Chapter 3 All Players Are Important

Today China is the biggest new frontier for international companies. In many ways, the Chinese market has a more international flavor than many other markets around the globe. Many unique characteristics have evolved along the way. Countless international businesspeople are singing their favorite songs and doing their traditional dances—all in one theater. So far, some have danced better than others.

Overseas Chinese Inc vs. foreign multinationals

Up to now, the “Overseas Chinese Inc.” has been the biggest investor in Mainland China. The United States is in second position, followed by Japan and numerous European nations and South Korea.

Businesses from Hong Kong had an early start. Most if not all of the factories in Hong Kong have moved over the border. Today, about 240,000 Hong Kong residents work and live in China. Their employers are mostly small and midsize companies. They mostly focus on low-end consumer products. Their strengths are best shown in their vast numbers.

China’s expanding market has created tremendous opportunities for the global giants, especially in capital-intensive and high-tech sectors. These giants have made a huge difference in connecting China to the global markets.

US multinationals vs. others

Overall, on a global basis, the U.S. companies as a group are the biggest. The power of the United States is the most influential in many markets. In China as of now, U.S. players are just one among many foreign business groups.

Relatively speaking, the Koreans are more active today than the Americans. To the Koreans, coming to China is a necessity, for their home market is small. They aim to use China as a new engine for growth. But the U.S. companies have a huge market at home. They are less willing to venture out. Except for a few large players and high-tech companies, most sizable American companies have only 10% or less international business. This is quite different from the situation for many leading companies in Europe, Japan, and South Korea. They may have much bigger international sales than their U.S. counterparts.

In China, many Korean companies have been latecomers in relation to Japanese and Western companies. But they have made great strides. Several are already household names, especially LG, Hyundai, and Samsung.

LG has been a star performer. By 2003, LG had invested $2.4 billion in China. The company has become a leader in the consumer electronics and home appliances sector. Its China business reached $8 billion in 2003 and $10 billion in 2004. LG is still expanding its investment programs and hoping to make China its second home.

Samsung is another success story. Its product lines—semiconductors, mobile phones, consumer electronics, and home appliances—fit China’s needs. By now Samsung has transferred most of its personal computer manufacturing to China.

What underlies the success of Korean companies is a combination of good timing and the right products. Above all, the Koreans are committed to China for the long term. The Korean success has inspired envy among international competitors.

In fact, Korean companies now treat China as their own production center as well as a big market. The average monthly salary for a manufacturing job is $1,524 in Korea, but only $115 in China. In addition, China is a huge market, much bigger than Korea—something the Korean companies cannot ignore. They intend to move most of their production from Korea to China, increasing the efficiency and profitability of expanding around the globe.

It seems that the Korean giant Samsung has found jade in China. Samsung intends to make China its biggest market, hoping to reach $14 billion in sales by 2008. To this end the company has been adding new programs. This has already made Samsung a leader in China. The Korean giant will become even more powerful, for it has found a big space in China.

How do Chinese consumers view foreign players in general? They seem to pay less attention to national origins than one might think. In many ways, they are rather indifferent to nationality. To consumers, all the foreign players are important.

Auto competition

In the auto market, all the American players are in China today. As is true internationally, GM and Ford are only two players among many in China. The largest player so far is Volkswagen. Volkswagen has been operating in China since 1985. But GM set up its Shanghai joint venture only in the late 1990s. Volkswagen has kept its leadership role by expanding its programs and adding joint ventures. In Volkswagen’s global sales, China now accounts for about 20%. Volkswagen is adding 10 billion euros and wishes to make China a center of its global business.

Moreover, GM confronts numerous competing players in its price range. Honda and Toyota are two of these. Korea’s Hyundai landed in China in 2002. Hyundai hopes to make China its biggest market and is now in a hurry to achieve this goal. So far, progress has been huge. In 2004, Hyundai sold 150,000 cars in China, making it one of the top four car makers here. Another U.S. giant, Ford, does not want to be left behind. Its most recent project was to build an auto factory in Nanjing in partnership with Japan’s Mazda and a Chinese company. At the present time, all global auto players are busy. They expect China’s auto market to reach 10 million by 2010, from 5.2 million in 2004.

All in all, China has become a new arena for global business. All multinationals have taken their unique roles. They are all important for now, and they all want to become even more important. In order to do so they must fight hard with one another, besides China Inc.

© 2005 George Zhibin Gu
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George Zhibin Gu, author and business consultant based in China, is the author of a newly released book, Made in China: Players and Challengers in the 21st Century (Portuguese edition, (www.CentroAltantico.pt) and of a forthcoming book, China's Global Reach: Markets, Multinationals and Globalization (www.Trafford.com, Sept 2005).