Companies strategies in the network era

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China economy can grow 8% this year: FM

By Marcos Fava Neves
Updated: 2009-11-06 14:39

China will surpass Japan to become the world’s second largest economy in 15 months, projected the International Monetary Fund in a recent report. This represents a meteoric growth, because China’s GDP ranked the sixth five years ago. Some economists even argue that China’s economy is already the second biggest, since 20 percent of its economy is still informal.

Considering the per capita numbers, China has US$ 7,200 per inhabitant, which is low compared to some western economies. But China will be the largest commercial player in the world in 2010, since its sum of exports and imports will be higher than those of the United States and Germany.

With an expected GDP growth of nine to 10 percent in 2010, China’s economic numbers are increasing and the development will spread all over the country. Families’ consumption and domestic demand are growing around 10 percent each year, with large room for further improvement. Consumption accounts for around 40 percent of China’s economic activity, against 70 percent in the US, and around 60 percent in Europe, Africa and South America. So there will be a strong growth in the internal market and consumption.

Growing with the scale of the market is the competition, posing severe challenges to the companies operating in China, including pushing down the margins. The following are some important strategies applicable for companies operating on food markets and other markets regarding to the supply chain, to help them compete in the following years,or the “network era” in my eyes.

The first strategy deals with the integrated network approach. All companies must understand that they are not isolated anymore. They operate in a complex network, interacting with suppliers, buyers, consumers, competitors, the government and other agents. The first thing an executive should do is to describe and draw this complex network on a piece of paper, and then expand it to all employees of the company to help them know that they are not isolated.

What happen to the external environment will affect the company, so if something happens to a buyer or a supplier, the company will also be affected. Therefore, they must keep paying attention to everything and trying to anticipate what will happen and how their company will be affected.

The second strategy regards to the supply chain optimization. Companies need to look on their supply chain permanently to try to reduce costs, to buy from the best available sources from all over the globe. They should always try to find product or ingredient substitution and test their qualities and adaptability to see if they fit.

Idle inventories cause unnecessary loss as well. There is a need to build a safe and secure continuous supply chain to try to reduce transaction costs, minimize inventories and losses caused by inefficient transportation and redundancies. Companies need to think of packaging rationalization and always search for alternatives. Always ask yourselves: “how can we do this better?”

In terms of compressed margins and the global competition, the third bundle of strategies concerns marketing. Companies have to do what I call “value reengineering”, by looking at their product line to think about how to capture more value.They should ask themselves that what could be reduced in terms of content, change of ingredients, packaging modification.

When launching new products, companies should have a clear target, a message easy to understand and research as much as possible to avoid risks of failure. There are no more margins today to allow them to keep failing in launching new products. The profit of existing products cannot be wasted anymore to support failures of new launches.

In marketing, the word “simplicity” is also for the new era. Companies should simplify market segments, pay more attention to the cash generating products and focus on cosumers. Communications (advertisement and others) should be done under a deep understanding of their costs and impacts. There is no time anymore for media exposure with an unclear understanding of value return.

It is a new era of understanding the customer behavior, and more than this, understanding that the consumer does not want to pay for your inefficiencies on the supply chain or marketing activities.

The author is professor of strategic planning and food chains at the School of Economics and Business, University of Sao Paulo, Brazil