What Chinese companies need now is a Sony

China Daily | Updated: 2008-02-19 07:34

Of all the major consulting firms in China, Roland Berger is a little different. Based in Germany, it is the only one in China with European roots. More than 50 percent of its clients are locals, rather than big-name multinationals.

The company's European roots allow it to adapt to unfamiliar cultures more easily and its focus on Chinese clients helps it to better understand their needs, said Torsten Oltmanns, global marketing director of the firm. During his trip to Beijing, Oltmanns spoke to China Daily reporter Wang Xu about the challenges faced by Chinese enterprises eager to expand into the European market.

Q: What's the major challenge for Chinese companies in overseas markets such as Europe?

A: Marketing is a big issue for Chinese companies. Currently, there is a perception in Europe that Chinese companies are associated with low-end and low-margin products. This makes it difficult for Chinese companies to move up the value chain.

Moreover, Chinese companies are still weak in product differentiation. When you have something interesting, you expect people to buy. But in developed markets, you need to find your own niche.

Q: So how could this situation be changed?

A: This will only be changed when China has its own "Sony". Before Sony, Japanese products were also thought of as low-end ones with shoddy quality. Sony and some other Japanese manufacturers helped change that perception.

Sony's real strength is the design side rather than technology, and Chinese companies could do this too. Westerners now think China is up to something big and is quite "hip". Chinese companies could also utilize the nation's culture and art heritage to create its own identity and change the "low-end" perception.

Q: Are you seeing more Chinese companies establishing global operations?

A: Actually it's a little early to say so. It's our understanding that most Chinese companies are still thinking about how to get globalized. There are now an increasing number of Chinese companies looking for possible partners in Europe. And some are thinking about setting up manufacturing facilities by themselves. However, a study will show profitability in such mature markets is not as high as in China, which they need to get used to.

Q: As you said, more and more Chinese companies are looking for European partners. How are they doing on that count?

A: Well, so far this has been an annoying experience for Chinese companies in most cases. It's not because there are few potential partners, but because European companies still know little about their Chinese counterparts. European companies sometimes find those small and middle-sized Chinese enterprises overwhelmingly big for them.

Moreover, there is a stereotype that Chinese companies are only interested in taking the best technology back home and then set up an independent business. That's not fair. But it's putting a lot of pressure on Chinese companies.

Q: What do European companies look for when it comes to partnership?

A: Usually, when European companies look for partnerships, they are not looking for money. There is still a lot of money in the market. European companies can easily go to private equity firms for capital. When Chinese companies talk about partnership, they talk about money. But as long as they don't bring R&D capacity or other knowledge to the table, Europeans simply won't be interested.

Q: There is talk about European companies being increasingly interested in partnering with the Chinese to enter the nation. Do you see this happening?

A: Actually, European companies still lack confidence in this kind of cooperation. Some think they can dominate the venture. However, that's not the usual case. There is underestimation of the problems you can have in China.

Q: There is concern that China is losing its cost advantage, given the recent rise in wages, and land and utility prices. Do you think this will cause multinationals to leave China? If so, what's the implication for China?

A: Rising cost is actually a big challenge for companies that constantly look for lower-cost manufacturing capabilities. They have to consider the cost of moving and deal with new uncertainties. For some time, China will remain a good choice because of overall costs. But the nation needs to develop high-margin products in the mid term; there's always someone who can make it cheaper than you. That can never be the winning strategy in the long run.