The China market and European companies

Abstract

Purpose -The purpose of this paper is to illustrate the changing nature of competition in China. China received over $60 billion in foreign direct investment in 2003, and its economy is already the world's second largest in PPP terms. Thus, there is a tremendous need for executives to understand the changing business environment in China. Design/methodology/approach -The methodology is primarily theoretical complemented by applied cases of foreign companies and their experiences in the Chinese business environment. Findings -Multinational companies face intense price pressure competition in China. The primary factor is due to the growing competitiveness of local Chinese competitors. Practical implications -China is a complex market combining a transition economy, deflationary economic conditions and local competitors that learn about global products and services in the shortest possible time. Multinational companies are underestimating the speed at which Chinese companies are becoming globally competitive. Originality/value -Existing business and management research on China has tended to focus either on the transitional nature of the Chinese economy, or on the nature of competition among multinational corporations. This paper illustrates the importance of emphasising China's local companies, that are rapidly becoming multinational corporations.

Panasonic in China: A Search to Overcome the Liability of Foreignness

“…The factory took advantage of low manufacturing costs, with sales initially aimed either at consumers in Shanghai -or at least to those who could afford the roughly 250 USD device (1990s prices), then shielded from import competition by high tariffs -as well as to the US. However, while exports developed, local sales failed to take off and the company operated in the red for four years (Choi & Nailer, 2005). Moreover, as Chinese middle-class consumer expenditures on microwave ovens expanded tenfold to five million units from 1994 to 2000 (Davis, 2000) so did the role of local producers.…”

“…Panasonic was able to recover some production, to around one million in 2000, by exporting 80% of its output mainly to North America, while closing its microwave oven factories in the US and Japan. By 2001, Galanz was even outselling Panasonic in the US while in China, Panasonic's cheapest model sold for 70 USD as against Galanz' cheapest model at 36 USD (Choi & Nailer, 2005). Panasonic faced similar problems in other consumer equipment markets in China, such as washing machines and refrigerators (Jiang & Hansen, 2003).…”

“…This new approach achieved a modicum of success. At a revised 48 USD unit price level, 46% below its previous lowest price but still with a 33% premium over the cheapest product in the market, export sales into the US grew rapidly, accounting for 80% of the factory's 2.4 million units in 2002 (Choi & Nailer, 2005). Nonetheless, Panasonic was becoming aware that accessing growing domestic markets required developing products specifically attuned to Chinese tastes.…”

The Information System Strategies of MNC Affiliates

“…IS strategies can then be more responsive to local prob-lems, systems development and maintenance better tailored to local processing needs, and business problems more readily resolved. Choi and Nailer (2005) also suggest that pursuing a local strategy in a competitive environment may save significant costs. The key elements of localization-based cost reductions include tariffs, management, software development, personnel, and operations.…”