MNCs Must Adapt to the Changing Chinese Market
July 10, 2014

Along with President Xi Jinping’s recent visit to Korea, the hype surrounding Korean companies entering the Chinese market continues to grow. However, for the last few decades, there are many companies who have failed, including some major global companies who have struggled in the Chinese market. Korean companies who have largely focused thus far on importing intermediate goods remain unsure whether they can be successful or not. In an interview with Money Today, CKGSB Associate Dean Professor Teng Bingsheng, renowned for his expertise in Strategic Alliance, pointed out that the Chinese market has experienced significant changes and that MNCs are now facing difficulties to win the competition with local Chinese companies.

With regards to the recent transformation in the Chinese market, Professor Teng said, “China is no longer a cheap consumption market. Global companies should apply high standards and target customers with high-end products, not with old, low-end goods.” He also advised MNCs of the need to change their strategies in order to adapt to the new business environment in China. For example, he said they need to target fast-rising, middle-class consumers and transform themselves from labor-intensive to technology-intensive companies.

Prof. Teng also highlighted the significant growth of Chinese companies, saying, “Chinese IT companies are already outperforming overseas companies. The success factor is that they proactively absorbed advanced technologies and successfully internalized them.” He added that Chinese IT companies are making gradual changes, having first established core businesses and then later expanded their business to wider areas. For example, Alibaba started as a connecting platform between Chinese SMEs and overseas companies. Later, it launched ‘Taobao’, an online auction website, and won the competition against the world-leading e-commerce company, eBay. Prof. Teng further commented that ‘BAT (Baidu, Alibaba and Tencent)’ will continue to dominate the market.

Prof. Teng gave some valuable advice on how MNCs can successfully enter the Chinese market. He said MNCs should initially find out what their competitive edge is and in which industry they can stand out, before carefully deciding which partner they should work with. Teng said, “Some Korean companies tend to choose state-owned corporations, which are not always desirable. This is because private companies are leading various industrial sectors in China today and this is why Korean firms should find ways to cooperate with them.” He pointed out companies should have a specific brand identity or image when entering the Chinese market. For example, some Korean bakeries, as well as fashion brand E-land, have successfully attracted customers with strong value proposition and an unique Korean brand identity.

Meanwhile, Prof. Teng commented on Chinese companies eyeing the Korean market. He said, “China’s leading companies have shown great interest in the Korean market. They think the Korean market is an ideal initial platform to prepare their future business in China. To apply a Korean way of thinking to the Chinese market, those companies should look 10-15 years ahead, directly operate businesses in Korea, and learn strategies on internet and marketing.” However, he forecast that Chinese companies are not likely to make profits in the short term, because the factors for success in China are different from those in Korea. Therefore, Teng said Chinese companies should make more efforts to participate in and learn the Korean market rather than just focus on raising sales revenue.

Read [Interview] CKGSB Associate Dean Professor Teng Bingsheng: “MNCs Must Adapt to the Changing Chinese Market” on Money Today website.

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