The Battle for China’s Good-Enough Market
Between now and 2030, China will account for one-third of the world’s GDP growth. Yet many multinationals are losing share in this critical market. That’s because local businesses are targeting China’s ballooning cohort of midlevel consumers with reliable, low-cost products that are displacing multinationals’ premium offerings. And the regional upstarts making these “good enough” products plan to use the same strategy to challenge incumbents in other emerging markets.
To defend your China position and prevent local competitors from becoming global threats, say Gadiesh, Leung, and Vestring, consider entering China’s good-enough space. For instance, attack the competition from above by lowering your costs and distributing simplified, reasonable-quality offerings. If you can’t reduce your costs quickly, use acquisitions to gain a toehold in this space.
By managing the risks and opportunities inherent in China’s middle market, you’ll claim your share of this pivotal market. And you’ll strengthen your competitive position elsewhere around the globe.
The Idea in Practice
Gadiesh, Leung, and Vestring offer these guidelines for entering China’s good-enough space:
Attack from Above
Moving to the good-enough segment in China is risky if you’re already thriving in the premium space. For instance, your new offerings could cannibalize your high-end products. To mitigate the risks:
Example: GE Healthcare expanded sales of its MRI equipment in China by creating a line of simplified machines targeted at hospitals in China’s remote and financially constrained second- and third-tier cities.
Example: GE Healthcare assigned a special team to observe target hospitals’ operations. Members also talked with administrators and physicians to determine the kinds of medical equipment they wanted, features they needed, possible price points, and required distribution and services. GE then reconfigured its existing networks of sales, distribution, and services to serve this new market.
If you can’t alter your cost structure or business processes quickly enough to compete with local players, consider mergers and acquisitions.
Example: Anheuser-Busch owned 27% of Tsingtao Brewery, one of China’s largest brewers. It outbid competitor SABMiller to acquire Harbin, the fourth-largest brewer in China. The acquisition enabled Anheuser-Busch to reach the masses while preventing Harbin from swimming upstream.
Note, though, that non-Chinese acquirers are facing tougher M&A approval processes. To increase your chances of gaining regulatory and political approval:
Also, to ensure that each acquisition delivers the maximum possible value: