interviewees cited major Emerging options for flatter channels and
supply chain inefficiencies and high costs insights into customers
resulting from this multi-layered structure: Innovative companies focused on the mass
limited forecasting abilities, high inventory market are experimenting with a number of
levels, low order fill rates, out of stock alternatives. All require consolidating channel
positions and SKU proliferation. The impact partners, reducing layers and leveraging tech-
has been substantial: a separate IBM study nology to enhance efficiencies and improve
found that over half the companies operating insights into end customers (see Figure 6).
in China incur logistics costs twice as high
as global benchmarks, where the average is
14
FIGURE 6.
5 percent of sales. Additionally, 77 percent Evolving channel alternatives: Flatter, more
of those companies had order fill rates below visibility.
15
global benchmarks.
Traditional New alternative channels
FIGURE 7.
Evolving distribution priorities – shifting from basic logistics to more collaboration.
“What do you think are now, and will be in 2009, the three most important criteria for selecting
channel partners and enabling growth?”
FIGURE 8.
Low-cost does not necessarily mean low-tech.
Motorola Motofone F3
• Low price: < US$40
• High-tech: Slimmer than a RAZR, battery life of 400 hours, voice-activated calling
• User-friendly: Icon-based interface and local language voice prompts are easy for new users or
limited literacy
• Localized: Large, low-cost, high-contrast screen
15
sourced in China
11
10 8 9
7 8
0
Automotive Retail Consumer Electronics Overall
products average
Source: IBM Operational challenges facing MNCs in China survey 2006, IBM Institute for Business Value analysis.
In total, the companies in our survey are Why are companies planning to source aggres-
sourcing from China the equivalent of 9 sively from Chinese suppliers? Simply put,
percent of their global revenues, on average. huge savings. Companies we surveyed have,
And, they intend to grow this to 14 percent on average, realized nearly 20 percent savings
within three years, an increase of 57 percent. a year by buying from Chinese suppliers.
Of this amount, our 180 survey respondents Furthermore, they plan to achieve savings of 26
said 46 percent is for the domestic, not percent annually over the next three years as
export, market and will continue to rise. they accelerate the shift to local suppliers for
more sophisticated product categories.
Companies can These growth plans are virtually across the
board – regardless of industry or current level MNCs face many challenges when sourcing
accelerate sourcing
of sourcing. Of the companies in our survey, from Chinese suppliers, with today's key
from local suppliers 30 percent are currently purchasing at least challenge simply finding and qualifying
to offer products US$100 million from China, but only 8 percent suppliers (see Figure 10). Other top challenges
priced for the mass more than US$1 billion; within three years, include quality management, intellectual
these percentages are expected to grow property management, total cost effectiveness,
market profitably.
to 48 percent and 13 percent respectively. and supplier management and collaboration.
Several auto parts companies we interviewed
are planning to increase by at least ten times
their purchasing in China for export and the
domestic market.
0 5 10 15 20 25 30 35
Percent of respondents
Source: IBM Operational challenges facing MNCs in China survey 2006. Total exceeds 100% due to multiple answers allowed.
Nonetheless, MNCs are generally confident and offered extensive on-site training. They
they will gradually find suitable Chinese have established a win-win relationship with
suppliers – at which stage, their focus will the automaker assured exclusivity and attrac-
shift to supplier collaboration. tive pricing while the supplier enjoys higher
operating margins.
Supplier collaboration – such as volume
commitments, sharing of best practices, oper- Upgrading organizational procurement
ational support and strategic investments in capabilities
suppliers – was considered by many multina- To realize the potential savings from sourcing
tional executives we interviewed as important in China, MNCs will need to upgrade their own
for success, with the caveat that strategic China procurement organization’s capabilities
suppliers must be carefully qualified to verify and elevate its influence within their global
adherence to ethical business practices and organizations.
typically nurtured for six months or more before
the relationship becomes fully productive. Some executives we interviewed reported
that the tactical nature of their procurement
For example, when one of its suppliers was organizations in China presented obstacles
unwilling to move to China, a major Japanese to optimizing savings and developing innova-
automaker invested in a Chinese supplier with tive approaches to surmount China’s many
high quality plastic molding capabilities but procurement challenges. For example,
no auto industry experience. After an assess- local procurement managers cited a host of
ment, the automaker committed volume to the administrative procedures to qualify suppliers
supplier, helped them develop a business plan requiring approvals from their China, Asian
and global headquarters.
High Performance-
Curriculum
based bonuses
development
Compensation tied to Customized training
Bonus for
company loyalty Compensation
University internships structured to Coaching or
maximize retention mentoring programs
Source: IBM Operational challenges facing MNCs in China survey 2006. Correlation to retention rate of mid-level
professionals.
By contrast, as depicted in the lower right Strategy #1: “Build” instead of “buy”
corner, companies are implementing programs “Buying” talent has been an effective way to
– such as coaching/mentoring and compen- accelerate operations and gain a foothold in
sation schemes – which actually have a low China, particularly during the early stages of
impact on retention. Worse yet, as seen in the expansion.
top left corner, three programs positively corre-
But once scale is needed, companies should
lated to retention are not being implemented
consider both “building” and “buying” talent.
aggressively.
A surprising number of human resource
Though program effectiveness will vary by managers we spoke with admitted they do not
company and industry, companies should hire fresh college graduates, preferring instead
ensure that their HR implementation strategies either to promote internally or hire experienced
are aligned with retention impact. professionals.
Innovative approaches to prepare for the “I don’t want to be the one training my compet-
mass market opportunity itors’ new hires,” said one Asia Pacific Director.
By improving retention rates, organizations While this preference for buying talent may be
will be less distracted and better equipped suitable for incremental hiring, it is not sustain-
to focus on two innovative HR strategies to able for large-scale recruitment efforts.
acquire, develop and retain talent required
Instead, companies should build their own
for the mass market opportunity: “building”
talent pipeline by partnering with selected
instead of “buying”, and localizing talent.
universities and vocational schools for curric-
G510-6578-01