NEWS
026
china’s exporters
look homeward
Amid the global sales slump, mainland manufacturers
are marketing to hard-pressed Chinese consumers
By Frederik Balfour and Chi-
Chu Tschang
Over the past three decades
hundreds of thousands of small fac-
tories making everything from rivets
to refrigerators have popped up across
China. While competition was always
cutthroat, many of these companies—
both domestic and foreign-owned—
prospered by avoiding the brutal
domestic scrum and selling abroad.
But with overseas consumers reining
in spending, Chinese manufacturers
are piling into the crowded domestic
market. “Competitors are coming out of
the woodwork,” says Frank Rexach, Asia
chief for Michigan-based office furni-
ture maker Haworth, which in China
faces a slew of new rivals that once sold
primarily to such foreign giants as Wal-
Mart Stores and Office Depot.
Across the economy, the story is the
same. On Feb. 5, Beijing-based Lenovo
Group, the world’s No. 4 PC maker,
fired its American CEO and said it
would refocus on China. In Novem-
ber, a Russian customer cancelled an
BUSINESSWEEK I FE B R UARY 23, 2009
Shoppers
check out
the glitz at
a Beijing
hypermarket
spot for the likes of General Motors,
Ford Motor, and Toyota Motor, but
they are facing renewed competition
from domestic rivals that ramped
up in anticipation of export demand
that isn’t likely to materialize soon.
“Everybody is chasing share,” in the
mainland, says Nigel Harris, Ford’s
No.2 executive in China.
Some foreigners have already had to
revamp their plans for China. On Feb.
5, Swedish appliance maker Electrolux
said it will close a refrigerator factory
in the central Chinese city of Changsha
order for 50,000 TVs from electronics because it couldn’t compete with low-
manufacturer Skyworth, so the Shen- cost domestic rivals. “This downturn
zhen-based company quickly dis- is the most significant setback multi-
patched them to the domestic market. nationals have had in China in the last
And Dongguan Meng Qiren Fashion, 10 years,” says Gordon Orr, partner at
which once sent all of its sweaters consultancy McKinsey in Shanghai.
to Polo Ralph Lauren and a host of It won’t be easy for Chinese compa-
smaller Western brands, is selling morenies to break into their home market
to Chinese supermarkets and shops. overnight. Exporters that have worked
These companies couldn’t have with just a handful of foreign cus-
picked a worse moment to wade into tomers don’t know how to negotiate
their home market. At least 20 million the Byzantine distribution channels.
migrant workers have lost their jobs, Shing-Hing Group, one of China’s
and urban unemployment is on the 10,000-plus manufacturers of screws,
rise. Chinese customers, among the has supplied clients abroad for two
world’s biggest savers even in good decades. Now it faces years of hard
times, are likely to cut back wherever work to build a sales network at home,
they can. “The toughest times are yet says founder Edward Tsui. “In China,
to come,” says Stephen Shao, presi- the culture is different,” says Tsui, “and
dent of paper products maker Kim- more difficult than overseas.” ^
berly-Clark China.
STEPHEN SHAVER/Polaris
The shift presents
a big threat to foreign Cracking China’s domestic market won’t
manufacturers that be easy: Distribution is tricky and soaring
had high hopes for
China. The country
unemployment is cutting demand
has long been a bright