Domestic companies keep foreign firms on their toes

Foreign multinationals are having to up their game in order to keep up with Chinese companies, according to a leading academic.

Tom Hout, associate professor of the University of Hong Kong's School of Business and a former partner of the Boston Consulting Group, said overseas firms face increasingly tough competition.

"Multinationals can't just send out any old Joe like they used to, mark up the premium on their brands and expect to compete. That might have worked in the past, but not now," he said.

Hout has carried out research recently pointing to Chinese companies now occupying the top two or three positions in 10 of 33 modern industrial sectors.

He said the biggest success of homegrown companies has been in manufacturing and cites; Pearl River in pianos, TV set makers Sichuan Changhong, Konka and TCL, Haier and Rongsheng Kelon in home appliances and Mengniu and Yili in dairy products.

"Chinese companies are dominant in electric motors, pianos, shipping containers and automobile parts. These sectors are right up their alley and they are all about metal bending and traditional manufacturing."

He said some Chinese retail companies like Belle International, China's leading women's shoe retailer with its brands Staccato, Millie's and Joy&Peace have made great strides.

"They are doing a fabulous job and they are operating right out of the textbook of US and European multi-brand companies. They are sophisticated operations and have emerged from just being manufacturing workshops," he said.

But Chinese companies may face a backlash when they try and gain a lead on the multinationals, Hout said.

Ningbo Bird, China's leading mobile phone maker and which employs 10,000 people found out its rivals Nokia and the South Korean giant Samsung were no push over just as they looked as though they were going to steal a technological advantage five years ago.

"Ningbo Bird had some hot products and it looked like they would have a pretty good run at them and dominate the market. But the multinationals loaded up their guns and came out with new products, expanded their distribution systems and got more aggressive on price," he said.

"I think the multinationals are much more aggressive than some of the Chinese companies bet on," he added.

Hout said multinationals such as Procter & Gamble, Unilever and Johnson & Johnson are prepared to invest for the longer term.

"What they are prepared to sink into their distribution systems is extraordinary. In the past, it would have been difficult for a country manager to justify putting distribution systems into the Chinese countryside because the assumption would have been that local brands have a stranglehold. That is no longer the case. The time horizon of the multinationals is long," he said.

He said at the same time the standard of Chinese management will improve as it sheds some of the public sector culture of the State-owned enterprises, which have dominated the country for a long time.

He said he believes those who lead Chinese companies in the next 20 or 30 years could provide formidable opposition to the multinationals.

"The best companies in China, in my view, are led by people under 35 or 40 years of age. Those currently teenagers who will provide the next generation of management will grow up understanding what good management is all about."

But Hout insisted that anyone who thinks the big US, European and Japanese multinationals are going to roll over and die is making a big mistake.

"The multinationals, which have been here 20 years, will not stand still over the next 20 or 25 years, but step up a gear also. The next stage in the process could see them become as Chinese as the Chinese companies are so the two could become indistinguishable," he said.

(China Daily 03/30/2009 page9)