Foreign companies must alter their business models and operations to tap China’s rapidly growing mass markets where scale matters and price is king. Prosperity outside of major coastal cities, an evolving middle class and fierce competition will drive more companies to develop innovative, low-cost business models to reach new markets and customers across diverse regions of China. Companies will need to transform key areas of their businesses – including sales channels, distribution, R&D, procurement and human resources – to capture this historic opportunity.

In recent years, most established foreign multinational companies (MNCs) have enjoyed strong revenue growth and profitability by riding on the back of China’s spectacular economic growth. China already contributes on average nearly 10 percent of the global revenues of the 180 MNCs in our 2006 survey. At the same time, in 2006 the American Chamber of Commerce in Shanghai reported 64 percent of its member companies were profitable and 65 percent had profit levels in China equal to or higher than in other countries.

But in China’s rapidly changing environment, recent success is no guarantee for the future. Industrial and consumer products companies alike will have to reevaluate their business models and operations to sustain rapid
revenue growth and profits.

In industries ranging from automobiles to electronics, lower-end product segments often account for the largest portion of the total market and these segments are typically growing the fastest. MNCs counting on China for strong revenue and profit growth – or simply hoping to maintain market share – will need new approaches to win in price-sensitive mass markets while preserving their market leadership in higher-margin, premium-end market segments.

How can companies capture the China mass market opportunity profitably? What are the business model implications and how will changes impact their China and global operations?

In operational areas such as sales channels, distribution, R&D, procurement and human resources, what are the priorities of companies today and how will they evolve? How can MNCs overcome key challenges? In this paper authored by the IBM Institute for Business Value in China, these and other questions, high on the agenda of global executives are answered as companies increasingly look to China to fuel growth in coming years.

Download Winning in China's Mass Markets

PDF format, 364KB, 28Pages.

Winning in China's mass markets
New business models, new operations for profitable growth
By Alan Beebe

Conclusion:

Transform your business for the mass market opportunity

The majority of MNCs are enjoying rapid and profitable growth in China by focusing on premium-end markets. But achieving growth targets over the coming years will require many companies to penetrate China’s mass markets, while sustaining leadership in premium-end segments.

Companies will need to focus on the right operational levers in their enterprises
– whether in R&D, procurement, manufacturing, sales channels, distribution or others
– to bring lower priced products to the mass market profitably.

Innovation in business models and operations in China offers MNCs an opportunity to not only profit from the mass market, but also transform the role China plays in their global enterprises. High volume, low-cost business models developed in China can be leveraged for global competitive advantage, particularly in other emerging markets.

Is your company prepared for China’s mass market opportunity?

• Where will your future growth and profitability in China come from – lower priced products and less prosperous regions of China?
• Have you carefully evaluated the mass market opportunity for your company’s products and services in China? Do you have a strategy in place?
• Have you developed the right business models to pursue the mass market opportunity? What adjustments need to be made both in China and globally?
• Are your operations prepared for the mass market opportunity in key areas, such as sales and distribution channel management, R&D, procurement and human resources?

To learn more about this study and the IBM Institute for Business Value in China, please contact us at ibvchina@cn.ibm.com.

For a full catalog of our research, visit:
http://www-900.ibm.com/cn/services/bcs/iibv/

Related publications
• “An Expanded View of Innovation in China: Perspectives from China CEOs.” IBM Institute for Business Value. October 2006.
http://www-900.ibm.com/cn/services/bcs/iibv/pdf/China_CEO_Study_CH.pdf

• Beebe, Alan. “Going Global - Prospects and challenges for Chinese companies on the world stage.” IBM Institute for Business Value. March 2006.
http://www-935.ibm.com/services/us/index.wss/ibvstudy/imc/a1024122?cntxt=a1000074

• Ban, Linda. “Inside China: The Chinese view their automotive future.” IBM Institute
for Business Value. January 2006. http://www-935.ibm.com/services/us/index.wss/ibvstudy/imc/a1017907?cntxt=a1000041

• Seider, Christian. “Not Business As Usual: Changing Channels in Consumer Electronics.” IBM Institute for Business Value. December 2006. http://www-935.ibm.com/services/us/gbs/bus/pdf/g510-6555-01-notbusinessusual.pdf

IBM Institute for Business Value

IBM Global Business Services, through the IBM Institute for Business Value, develops fact-based strategic insights for senior business executives around critical industry-specific and cross-industry issues. This executive brief is based on an in-depth study by the Institute’s research team. It is part of an ongoing commitment by IBM Global Business Services to provide analysis and viewpoints that help
companies realize business value.

About the study

The IBM Institute for Business Value, in partnership with the Economist Intelligence Unit (EIU), surveyed 180 foreign-headquartered companies in China. IBM further interviewed 50 foreign and Chinese executives with front-line China operations experience.

• Functional areas: Sales channels, distribution, R&D and procurement and human resources
• Industries: Primarily electronics, automotive, consumer packaged goods and retail industries, which together represent 85 percent of total revenues of the top 250 foreign companies in China.

About the author

Alan Beebe is the Research Director of the IBM Institute for Business Value in China. He can be reached at abeebe@cn.ibm.com.

Key Contributors:
Lily Wang, Senior Consultant with the IBM
Institute for Business Value in China
Jean Chen, Senior Consultant with the IBM
Institute for Business Value in China
Simon Benjamin, Partner, Multinational
Company Sector Leader in China
Professor Shi Dailun, Professor in the School
of Management at Fudan University, Shanghai

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