Home » Business » Finance Special
Local manufacturers adapt, creating market edge
Print Edition
EARLIER this year, the Economist published a cover article about the increasingly challenging environment in China for foreign companies. The China of the past decade, where double digit growth was a given, is long gone, and manufacturers are operating in a “new normal” state, where costs are rising, talent is harder to find and retain, and streamlining operations and improving productivity will count for a lot more than simply having better quality products.
Compounding the heightened challenge of China’s competitive landscape are external factors influenced by technology and government policy. Manufacturers have had to think of their competitive positioning in China, and with this change comes a transformation — or, dare I say, innovation? — in how Chinese manufacturers seek to compete.
Solidiance has explored the impact of these major external factors in a white paper entitled “Chinese Manufacturing 2.0: Threats Ahead” and a variety of internal advantages driving China’s manufacturing upgrade. The result documented in the research, inclusive of 16 case studies of evolving Chinese manufacturers, shows increasing competition between multinational corporations and local companies.
External factors
Apart from a mature middle market and local competition, many industries are facing major overcapacity as well. Chinese original equipment manufacturers are consequently reassessing their value to multinationals and making moves to become original design manufacturers. Manufacturers are shifting to a quality-oriented product model to avoid decreasing project margins.
To top it off, aggressive government policies limiting foreign competition and subsidizing certain sectors are causing widespread consolidation and mergers, giving local companies industrial advantages. For example, in July 2013, monetary directives were introduced aimed at strengthening small and medium enterprises by lowering the required reserve ratio, improving financing for agriculture, limiting firms operating in overcapacity sectors and increasing consumer financing. In response, multinationals must continue to reinvent their value proposition in the Chinese market.
Besides the five major external pressures upgrading Chinese manufacturing, Solidiance has conducted extensive surveys of local manufacturers to understand what they’re doing differently to gain competitive advantage in domestic and global markets. After analyzing 16 different cases in a variety of sectors, the research found six major advantages that Chinese manufacturers are utilizing to directly compete with multinationals.
Most importantly across these six is the increase in corporate management transformation. Major corporations such as Huawei and Wanxiang are demonstrating global vision in terms of managing company growth. Seamless Wallcoverings, Peninsular Laser and other small and medium enterprises are leveraging their flexible distribution networks to adjust to market changes in ways that are not easily replicated by large scale multinationals. The innovation seems to be focused on the vertical integration tendency of Chinese manufacturers, where the traditional manufacturing model is extending upstream and downstream in the value chain.
Chinese firms have extensive and intrinsic connections with consumers. A rooted understanding of customer taste is helping Chinese companies dominate the smartphone market and contributing to their success in other industries. Huawei and Lenovo are innovating new technologies after years of experience as assemblers for multinationals. Bosideng, Yili and Peninsula Laser are promoting marketing ideas, and companies such as King Clean and Yantai Wanhua are upgrading their whole business model.
By implementing reverse engineering strategies, Chinese companies are winning over less sophisticated consumers and rolling out high-quality products after becoming a household name. Lastly, a strong capital background and extensive industrial chain and infrastructure support give Chinese companies an advantage over competitors from less industry-friendly countries.
China is the world’s largest manufacturer, accounting in 2012 for almost 30 percent of the globe’s total.
Manufacturing output
Even now, Chinese firms are not content with merely shifting to original design manufacturing. Major players and an increasing number of small and medium enterprises are eying overseas opportunities. Local clothing company BISDEL, for example, has implemented a strategy of opening flagship stores in distinctly high-tier neighborhoods and shopping areas of London and New York before it opens in China. Huawei and Lenovo, older technology firms, have started launching new product introductions in foreign markets and will continue to move forward through innovative global strategies.
As is becoming clear in the inevitable upgrade of China’s manufacturing, multinationals must continue to transform their added-value proposition and further their knowledge of the Chinese consumer to successfully keep competing with local firms. Over time, small and medium enterprises have the potential to upstage multinationals across a number of sectors. Multinationals must adapt and overcome the external factors that plague both indigenous and foreign players alike, while seeking ways to innovate internally with business models and operational efficiencies that less than 10 years ago seemed unthinkable and were indeed non-critical.
Resting on the traditional value position of competing with a “better quality” product or solution is a multinational battle cry that is quickly losing ground as Chinese producers upgrade their own business models and translate them into improved efficiency and product design.
Pilar Dieter is a Partner at consultancy firm Solidiance, which specializes in Asia-focused growth strategy and B2B marketing. The author would like to thank Tom Cheng for his support in developing this article.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
