Good morning,Mohan.......re:China
Don't know if you saw this.From current issue of Business Week(Feb 15)
Foreign Rivals vs. the Chinese: If You Can't Beat 'em...
Humility is not a word normally associated with Compaq Computer Corp. (CPQ). After all, you don't get to be No. 1 in PCs by being humble. Yet when it comes to cracking the market in China, Compaq is conceding that it has a lot to learn. Having tried for five years to operate a joint venture with Beijing's Stone Group--in what is now one of the world's fastest-growing markets--the Houston-based company has little to show for its effort but an anemic 4% market share.
Now, Compaq is trying to reboot. As part of its new strategy, the company is cutting deals with personal computer manufacturers around the country--but it's making sure this time that partners will focus on improving Compaq's market share. In October, for example, Compaq signed an agreement to put its brand name on computers made by Dawn, a small PC maker in the grimy city of Shenyang in China's northeast, a part of the country better known for its hulking heavy industry than its high-tech prowess. No matter, says Tony C. Leung, Compaq's marketing director for Greater China. ''We are working with someone who understands the market better than we do,'' he says.
CATCH-UP. Think of it as the Legend lesson. Foreign PC makers have discovered the hard way that local companies have established distribution networks, provide better service, and offer lower prices. Compaq is just one of many foreign PC makers playing catch-up in China. From IBM (IBM) to Dell (DELL) to Toshiba, companies that dominate other global markets are taking a second look at their strategy for the world's largest emerging PC market. Beijing's recent crackdown on smuggling has changed the landscape for foreign PC makers: They can no longer rely on producing low-priced machines in other parts of Asia that can then be brought into China by third parties. Now, PC makers are working more closely with Chinese partners and are decreasing their reliance on imports.
It wasn't supposed to happen this way. A few years ago, most analysts were convinced that the global powers would gobble up the Chinese market, with locals like Legend stuck in second-tier status--at best. Instead, the foreigners are trailing Legend (table). Moreover, the foreigners are steadily losing market share. Locals enjoyed sales growth of 65% in the first three quarters of 1998, far outpacing the meager 14% of major foreign players Compaq, Hewlett-Packard (HWP), and IBM. Indeed, the top four foreign PC makers command just 19% of the market, down from 21% the previous year. That compares with 23% for the top four local players, according to International Data Corp.
HIGH BARRIER. The grim numbers are making many foreign PC makers recognize the need for a change. Take Toshiba Corp. Like Compaq, the Japanese giant is expanding its ties with local partners. It recently announced a new joint venture with Chinese PC maker Tontru Information Industry Group Co., which is tied with Compaq for fourth place in the Chinese PC market. Meanwhile, IBM has expanded its joint venture with Great Wall Group in Shenzhen, increasing its stake to 70% from its original 51%.
Companies also are trying to break through one of China's biggest barriers: the distribution system. With China's notoriously inefficient transportation system, companies rely on a vast number of local distributors to get their computers to customers, who often turn to the distributor for help with service. Dell Computer Corp. figures that its trademark direct-sales model can help it overcome that disadvantage. It opened a manufacturing plant in the southern city of Xiamen last year and has 300 people working in China. Manufacturing locally, rather than importing machines from a factory in Malaysia, helps Dell compete better with Legend and other Chinese companies. Until Dell opened its Xiamen plant, it had to pay 17% import duty on all its computers sold in the country. Meanwhile, to overcome the idea that foreigners can't offer the kind of service that locals do, Dell also has set up toll-free hot lines to offer technical support. The company even started selling computers over the Internet in China.
For beleaguered foreign PC makers, moves like that may turn out to be the key to the China market.
|
