China's 'Good-Enough' Market
China's recent proposal to curtail foreign investments isn't the only threat that global firms face in the mainland. While Beijing fiddles with its regulatory framework, a huge segment of lower-end -- but acceptable -- products, priced at unbeatable prices, is emerging. This "good-enough" market erases the idea that companies can simply use China as a source of low-cost manufacturing, or to sell premium products to China's increasingly affluent consumers.
Chinese companies are quickly mastering this game. In many industries, such as consumer goods, construction and telecom equipment, mainland firms have already survived multiple domestic consolidations and firmly established themselves in the good-enough market segment. Often, unsuspecting multinationals don't even notice the threat until it's too late.
Take Haier Group, a $12.8 billion white-goods maker built through the merger of three Chinese appliance makers and consolidation of 18 bankrupt state-owned factories in the 1990s. After securing its home market with products of adequate quality, the Qingdao-based Haier engaged in contract manufacturing for major Western retailers -- and learned the business along the way. Today, Haier's operations extend to the U.S. and Europe. Its expansion has contributed to a world-wide price drop of 8% to 12% for low- to mid-end refrigerators -- a boon for consumers, but devastating to Haier's traditional competitors, such as Maytag.
Not all foreign companies will be able to compete in this segment. The key question to consider is how diving into a good-enough market will affect -- or possibly cannibalize -- a foreign company's premium brand in China. Are there potential spillover effects beyond China? Is the profit pool in this segment worth it? Is there a differentiated positioning in this segment? Will the multinational be able to get its cost structure low enough to truly compete? And to what extent will the premium and good-enough markets for the product converge over time?
These questions may be daunting for foreign competitors who are just now mastering the Chinese marketplace. It's especially threatening when the product enters Western markets through an aggressive, low-cost channel like a big-box retailer. Countering this danger requires beating Chinese companies at their own game. But given China's size, there's an added bonus to getting it right: those who succeed in China can export this model to other emerging markets.
The problem is the only way to succeed is to lower costs aggressively. Large corporations with diverse cash flows, such as General Electric, can afford this tack. Its subsidiary, GE Medical, introduced a low-cost range of Magnetic Resonance Imaging equipment in hospitals in China's remote and financially weak second- and third-tier cities in the past couple of years. Why? GE understood that the fast-growing MRI market had customers whose purchasing criteria were not likely to change in the near term, reducing the risk of cannibalizing the company's own premium segment. GE Medical's cost structure, thanks to the size of its parent, meant that the company could offer competitive product pricing and accept lower margins.
It's still too early to tell how GE Medical's strategy will pan out; the company is still developing the right product portfolio and addressing such issues as how to best service the equipment. But there are positive signs. Since entering the good-enough MRI market, GE Medical has captured a 51.5% share of the $238 million Chinese market. The company generated roughly $122.2 million in sales in 2004, more than twice the next largest player. By taking early action, GE Medical can aggressively defend its position against local upstarts like Mindray, Wandong and Anke -- competing with medical-equipment products priced at about half of what multinationals can offer. And GE has taken this strategy to other developing countries, too, such as India.
China's good enough segment is a large -- and growing -- market. As Haier's experience shows, domestic Chinese companies are readying themselves to compete in these markets, and they're willing to do so at cut-rate earnings margins. That means that today, companies like GE Medical target the good-enough segment not only to defend scale advantages against fast-moving global competitors, but also against local "no-name" Chinese players. Multinationals who want to compete effectively in China, take note.
Ms. Gadiesh is chairman of Bain & Company. Mr. Vestring, a partner based in Singapore, heads the firm's Asia-Pacific industrial practice.
中国市场“够用就好”
Orit Gadiesh / Till Vestring
中国最近提出的减少海外投资的计划并不是跨国企业在中国大陆面临的唯一威胁。在中国政府频频修改其监管框架的同时，一个庞大的、定价格外低廉而质量却可以接受的低端产品领域正在悄然形成。这个“够用就好”(Good-Enough)的市场冲击着公司原本想将中国作为低成本加工中心，或者向中国不断走向富裕的消费者销售优质产品的想法。
中国企业正在迅速地掌握游戏规则。在诸如消费品、建筑和电信设备等许多领域，大陆的公司已经成功进行了多次整合，并在“够用就好”的市场领域中顽强地发展自身。经常出现的情况是，等毫无疑心的跨国企业注意到这种威胁时，已经为时太晚了。
以去年销售额达128亿美元的海尔集团(Haier Group)为例，这家白色家电制造商是在上世纪90年代时通过兼并3家中国家电制造商和整合了18家破产国有工厂而组成。在以质量适中的产品占领了国内市场后，这家总部位于青岛的企业开始接受西方主要零售商的制造合约，并通过这种方式学到了经商之道。如今，海尔集团的业务已经扩展到美国和欧洲。海尔的兴起让全球中低端的电冰箱价格下降了8%至12%，这对消费者而言是个福音，但对Maytag等海尔传统的竞争对手而言，则是一个噩耗。
并不是所有的外国公司都有能力在这个领域竞争。要考虑的主要问题是热衷于“够用就好”的市场将对外国公司在中国的优质品牌产生何种影响──是否会自相残杀。是否会产生超出中国之外的扩散效应？这个行业的利润值得这样做吗？这个行业存在差异化的定位吗？跨国公司能够让其成本结构低到足以进行真正的竞争吗？随着时间的推移，优质产品和“够用就好”的产品市场能在多大程度上汇合起来？
这类问题可能会让刚刚进入中国市场的外国竞争者感到为难。当这些产品通过大型零售商等大幅压低成本的渠道进入到西方市场时，就更是一种威胁。要想消除这种风险，就需要在中国公司自定的游戏中战胜它们。不过考虑到中国的巨大规模，在这里取胜还将带来一个额外的好处：中国市场的成功者能够将这种模式输出到其它新兴市场。
问题在于，取得成功的唯一办法是积极降低成本。像通用电气(General Electric)这样的具有多元化现金流来源的大公司还能够承受。通用电气的子公司GE医疗(GE Medical)在过去几年里就向中国资金不足的偏僻中小城市推出了低价核磁共振设备。原因在于：通用电气认识到，在快速发展的核磁共振市场，客户的购买标准短期内不太可能发生变化，这就减少了同公司的高端产品自相残杀的风险。得益于母公司的规模，GE医疗的成本结构意味着它能够提供具有竞争力的产品定价，也能够接受较低的利润率。
现在预言GE医疗的策略将产生何种结果还为时尚早；该公司仍在探索恰当的产品组合，并解决如何更好地为这些产品提供服务等问题。但这都是积极的信号。自从进入“够用就好”的核磁共振市场以来，GE医疗在规模2.38亿美元的中国市场上获得了51.5%的占有率。该公司2004年的销售额约为1.222亿美元，是第二名厂家的两倍以上。通过采取先发制人的措施，GE医疗以正常情况下产自跨国公司的医疗设备的一半价格参与竞争，在同迈瑞公司(Mindray)、北京万东医疗装备股份有限公司(Beijing Wandong Medical Equipment Co.)和安科公司(Anke)等本地厂家的竞争中巩固了地位。目前通用电气已将这种策略应用到印度等其它发展中国家。
中国“够用就好”的市场领域规模很大，而且还在不断发展。正如海尔的经验所显示出的，中国的公司正准备在这些市场上进行竞争，并愿意承受利润率的下滑。这意味着如今像GE医疗这样瞄准“够用就好”市场的公司不但要抵御快速变化的跨国竞争对手的规模优势，还要同没有名气的中国本地企业竞争。希望积极参与中国市场竞争的跨国公司应该注意到这点。
（编者按：Gadiesh是贝恩顾问公司(Bain & Company)董事长，Vestring是位于新加坡的合伙人，该公司亚太区工业领域的负责人。）
