Thursday, June 11, 2009

How to kill your China business

paulfrenchPaul French by Fantake via Flickr
Some years ago I helped an European chemical company to write their China history, a proud story of fast growing number. But when I got down to the boring details of purchases of companies, merges and acquisitions, and selling parts of their business to competitors, I was rather confused. Perfectly healthy business units were sold to competitors, potential and real disasters were bought. In short, it did not make a lot of sense.
"It's the headquarters." explained the China CEO of the company at the time. Every three, four, five years the multinational changed its course, focused on new priorities, decided to leave parts of the industry. In the Chinese context those decisions often did not make a lot of sense, or were even damaging its business. Those global adjustments made sometimes sense at a global level, but certainly not always.
The situation was not unique, and many China offices of multinationals struggled with their headquarters, but as long as their Chinese business was growing every year, nobody seriously complained.
That situation has now changed, explains this week's newsletter of Access Asia, and foreign brands are on a destructive road of erasing their footprints in China.
The newsletter describes how - very slowly - foreign brands learned how to do their business in China. But then, last year, disaster struck:
By and large, in most sectors of the retail business, they had the locals on the run both as brands and retailers. Then last year’s financial crash. Since then two mantras have surfaced – the West is in freefall; China is surprisingly robust. Our sales are declining in the West; growth is still apparent in China. Good news then for those teams in China who did all the hard work over the last decade?
Against all expectation China operations had to follow global orders from their headquarters to decrease their headcount. Access Asia:
The short term result? Literally hundreds of years of combinedChina experience at brands, from leading sportswear chains to fashion houses to electronic brands, all slung out with a month’s notice. Hundreds of years of language training; hundreds of years of wining, dining and building relationships with suppliers, agents and logistics partners; hundreds of years of consumer analysis, brand targeting, store opening and operational experience. All for the sake of next quarters’ numbers!
The long term result? Many of these sacked China Hands are now being scooped up at bargain prices by expanding and increasingly competitive Chinese brands – their former enemies are hiring them and getting all those combined years of experience, knowledge and relationships. Over the next few years, we might just see how much of a competitive advantage foreign brands in China have sacrificed for the sake of one quarters’ results.
Commercial
Paul French is director at Access Asia and speaker at the China Speakers Bureau. When you are interested in having him as a speaker, do get in touch.
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