Climbing the two ladders: how Chinese companies move up the global value chain
An innovative model explains how Chinese companies catch up to and even surpass their Western competitors and the markets in which they are more likely to excel
Competition with Chinese companies — in global markets as well as in China — is one of the defining facts of life for many companies around the world. In a variety of markets and industries, Chinese brands continue to evolve upwards and outwards, often meeting or surpassing the performance of Western incumbents. As an MIT Tech Review article noted about competition within China:
In China’s ice cream market, Unilever and Nestlé S.A. had won market shares of only 7% and 5%, respectively, by 2013 — despite decades of investment. The market is dominated by two companies that most people outside of China have probably never heard of: China Mengniu Dairy Co. Ltd., with a 14% market share, and Inner Mongolia Yili Industrial Group Co. Ltd., with 19%. Meanwhile, in the Chinese market for laundry detergent, Procter & Gamble was the leading foreign brand, with an 11% share in 2013, but it was overshadowed by two China-based companies: Nice Group Co. Ltd., with more than 16% of the market, and Guangzhou Liby Enterprise Group Co. Ltd., with 15%. The home appliance market is similarly structured. Chinese companies dominate the market, with Haier Group at 29%, followed by Midea Group (12%) and Guangdong Galanz Group Co., Ltd. (4%). The two top multinational competitors, Germany’s Robert Bosch GmbH and Japan’s Sanyo Electric Co. Ltd., have only niche positions (each with less than 4%). Competition with Chinese companies — in global markets as well as in China — is one of the defining facts of life for many companies around the world. In a variety of markets and industries, Chinese brands continue to evolve upwards and outwards, often meeting or surpassing the performance of Western incumbents.
Indeed, Chinese companies such as Huawei (telecommunications equipment and smartphones), Lenovo (PCs and servers), Haier (home appliances), Galanz (microwave ovens), DJI (commercial drones), BGI (gene sequencing), CRRC Corporation (high-speed rail), Pearl River (pianos), and ZPMC (port machinery) have even managed to outperform their multinational rivals not just in China but also in external markets.
Despite the success stories, the evolution of Chinese corporate competitiveness is not evenly distributed. In some industries, Chinese companies have done very well; yet in other sectors, they have struggled against foreign competitors at home and abroad. Given the variety in outcomes, an important strategic question is what factors determine whether a Chinese brand is more or less likely to equal or surpass foreign incumbents. A paper from Peter J. Williamson (Cambridge Judge), Bin Guo (Zhejiang), and Eden Yin (Cambridge Judge) provides a useful model for considering this question.
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