CEOs and Boards of Directors are now talking about China incessantly – as they should – given the amount of capital and growth at risk. Having “a China strategy” is no longer a luxury but a necessity – and it no longer pertains to marginal growth but more likely to the central challenge of survival.
You and your Board of Directors have very likely approved some type of strategy for China. In some companies, this strategy is robust and, in others, quite cautious. Some companies are already in their second or even third decade in China – others, barely in their second or third year. Despite the variety of experience, at least three themes are common to every company.
Entry. All companies are dealing with entry issues of one kind or another. Companies who are new to China – and there are plenty and plenty more going over for the first time – ask themselves: Should we partner with a Chinese firm? How much will China really cost us? What strain will we experience in trying to support China from overseas? Large companies already in China deal with the same entry issues with each subsequent market inside China. When they expand into secondary and tertiary cities or newly emerging sub-segments, they are continually assessing risk and reward and allocating capital and resources.
Speed. China is new or continuing to feel new because of its pace of change. Those who have been there for decades will tell you that they are still learning – the water runs deep and fast. Thus, even the experienced firms find themselves needing to validate their direction from time to time, especially when the latest investment decision before the board requires billions of dollars. These companies are already on Strategy 301 or 401, as we like to say – and very knowledgeable. That said, they know that they must avoid the usual traps that accompany scale – complacency and too much self-esteem. It often pays to ask for a sounding of the trajectory: Is the new strategy ambitious enough? Are we taking full advantage of our China platform? Should we lock up a broader footprint now before it becomes too expensive to expand?
Impact. China will likely change your industry, your company, or both, if it has not done so already. Most industries – ranging from planes, trains, and automobiles to pharmaceuticals, beauty products, and electronics have already felt the impact of the China factor. Some industries have been literally transported – such as furniture manufacturing – while others like gold and commodities have been transformed via the restructured markets. The main question to ask: How will China dominate (or merely influence, if you are lucky) my company’s future?