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A great BBC article and video highlighting why China’s domestic mobile phone companies are now the greatest threat to Apple and Samsung’s success.
The extracts below will add weight to any argument that foreign mobile companies will struggle to succeed in the Chinese market.
- Shenzhen, once a fishing village is now referred to as China’s Silicon Valley. It is home to Huawei, Lenovo and ZTE (three of the five largest mobile handset companies in the world) and a further 6000 handset manufacturers.
- China produces more than half of the 2.5 billion phones sold around the world annually.
- China now spends around $300bn (£182bn) a year on R&D, compared with a US spend of $450bn, and it is estimated to surpass Europe by 2018 and the US by 2022.
In the interview with Shi Lirong, Global President of ZTE (now the most innovative company in the world, filing 50,000 international patents last year), he lays out his three-pronged strategy of customer-focused innovation, recruitment of the best staff from around the world and the development of business partnerships.
Very impressive stuff!
I am cross-posting this from the Economics blog as I think it should be useful for BUSS4 students; in a rather low key report on the BBC website this week, I found the shock news that China had a trade deficit of $23bn in February. This is alongside the HSBC Purchasing Managers’ Index (PMI) which focuses on small privately owned businesses, and which gave a reading of 48.1 for March, compared to 48.5 in February - with any figure below 50 indicating a contraction in manufacturing activity. And today there is a forecast of the ‘official’ PMI, which looks at the larger state-owned factories; although this is slightly over the ‘expansion’ measure of 50, it is only predicted to come in at 50.3 - and is subject to a 0.3 downwards correction to allow for seasonal patterns, according to Louis Kuijs, chief China economist at the Royal Bank of Scotland.
Speaking at his annual address to parliament, premier Li Keqiang said “we are at a critical juncture where our path upwards is very steep… deep-seated problems are surfacing; painful structural adjustments need to be made”.
This comes at a time when there are reports of a potential sub-prime debt crisis in the “shadow banking” sector (worth between $604bn - $3.7 trillion, depending on the source).
Also, according to the Ministry of Human Resources, the number of job openings fell, with city jobs in Q4 falling 13.7% from the preceding quarter.
Finally, and perhaps most importantly, the first domestic corporate bond default happened last week. Energy company Shanghai Chaori Solar failed on a £9m interest payment. The state has previously bailed out Chaori and other such businesses, but chose not to this time, generating much speculation from analysts.
Many say it was a necessary move from the government to install a better risk culture, tackle China’s credit problems and starting with the “painful adjustments” necessary to decelerate growth.
However, Bank of America Merrill Lynch stated “We doubt that the financial system in China will experience a liquidity crunch immediately because of this default, but we think the chain reaction will probably start.”
This was echoed by Philip Li of China’s International Credit Rating, calling it “a domino effect”, and coupled with Robert Peston’s recent BBC article (and other sources below), should help students construct a strong case that the risks of operating in China now outweigh the rewards.
My students were particularly interested in Facebook’s acquisition of WhatsApp for the ridiculously high $19billion. We used the previous blog, then delved deeper and found a few great related articles; one explaining why it was a good price ($42 dollars for each of the 450m customers) but bad strategy and the other predicting that WhatsApp will not help them succeed in China. To summarise the two:
- WhatsApp is pro-privacy and data-free
- WhatsApp CEO Jan Kuom is sticking to his “ad-ban”
- WeChat – China’s domestic messenger service already has 300m customers and better functionality
- WeChat helps China’s economy and is subject to Chinese law (meaning “they” can keep tabs on the content).
- Chinese government banned Facebook, linked them with an act of terrorism and state media claimed that “80 percent of China’s net users felt Facebook should be punished”
- The government don’t want Facebook siphoning money and talent away from China’s domestic social media industry, most notably Weibo (China’s Twitter), whose profits have just jumped from $2.4m to $44.5m!
Segueing seamlessly to a social networking firm that seems to have secured a way into China; LinkedIn is trialing it’s Chinese language site via joint ventures with Sequoia China, China Broadband Capital and the aforementioned Weibo and WeChat!
Chief Executive Jeff Weiner said the deal has raised “difficult questions” for him, and has been forced to make various concessions in order to adhere to the Chinese Government’s censorship requirements, but believes that “LinkedIn's absence in China would deny Chinese professionals a means to connect with others on our global platform,"
Overall, these combined articles give students relevant ammunition for each of the research “bullets” as it covers success, failure, methods of operation and ethical implications of entering the Chinese market.
It would appear that social network firms need to network with Chinese social network firms if they want to become social network firms that operate in China. Simple really.
The airline Cathay Pacific has just announced their 9th annual business awards competition, for" British businesses which have successfully capitalised on opportunities to operate in China and Hong Kong". The scheme is run with the China-Britain Business Council and sponsored by HSBC and The Daily Telegraph - and is valuable for BUSS4 students as the Telegraph's information about it has a number of case studies and stories of businesses which are former winners of the awards.
You can find out a little about 2012 winners Jaguar Land Rover (JLR), the business standards company BSI and the fair-trade Chinese tea producer Herbal Health, see why the CEO of Fired Up says that entering the Chinese market is essential for British business, and why the chief executive of the China-Britain Business Council says that he has his work cut out breaking down the misconceptions that surround doing business in the country, and bringing the real opportunities into the spotlight.
It has arrived there somewhat later than its major competitors. However, McDonald's has finally open its first outlet in Vietnam. It is a significant moment for an icon of globalisation, not the least given the historical connection between the USA and Vietnam.read more...»
Lenovo has agreed to buy smartphone manufacturer Motorola from Google for $2.9bn.
As Puneet Pal Singh from the BBC explains in his excellent analysis of the deal, this is not the first time that Lenovo has used an acquisition to accelerate its growth (a good example of "external growth).
Back in 2005 it acquired the desktop and laptop business of IBM which immediately catapulted it into the global top division of computer manufacturers. Now, Lenovo is the world's largest manufacturer of computers and it has set its sights on building global market share in mobile devices, particularly smartphones and tablets.
Overnight, the takeover of Motorola puts Lenovo into third place globally, overtaking Huawei, which itself also has global leadership ambitions. Regular readers of the business blog might also ask - where are Sony and Nokia? The answer, of course, is falling fast as competition intensifies.read more...»
Are the good old days over? Is the gold rush of multinationals into China at its end?
I think this is a very useful leader article in The Economist which ought to be part of the research notes for aspiring BUSS4 students looking at China.read more...»
The Year of the Snake proved a challenging one for major bureaucrats in China who had previously enjoyed a lavish lifestyle. However, a new focus on rooting out corruption amongst China's public servants, is catching up with corrupt officials. As senior public servants fall into line with the new, stricter regime, demand for certain luxury products is falling in China! In this video from the FT, Ben Marino examines the changes and the possible implications for businesses that have relied on lavish spending.
A great example of how a change in the political environment can impact directly on business!read more...»
OUP is one of the country's major academic book publishers, and naturally enough it has commissioned and published new studies on the outbreak of the First World War. A new book 'Saving the City', by Richard Roberts, covers the financial crisis which broke out in Britain, after the assassination of Archduke Franz Ferdinand in 1914.read more...»
The challenges for businesses outside China gaining a profitable share of fast-growing markets in China have been illustrated by two recent announcements by leading multinational cosmetics firms - L'Oreal and Revlon.read more...»
It has been along time coming (a six year negotiation), but Apple has finally signed the deal that enables it to connect to hundreds of millions of increasingly affluent consumers in China.
Apple has agreed a deal with China Mobile - the world's biggest network of mobile phone users - to sell iPhones to the network. China Mobile, which has about 760 million customers, will begin registering orders for iPhone from December 25 2013 in a deal that is likely to add many billions of dollars of annual revenues for Apple.read more...»
A fascinating survey has been released by the UK's Manufacturing Advisory Service ("MAS"). It reports that a growing number of manufacturing SMEs are bringing production back to the UK from overseas. This is a process called "onshoring" which, of course, is the reverse process to "offshoring".read more...»
A terrific six minute video here which highlights and then explains five key challenges for a business outside China wanting to do business in China. Well worth a watch. An underlying theme across the challenges is how businesses outside China can reduce or manage the risks involved in entering Chinese markets. China poses quite distinct risks, particularly around the lack of information, the different culture of doing business, the role of government and the importance of local relationships.read more...»
With the high-profile visits of George Osborne and Boris Johnson to China this week, there is a glut of resources available on the BBC website which could be very valuable to BUSS4 research.
Here are links to just a selection:read more...»
Students looking at international expansion strategies of multinationals will soon come across the term "glocalisation". It sounds similar to the idea of diversification and both are concerned with choices that businesses make about which products and services are offered and into which markets. Such choices are often analysed using the Ansoff Matrix. But is glocalisation the same as diversification? Or is it really a kind of market development?read more...»
During our CPD briefing days on China we've often mentioned the rapid growth of the Chinese middle class and the resulting impact on demand for consumer goods. China now accounts for 20% of global demand for luxury goods and this is illustrated in the following short video from the excellent FT team based in Hong Kong.read more...»
A strong sign here of the increasing competitive strength of businesses based in China that wish to expand into other markets around the world. US-based venture capitalist KKR has invested around $550m for a 10% stake in Qingdao Haier, China's largest refrigerator and washing machine maker.
We have mentioned Haier before on the Business Blog as a good example of an emerging markets multinational corporation (EMMC) and Haier is also recommended as a case study for students researching China & Emerging Markets for AQA BUSS4.read more...»
More than half of U.S.-based manufacturing executives at companies with sales greater than $1 billion are planning to bring back production to the U.S. from China or are actively considering it, according to a new survey by The Boston Consulting Group.
The share of executives who are planning to "onshore" or “reshore” or are considering it rose to 54 percent, compared with 37 percent of executives who responded to a similar BCG survey in February 2012.read more...»
Here's Lei Jun (on the left). Notice something familiar about him? The blue jeans; dark top and introducing a shiny new smartphone to present to the world's media. Uncanny.
Lei Jun is the founder and CEo of a firm called Xiaomi which the Chinese media have nicknamed the “Apple of the East."
Lei Jun himself is also increasingly being called the "Steve Jobs of China" - and not just for his dress sense and presentational style!read more...»
How on earth is Starbucks making a success of its push into China? China is a tea-drinking nation. In fact, China has the world's oldest and largest tea-drinking culture. Chinese people hate coffee – they say it tastes so bitter it is like tasting medicine.
But, look at the evidence. Starbucks has been in China for 13 years, with an initial presence in the major tier 1 cities Beijing, Shanghai and Guangzhou. Starbucks expects China to become its second-largest market by 2014 aiming to have 1,500 outlets throughout China by 2015. The number of staff employed by Starbucks in China is forecast to rise from 12,000 to 30,000.
According to the latest Euromonitor report, Starbucks has a 60 per cent share of China's emerging coffee house market, well above its closest competitor.
That sounds like a success story. So how has it done it?read more...»
Just why have so many Western retail giants struggled to succeed in China? If global retailers like Walmart, Tesco, Carrefour and Best Buy have struggled, what hope is there for the rest?read more...»
Say the word e-commerce in the US, UK and many other developed economies and one word usually comes to mind – Amazon. The Seattle-based multinational claims to be the world's largest online retailer. It has highly diversified operations that have taken the business well beyond the original proposition - selling books online. CEO and Founder Jeff Bezos launched Amazon.com in 1995 and over the next two decades Amazon has expanded its retail websites to dominate the market in Canada, the UK, France, Germany and elsewhere.
However, in China, say e-commerce and a different "A" word is on everyone's lips. Alibaba is a private Chinese company that is now the largest business-to-business and consumer-to-consumer company in the world. Amazon might dominate global business-to-consumer online retailing. But, in China, Amazon has a very small market share and it is Alibaba that dominates.
In fact, Alibaba can legitimately claim to be the world’s leading e-commerce business. Reports suggest that Alibaba handled total sales of $170 billion in 2012 – which is more than the transaction value handled by Amazon ($96bn) and eBay ($75bn) combined!
After more than eight years of effort, Amazon has less than 1 per cent of China’s $196bn e-commerce market. Alibaba is estimated to have a market share of nearer 75 per cent.
To put this into perspective, China’s e-commerce market is already the largest in the world and by 2020 is forecast to be bigger than the existing markets in the USA, UK, Japan, Germany and France combined. So Alibaba’s market share of over 70% makes it a very big player indeed.read more...»
Businesses from outside China trying to sell in China face a critical question as they try to enter China. How far should they go to adapt or redesign (“localise”) their products and services to meet the needs and wants of customers in China? Should they adapt existing products just enough to appeal to consumers in China? Or should they look to start again – rethinking the product or service from the ground up – in order to established a position in the market and then gain market share?
Yum! Brands is a multinational that operates or licenses Kentucky Fried Chicken ("KFC"), Pizza Hut, Taco Bell and other small restaurant brands worldwide. Yum! is the world's largest fast food restaurant company in terms of outlets with more than 39,000 restaurants around the world in over 125 countries and global sales of over $12bn.
For the last decade, Yum! Brands has relied upon international expansion as the main driver of revenue and profit growth. China in particular has proved to be a significant source of growth. For example, KFC has opened an average of one new outlet per day in China and has an objective of reaching 15,000 outlets.
KFC has achieved this high rate of growth by adopting the concept of localisation. It has largely ignored the traditional model of KFC outlets in the US and other developed economies - that of a franchise operation with a limited menu, low prices and an emphasis on customers taking-out their food and drink to consume. Instead, the KFC model in China was redesigned to meet local needs.read more...»
The risks for businesses from outside of China from operating in China have been well-illustrated by the problems now faced by pharmaceutical giant GlaxoSmithKline plc ("GSK”).
GSK is facing claims that it made corrupt payments of around £323m to Chinese doctors in order to win market share. GSK is cooperating with the Chinese government in an investigation which might result in a substantial fine or other punishments for the company.read more...»
The risks of doing business in China have been highlighted again with news that a division of Danone, the French multinational with global brands operating in bottled water and dairy products, has been accused of bribery.
The Chinese authorities have instigated a number of investigations into bribery recently. The accusation for Danone to handle is that its baby milk brand Dumex paid large bribes to doctors and nurses in Tianjin to incentivise them to feed newborns Dunex brand infant formula.read more...»
If they want to grow, multinationals based in developed economies have to make emerging markets their number 1 strategic priority.
That's the view of the CEO of Tupperware - Rick Goings.
"Customers that want growth simply must be where the growth is" said Rick Goings in his contribution to a major survey about multinational strategy in emerging markets.read more...»
CK Prahalad once wrote of the "fortune at the bottom of the pyramid" - reflecting the commercial opportunities for businesses that can successfully connect and bring products to markets inhabited by low income consumers whose living standards are on the rise. China's fast-growing economy provides an enormous opportunity, but how can companies win sales in the Chinese interior, hundreds of miles away from the coastal centres of commerce?
As wealth and consumerism reach China's most remote cities, foreign brands are venturing far from Shanghai and Beijing hoping to win over millions of new consumers. The FT's Patti Waldmeir visits two lower tier cities in central China and looks at how Adidas is expanding in the far outposts of the Middle Kingdom.read more...»
An excellent case study here in how to grow a business through expansion into faster-growing international markets.read more...»
Students looking for a great example of how a UK business can transform its fortunes by focusing on the opportunities in emerging markets need look no further than JCB.read more...»
It is now six years since the global financial crisis triggered a prolonged downturn in economic activity. The UK economy, like other developed economies, has struggled to escape from a period of stagnant economic growth.
However, despite the weak economy, many UK firms have succeeded in significantly growing their revenues and profits.
Here are three examples of such businesses. Their strategies for success are different – but there are also some similarities.
Can you compare and contrast these three – and also identify some other businesses that have enjoyed similar success despite the tough economic environment?
You might also consider:
- What factors have driven revenue growth at each of the three
- Has their growth strategy been based on organic or external
- To what extent has their growth been driven by international
- Do you think their recent success can be sustained?
- What factors might that continued success depend on?
Let's face it. Nearly all of us associate Ikea with flatpack, affordable furniture. The Ikea brand has become a global success and, as we reported on the business blog recently, the Ikea format is well-positioned to achieve further success in key emerging markets.
However, Ikea's business portfolio is not just about furniture retailing.
In March 2013, Ikea announced that it is to partner with Marriott International to open a chain of three-star hotels. The chosen brand name for this joint venture between Marriott and Ikea is Moxy Hotels.read more...»
A superb article here from Reuters which examines the challenges facing Ikea as it accelerates its expansion into key emerging markets, notably China and India.
On the one hand, Ikea aims to exploit its global brand by applying the core retailing concept (epitomized by the store racetrack layout, flatpack goods etc) and core values that have enabled to it to become the world's largest furniture retailer.
However, Ikea also needs to be sensitive to the specific customer needs and wants in each national market if it is to meet customer expectations and compete effectively.read more...»
A simply stunning video here from the FT which is perfect for students wishing to gather some evidence on industries, firms and brands that have thrived despite the prolonged economic downturn in developed economies.read more...»
A great video to share here with your students and pose the question - can a fast food chain based on healthy eating succeed?
Students at tutor2u's EntrepreneurLIVE 2012 events met Vincent McKevitt, the entrepreneur behind Tossed, a healthy-eating fast food chain based in London.
It looks like Vincent might soon be facing some competition from an ambitious Canadian startup Freshii which is also testing the idea that fast food can be healthy by building a chain of healthy fast-food restaurants in the U.S. and around the world.
Can the concept work? Why not? But what will it take to encourage more of us to switch from the instant satisfaction of a burger or fried chicken.
And can businesses like Freshii and Tossed compete with established multinational fast food giants like McDonalds and Subway who may simply alter their product offering if significant numbers of customers decide to start looking for a healthy-eating alternative?read more...»
"We have no idea where these products will go" says one of the production line workers at a factory in China operated by Zhejiang Hongyu Medical Commodity Co. Ltd
Thousands of miles away, the final destination for those products are the shelves of retailers in developed economies, particularly the discount and/or single-price retailers who have enjoyed such rapid growth in recent years.
In this fascinating article, Tom Phillips reports for the Telegraph from Yiwu - a landlocked trade hub in China's eastern Zhejiang province - which conducts over £5bn of trade exporting low-cost consumer products around the globe. The article is a real eye-opener.read more...»
Perhaps we’re all guilty of picking up on ideas or stories that support a particular view that you feel is right. Ever since I began reading about doubts over the benefits of outsourcing and offshoring I’ve seen more stories on the same theme. There was Bob, who had outsourced his own IT job to China. Then came a special report in The Economist that asked some searching and detailed questions too (you can read more here).
And now the definitive proof - the "Nation's Noodle" is coming home. Golden Wonder's pot noodles are currently made in China and shipped 10,000 miles to the UK, but the 191-year-old British company that makes the product has cancelled its Chinese contracts in favour of making its own noodles in Leeds.read more...»
The value of the pound - or the exchange rate - is back in the news. It looks as though enough international investors have sold £££s that its value has fallen quite sharply. Here are some reminders of what this means, and some helpful reading links.read more...»
We probably now Samsung best for its smartphones, tablets and televisions. However, Samsung's business activities and operations are spread much wider than just those two important markets.
The electronics giant also makes military hardware, apartments, ships and operates a Korean amusement park! Imagine how complicated it would be if you were asked to compose a Boston Matrix for Samsung's entire product or business unit portfolio!read more...»
The central thrust of their argument is that the advantages of offshoring work (outsourcing overseas) are falling, fast. The logic of returning work to the developed economies looks fairly convincing.read more...»
A directive from The US Federal Aviation Administration has stopped flights of the Boeing 787 Dreamliner, until the plane maker has satisfied the regulator that it has resolved problems with the aircraft’s battery systems. Boeing’s shares had dropped by 2% $72.80 (£45.50) after the announcement. The share price of GS Yuasa the Japanese battery maker had fallen 11% since 7 January when an electrical fire broke out on a JAL 787 at Logan International Airport in Boston.
Tesco's decision to review the future of its US grocery supermarket chain Fresh and Easy will provide us all with some fantastic teaching material to use when looking at some core topics such as international expansion, product/market strategy (Ansoff), retrenchment and other elements of corporate strategy. Tesco have invested up to $1.6bn over five years in trying to establish the Fresh and Easy format in the US, facing fierce competition. The result? Heavy losses and no sign of achieving the break-even point, even after five years.read more...»
I’ve taken a lot of interest in Tesco’s overseas strategy, which took them to the United States in 2007 with their Fresh and Easy store chain. The set-up was bold; adding lots of capacity but high fixed costs, meaning the enterprise has consistently struggled to break even. Now Tesco have just confirmed that they are launching a strategic review that may lead to the sale or closure of its US operations. Dramatic news. What’s behind it?read more...»
Why and how should UK firms expand into international markets? Exporting provides a significant opportunity for UK firms to reduce dependency on demand from domestic markets. But exporting isn't straightforward and it carries risks if not implemented properly.
This short video features a UK business that has embraced the export opportunity. Selling overseas has made British skincare firm Eve Taylor stronger - their MD explains how.
Admittedly it's a bit of an advert for Barclays Bank (who made the video) but there are still some really useful insights for students.read more...»
As the October 10th deadline approaches, the board of BAE face significant difficulties to
complete the proposed merger with EADS.
Rather than merge with a rival, car firms may form alliances in the development of new products.
The BAE EADS merger proposal ought to help pupils attempt develop analytical skills using PESTLE, SWOT or stakeholder models. Can you use these management tools to develop your analysis and evaluation and go beyond application and understanding?
From Father to Son. Long-term, generational succession is seen as key to the stability and success of businesses in Japan. This fascinating video from the BBC explains how the use of adoption has enabled Japanese businesses to maintain the process of succession.
A whole industry has evolved providing potential adoptees to businesses who are looking for suitable candidates to take on the family business ownership.read more...»
British Aerospace (BAE Systems) and EADS announced that they are discussing a merger.