Sunday, February 28, 2010

China disasters with a chocolate coating

A box of Ferrero RocherImage via Wikipedia
Time to sit down, read and review book is not high on my dynamic agenda, but when I was recently stuck half a day by a strike of French air control officials, there was a good opportunity to take on the book by Lawrence L. Allen: Chocolate Fortunes: The Battle for the Hearts, Minds, and Wallets of China's Consumers.
French air control officials should strike more often: the book is a great analysis about the chocolate industry in China by someone who has belonged to the inner circle of at least two of what is called the big five in chocolate: Cadbury, Hershey, Mars, Nestle and Ferrero Rocher.
In theory those 'foreign invaders' were in a pretty good position when they entered China after the country started to open up. Unlike other industries there were no serious domestic contesters and - even better - because of huge barriers in setting up manufacturing installations and the need for chilled logistic have made it very hard for serious domestic competitors. Even now the domestic competition is fairly limited.
But, nevertheless, the well-written book has become a documented road to disaster for most of the chocolate giants, at least for their chocolate business. Allen describes the companies one after another, and even the ones who have initially success are able to screw it up.
The final chapter was about Mars and it was almost a relieve here things went well. The others suffered from poor quality products, constant changing strategies and failing management in general. In that way it is a great book: most companies focus on their achievements and forget about their often dreadful mistakes, although learning from mistakes from others is not only more fun, but also more instructive.
In that way, the importance of the book goes beyond the chocolate industry and even the consumer sector. There will be very business people from larger companies in China who will not recognize much of their own experiences too.
One of the more general conclusions, comparing the successful Mars company with Dove and the failing Hershey's, Cadbury and Nestle is that being a privately owned company helps for the long haul needed in China. They lost money for twelve years, but refused to change their strategy. And after twelve years they started to make money. Public companies are focused on their quarterly results to satisfy the needs of their share holders. In the long run that migh be a receipt for disaster.
For the chocolate industry in China, there is still hope. As Allen puts it, of the 10k run only the first 1k has been delivered. Most still has to come as the country slowly opens up for the delights of chocolate.

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