There are many companies who hope to move either their operations to China or try and penetrate the Chinese market and have access to its vast domestic market. This paper will consider the plight of General Electric and its recent decision to move its X-ray department to China in the hope that doing so will help it increase its X-ray sales in China and boost its overall productivity.
General Electric manufactures electrical appliances in many fields and is reputed to be the largest manufacturer of medical equipment. The products which they hope to popularize in China are X-ray related equipments like CT scanners. This is an ambitious project and will require mobilization and utilization of huge resources to set up industry and roll out a huge marketing campaign to acquire and retain clients.
The components of this strategy includes training several engineers and investing in six research centers for the purpose of improving the quality of their product and be above the competition in terms of standards and innovation. General electric therefore hopes to use research and understanding of the china market to create products which are innovative and specific to the Chine market as a way of enhancing sales.
General electric hopes to use the move to China to develop X-rays that are made specifically for the Chinese market. This move was informed by the heightened growth of the Chinese health industry which has companies in pharmaceutical and equipment manufacturing fighting for a lead share of the vibrant sector.
It is only by being close to their customers that the company has any hope of understanding their need and utilizing this knowledge to get ahead. This has resulted in development of cheaper but still effective equipments like the Brivo CT scanner designed to be used in some of China’s less developed health centers (Burkitt, 2011).
Many economists have posed the question regarding the viability of companies who have no presence in the Chinese market to do so now. Some actually feel that companies who failed to enter the market early enough have missed their chance and should concentrate on finding other suitable markets. But how does any company forego the chance to try their luck within what has emerged as the largest market I of this century (Kinni, 2005).
The question then has changed from whether a company should enter the Chinese market into how best to do so. According to speculations by economists and scholars, the Chinese market is showing signs of hostility to foreign companies who have expressed an interest in selling their products to the Chinese people. But all these can be avoided by getting a deeper understanding of Chinese political and legal systems which will enable a company establish a presence in this market.
What every new company needs to know is that China is a unique country with a different way of life as compared to the US and major European countries. These differences are not just in the laws that govern the land but in the culture that define the Chinese people and which ultimately influence their conduct and preferences. Some of the improvements include increased transparency within government institutions with the government hiring more competent professionals to carry out its functions.
Understanding the country is vital for any company to penetrate the market and gain success in an environment which is both promising and scary at the same time. China may have a central government but it has 31 semi autonomous provinces with laws which are not uniform but unique to each province. Every province also has a different level of progress and this affects the purchasing power of its inhabitants and by extension, their ability to accept new products (Kinni, 2005).
The government of China involves itself heavily in the affairs of the market both as a regulating authority and as an investor in State owned enterprises. One of the main reasons why penetrating the Chinese market is proving to be difficult is the growth of the local industries which makes it difficult for new foreign goods to compete effectively.
In addition to their head start, these companies have benefitted greatly during the recession due to an impressive stimulus package provided by the Chinese government to protect local companies from collapse. The government of China has been accused of having selective rules for different companies in a way that favors the local industry and makes fair competition difficulty if not unachievable. This has made several companies nervous about the investment climate in China and whether it is likely to improve or turn detrimental for present and potential companies.
There have been a tremendous number of reforms since the 70’s which have seen the number of companies both local and foreign increase at an impressive rate. Most if not all companies in the fortune 500 lists already have a presence in China.
Some investors believe that China is much better than it was a few years back and that the increased competition from local companies and selective legislations haven’t killed the potential success of new entrants. But scholars based at Peking university have tried to settle the raging debate about whether the situation is worse now than it is then. Their answer is simple. That it has always been difficult penetrating the Chinese market and any opinion to the contrary is misleading.
China regulates the medical devices industry through its state organ, SFDA. While the Chinese regulatory framework for these devices is not as comprehensive as some major economies, it is robust and seeks to ensure quality and standard pricing. These rules extend to manufacturing prices of such devices and calls for increased transparency in the testing of such devices.
One of these laws, which introduce price ceilings for some medical devices, will impact the profit margin for manufacturers of such devices. While the demand for devices made by foreign manufacturers is still growing, it is facing strong competition from local manufacturers.
One of the problems associated with the Chinese market is piracy and any company which seeks to sell its products to China must be prepared to fight a fierce battle to protect its products from this menace. Some of the IT companies which sell programs in China face a stiff competition from pirated products with the piracy market for pirate software’s being a staggering 95%.
China’s intellectual property protection laws have worried investors in the past but recent times have seen improved reforms in this areas which creates stronger anti bribery laws and bigger penalties for infringement (Price water house Coopers, 2009).
One of the ways in which foreign companies can use the laws to their favor is in mergers and acquisitions whereby acquiring local companies saves foreign investors several hurdles. Acquiring a company with an existing clientele is an effective way of gaining a large market share in this highly competitive economy (Griffin & Pustay, 2009).
Every company must first ask itself whether there is a real market for its products in China before it commits time and resources towards that endeavor. Companies which have failed to understand the Chinese market have had to either close down or sell their business to Chinese companies.
A good example is IBM which sold its unit tasked with PC manufacturing to Lenovo after it failed to turn a profit for a number of years. China is a country which believes more in relationships that the impersonal marketing efforts utilized in the West. Here a company which hopes to achieve success must invest time and human capital in forging relationships which would place them at a better position to compete and avoid frictions with influential people.
Statistics have shown that exports to China have been growing uniformly over the last decade and this trend is likely to continue. What this implies is the Chinese market is increasingly becoming friendly to foreign products which spell good news for any company which wants to enter the Chinese market. Companies are motivated by the success stories of some of the companies which have successfully entered this market and derived large revenues from their sales here.
Some of these companies include Walmart, General Electric Motorola and dell computers. One thing which will play in favor of small entrepreneurs is recent findings that there is more room for small and medium companies to gain a market for their products than large multinational companies. This clearly shows that there is more room for growth and all companies must consider China a good potential market for their products.
Burkitt, L. (2011). WSJ UPDATE: GE Moving Top X-Ray Executives To China. FoxBusiness. Retrieved from http://www.foxbusiness.com/markets/2011/07/25/wsj-update-ge-moving-top-x-ray-executives-to-china/
China Daily. (2010). Is it too late to enter China market? People’s Daily Online. Retrieved from http://english.peopledaily.com.cn/90001/90778/90861/6963552.html
Griffin, R. & Pustay, M. (2009). International Business (6 ed). New York: Prentice Hall.
Kinni, T. (2005). Chinese Dragon, Hidden Treasure: While the twenty-first century’s biggest market beckons, heed the old saying (slightly modified) caveat venditor – let the seller beware – because selling in China can be a risky business. Business in Asia.com. Retrieved from http://www.business-in-asia.com/selling_power.html
Price water house Coopers. (2009). Investing in China’s Pharmaceutical Industry – 2nd Edition. Retrieved from http://www.pwc.be/en/pharma/pharma-Investing-in-Chinas-Pharmaceutica.pdf