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TXT版93Place_New_Markets_China_Consumer.56THEMcKINSEYQUARTERLY1996NUMBER3DEVELOPINGNEWMARKETSJimAyalaisaprincipalandRichardLaiisaformerconsultantinMcKinseyÕsHongKongoÄÞce.Copyright©1996McKinsey&Company.Allrightsreserved.ChinaÕsconsumermarket:Ahugeopportunitytofail?SINOPIXJimAyala¥RichardLaiTHEMcKINSEYQUARTERLY1996NUMBER357CHINAÕSMARKETFORMASSCONSUMERGOODShasexplodedoverthepastdecadeandwillcontinuetogrowwithbreathtakingspeed,outpacingoveralleconomicgrowth.By2000,some260millionpeoplewillbeabletoaÄfordpackagedconsumerproducts(Exhibit1),makingChinatheworldÕslargestmarketinmanycategoriessuchasbeerandbiscuits.WinninginChinahasthereforebecomeatoppriorityformultinationalcorporations,manyofwhichseetheChinesemarketasaonce-in-a-lifetimeopportunitytocatapultthemselvesintopositionforgloballeadership.ButwinningwonÕtbeeasy.ChinaÕsvastareaandweakdistributioninfrastructure,aswellasincreasinglyintensecompetition,willmakemarketleadershipanelusiveprize.ManycompaniesarealreadyhavingtoreconsidertheirapproachtodoingbusinessinChina,failingtotranslatetheirambitiousaspirationsintocleargrowthtrajectories;inalltoomanycases,earlygainshaveturnedintoaseriousdrainonresources.ItseemsclearthatapproachesfollowedsofararenÕttheformulasforsuccessintheChineseconsumermarketofthe21stcentury.SomethingquitediÄferentisneeded.Whatwillmarketleaderslooklike?Onethingiscertain:incomingyearsthemarketleadersofthenextcenturywilldramaticallyincreasethebreadthanddepthoftheirChinaoperations.Formanycompanies,destructivecyclesreverseearlysuccessesStrongsales,distribution,andorganizationalcapabilitiesarekeyYourgoal:$1billioninsalesbytheyear2000Note:ThisarticleisbasedonresearchthatalsoinvolvedBenjaminMok,FrankWei,andHenryZhang,consultantsinMcKinseyÕsHongKong,Shanghai,andBeijingoÄÞces,respectively.By2000,leaderswillneedtohavecategorymarketsharesofatleast20to25percentnationwide,probablymoretobeconsideredclearwinners.Formassmarketcategoriessuchasfood,beverages,orpersonalcare,thisimpliesachievingannualsalesinexcessof$1billion.Yetinasurveyof13leadingmultinationals,wefoundthatmosthadChinasalesin1995oflessthan$100million.Leaderswillalsoneedfarwidergeographiccoverage.Eachofthesurveyedcompaniestypicallyhadsalespeopleinonlyabout15cities.Butwithmillionsmoreconsumerssettocrossthe$800annualincomethresholdÐthelevelatwhichconsumerismtakesoÄfÐwinningcompanieswillneedsalesoÄÞcesandestablishedsupplylinesinwellover100citiesbytheyear2000.NorwillitsuÄÞcetocontinuefocusingonhigher-enddepartmentstoresandlargechainsupermarkets,asmostmultinationalscurrentlydo.AlthoughspeciÞccoveragerequirementswillvarybycategory,winnerswillgenerallyneedmuchdeeperoutletcoveragethantheyhavetoday.Forrealmarketimpact,multinationalswillhavetosupplythesmalllocalgroceriesandcornerstoresthatcommandoverthree-quartersofthevolumeofmassproductsinlargeChinesecities.Thatmeanspenetratingmorethan250,000outlets,versustodayÕs20,000.LeadersinChinaalsowillneedtodealwithanincreasingnumberofjointventurepartners,asJVswillremaintheprincipalmeansofexpansion.TheaveragemultinationalinoursurveyhadjustfourJVs;thewinnersin2000couldeasilyhaveadozenormore.Finally,theorganizationsneededtosupportalltheseactivitieswillbemuchlargerandmuorecapable.ThecompaniesinoursurveystillarerelativelysmallÐwith200orsoemployeesworkingwithinsalesinChina,forexampleÐandhaveonlynascentorganizationalcapabilities.Winnersin2000willeasilyemploytentimesasmanypeopleastheydotoday,andtheywillhaveworld-classsalesandmarketingskillsunderpinningtheirsuccess.ObstaclestomarketleadershipAnumberofconsumergoodscompaniesarerapidlyincreasingtheirpresenceinChina.Procter&Gamble,Coca-Cola,Unilever,andNestlŽCHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?58THEMcKINSEYQUARTERLY1996NUMBER3Exhibit1GrowthoftheurbanpackagedgoodsmarketUrbanpopulationaboveincomethresholdMillions1990199519952000*30180260240*ProjectedSource:ChinaStatisticalYearbook,1990Ð95;USBureauoftheCensus,1990and1993;McKinseyanalysisChinaUnitedStateslooksettoreachapopulargoal:Òonebytwo,Óthatis,$1billioninannualsalesbytheyear2000.Manyothers,however,arestrugglingtoachievethenecessarygrowthandmarketcoverage.TheyfaceÞveformidableobstacles.1.RapidlyescalatingcompetitionEarlythisdecadethemainchallengeinChinawastonegotiatejointventuresandestablishlocalmanufacturing.Pent-updemandandthescarcityofhighqualityforeigngoodsmeantsaleswouldtakecareofthemselves.ButascompetitionhasintensiÞed,marketshareandvolumegrowtharemuorediÄÞculttoachieve.PracticallyallleadingconsumermultinationalshaveestablishedoperationsinChina.Inskincare,food,andpremiumbeer,forexample,50world-classcompetitorsnowhavemanufacturingfacilitiesinChina,morethanfourtimesasmanyastherewerein1990.Inaddition,manymid-sizedAsianmanufacturerssuchasLamSoon,YeoHiapSeng,andPresidentFoodshaveusedtheirsuperiorunderstandingofChinatomakesigniÞcantinroads.NottobeleÄtbehind,progressivelocalcompanies,suchasYanjingBeerandLuckyFilm,arealsopressingtoimprovequalityandcompetewithjointventurebrands.ThereareseveralconsequencesofthisassaultontheChineseconsumer:Marketshareisvolatile.Bombardedwithopportunitiestobuyabewilderingarrayofproducts,consumersareinexperimentalmodeandsigniÞcantmarketsharegainscanbewonÐandlostÐwithdismayingspeed.InShanghai,forexample,themarketshareofanutritiondrinknamedWahahawentfrom33percentto80percentto8percentinamatterofsixyears.OÄtenthecompetitionisacompletelydiÄferentproduct,asconsumerswithlimiteddisposableincomedecidebetweentryingaforeignshampoooranewfood(Exhibit2).Overcapacityisalreadyapparent.Forexample,theworldÕstop10beercompaniesandmanysmalleroneshaverushedtobuyorbuildcapacity.Allhavevisionsofachievingleadingnationalmarketshare,butmostwillbesorelydisappointed.Ifalltheircapacityannouncementsmaterialize,CHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?THEMcKINSEYQUARTERLY1996NUMBER359150AverageavailablespendingonpackagedandprocessedgoodsRenminbipermonthperhouseholdSource:GallupOrganization;interviews;McKinseyanalysisCostsofsomerepresentativeMNCproducts15Coffeecreamer(MaxwellHouse:200g)32Cookies(Danone:10ozpack)21Coffee(MaxwellHouse:100g)40Shampoo(Pantene:400mlbottle)18Soap(Lux:four80gbars)30Softdrink(Coca-Cola:tencans)Exhibit2Cross-categorysubstitutionproductionofpremiumbeercouldexceeddemandby80percentbytheendofthedecade.Salesandmarketingcostsareontherise.Tokeepupwithcompetitorsinmajorcities,companiesneedtosupplementdistributorswithamoreexpensive,directsalespresence.Theyalsomustspendmoreonpromotionalitemsandchannelsupportinordertostandout.Meanwhile,advertisingcostsaresoaring:thepriceofairtimeinGuangdong,forexample,isrisingbyover25percentayear.2.PoortransportationinfrastructureBytheyear2000,almost250ChinesecitieswillhavesuÄÞcientaverageannualincomelevelstosupportconsumerism.Morethan160ofthesecitieswillhavepopulationsexceedingonemillion.And20willhavetheabsolutespendingpowerthatGuangzhouhastoday(Exhibit3).Deliveringproductsreliablyandcost-eÄfectivelytoseveraldozencities,will,however,beanenormouschallengegivenChinaÕspoortransportationinfrastructure.ItgenerallytakesfourtimeslongertotransportacontainerofsnacksfromBeijingtoGuangzhou,1,900kilometersaway,thanitdoestocoverthesimilardistancefromBaltimoretoHouston.Moreover,thecontentsofthecontainerareupto20timesmorelikelytoarrivedamaged.Journeystosmaller,moredistantcitiesareevenmoreproblematic.Thecurrentsituationcanonlygetworse,asplannedincreasesintransportationcapacityareunlikelytocopewithgrowingdemand.Andthoughprivateinvestorscaninvestinrail,shipping,andtrucking,theyarediscouragedbythegovernmentÕsreluctanceCHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?60THEMcKINSEYQUARTERLY1996NUMBER3YellowSeaEastChinaSeaSouthChinaSea0500Miles500kmBeijingTianjinDalianShenyangHarbinQingdaoShanghaSuzhouiNanjingYangzhouHangzhouWuhanNingboWuxiGuangzhouFoshanShenzhenChongqingChengduXi'anCitiesabove1995Guangzhoulevel*EstimatedSource:ChinaStatisticalYearbook,1995;McKinseyanalysisExhibit3Retailexpenditurein2000*toletthemearnmorethan15percentontheirinvestments,aswellasbycontrolsonpricingandrouting.Stockpilingproductsisnoeasysolutiontounreliabletransportation.Warehousesarescarceandsohavetobebuilt.Moreover,inventoriesarediÄÞculttomanageasmarketestimatesarenotoriouslyinaccurate,andthereispracticallynoinformationaboutwhenproductshipmentswillarrive.3.UnderdevelopedandfragmenteddistributionchannelsPoorpublictransportationandlimitedownershipofmotorvehiclesaccountfortheproliferationofsmall-scalegroceriesandcornerstoresinChina.Asaresult,lessthan10percentofgrocerysalesgothroughlargeformatstores,eveninmajorcities.Thisfact,combinedwithlowercustomerspendingpower,meansthatanaverageretailoutletinChinasellslessthanonethirtiethoftheaverageUSorJapanesestore.Restockingandmerchandisingthereforeposeexpensivelogisticalchallengesformultinationals,particularlyforsmalleroneswithlimitedproductportfoliosorweakerbrands.UsinglocaldistributorstoreachallthesestoresmightintheoryoÄferacosteÄfectiveanswer;however,distributionchannelsarealsohighlyfragmented.MostforeigncompaniesÞndtheirjointventurepartnershavehundredsoreventhousandsofdistributorsthattheydealwithdirectly.Thetypicalstate-ownedbreweryinalargecitywillhaveover2,000primarydistributors,manyofwhomreselltohundredsofsecondarywholesalersandthousandsofindependentstreethawkers.Compoundingtheproblem,thesedistributorstendtobeundercapitalizedandhaveverypoorcoverageandsalesandmerchandisingskills.Companiesinoursurveyfeltmostoftheirdistributorswereinadequatewithrespecttodelivery,sales,merchandising,promotion,andcollection(Exhibit4).Fewhadeventhemostbasiccustomertrackingandcreditsystems.Unfortunately,betterdistributorsareunlikelytoemergesoon,againbecauseofgovernmentrestrictionsonforeigninvestment.Currently,withafewCHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?THEMcKINSEYQUARTERLY1996NUMBER361Source:McKinseyanalysisLeadtimemanagementInventorycontrolConditionsofdeliveredproductsCoverageSalesskills/techniquesEffectivenessMerchandisingskillsStocking/inventorymanagementCleaningupstockDisplayingproductsRetailermanagementIn-housepromotionTradepromotionCreditcontrolRiskassessment/creditcheckingCollectioncontrolPhysicaldeliveryServiceBestDistributorperformancelevelTypicalSalesMerchandisingPromotionCollectionHighAcceptableLowVerypoorExhibit4Qualityofdistributorsexceptions,jointventuresarelimitedtodistributingonlygoodsthattheythemselvesmanufacture.Anotherformidablechallengeisthelackofcontrolmultinationalshaveovertheirgoods:counterfeitingandarbitrarypricingarecommonplace.Somecompaniesaretryingtoovercometheseproblemsbyusingcounterfeit-proofpackaging,byprintingretailpricesonpackages,andbymarkingproductionrunsdiÄferentlybychannelsothatcounterfeitscanbepinpointedmoreaccurately.Nevertheless,thesheerscaleoftheseproblemsincreasesthelevelofcomplexityformanagersinChina.4.ScarcityoftalentThefourthobstacle,andoneofthebiggestbrakesongrowth,isthedearthofgoodmanagers.Typically,Chinesejointventurepartnersareresponsibleformanufacturingandsalesanddistribution,whileforeignpartnersfocusonmarketingandbroaderstrategicissues.Butmostmultinationalssoondiscoverthattheirlocalpartnerslacktheproductandmarketknowledge,distributionreach,andÞnancialresourcestomatNCaspirations.SkilledlocalmanagersandexperiencedexpatriatescapableofleadinginitiativesinChinaarewoefullyscarce.OneexecutivehadtospendtheÞrstninemonthsofhisChinapostingonrecruiting,justtosatisfycurrentrequirements.Mostcompanies,meanwhile,areprojectinggrowthratesthatwillnecessitateatenfoldincreaseinstaÄflevelsoverthenextÞveyears.AllthisinanenvironmentwherestaÄfturnoverofover30percentayeariscommon,asmultinationalsandleadingChineseenterprisespoachpeoplefromoneanotherwithpromisesofever-increasingsalaries.5.UnwieldyjointventurerelationshipsAstheChinabusinessexpands,manufacturing,logistics,sales,andmarketingactivitiesallneedtobecarefullycoordinated,torealizesynergies,maximizeimpact,andmanagecostduplication.ThatÕsnoeasytaskinthebestofworlds,andallthemorediÄÞcultinChina,whereitusuallymeansorchestratingagrowingnumberofjointventures.JVpartnersdonotnecessarilywanttocooperate.Somemightwanttoexpandmorerapidly,otherswonÕtwanttomakefurtherinvestments,stillotherswillopposestaÄfreductions.Achievingaconsensusistoughenoughwhendealingwiththreeorfourjointventures;theproblemsonlyescalateasmorepartnersareadded.ThreeapproachesthatfallshortInourworkwithmultinationalsinChina,weÕveseenthreecommonapproaches.CompaniesfollowingtheÞrsttworoutesÐÒWaitforpaybackÓandÒBetonafewstrongbrandsÓÐoÄtengetoÄftoaÞnestartbutthensputterandstall,simplybecausetheyareunder-gunningitinChinaandCHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?62THEMcKINSEYQUARTERLY1996NUMBER3donÕthavethepowertowinlongterm,especiallyoncestrongcompetitorsentertherace.ThethirdapproachÐÒBuildvolumefastÓÐrightlyaimsforaggressivegrowth,butoÄtenfailsbecausemarketexpansiongetstoofaraheadoftheorganizationÕsabilitytosupportbroadsalesanddistributioneÄforts.Noneoftheseapproachessquarelyaddressesthechallengesoutlinedabove,andcompaniesgettrappedintoviciouscyclesfromwhichitisdiÄÞculttoescape.WaitingforpaybackbeforeinvestingfurtherThisisacautiousapproachthataimstogenerateclearreturnsbeforecommittingfurtherinvestments.MultinationalsfollowingthiscoursetypicallyhavemadeheavyinvestmentsinmanufacturingandhaveenjoyedearlysuccessÐinwealthiermarketsandhigh-endchannelsÐwithoutmakingsigniÞcantinvestmentsinsalesanddistribution.TheymightbeholdingbackbecauseofconcernsaboutthepaceofmarketreforminChina,orabeliefthattheirlocalpartnersarebetterequippedtomanageday-to-dayproblems.Asaresult,theirstrategyisbasedonthepremisethatfurtherinvestments(e.g.,intraining,advertising,andpromotion)shouldwaituntilitÕscertainthatsuccessissustainable.Thismightworkinaworldwithoutcompetitors;butonceother,morecommittedplayerscomeintothepicture,theearlymoversÕshareofexistingmarketsrarelyincreases,andtheyfacediÄÞcultiesexpandingintonewmarkets.Take,forexample,therecentexperienceofabeveragecompany.Itsproductwasinitiallypopular,butitfailedtorespondadequatelywhenaggressivenewcomersenteredthemarket.ItdidnÕtinvestindistributorsupport,limiteditssalescoveragetolargestoresinafewtopcities,anddidnÕtmaintainitsshareofvoiceinadvertising.AsshowninExhibit5,thisapproachhaddireconsequences.Asdemandfortheproductslackened,retailersanddistributorslostinterest,whichhurtcoverageandfurtherreducedbrandpopularity.TheresultingdeclineinmarketshareputadditionalpressureonÞnancialperformance,makingitevenhardertokeepupwithcompetitors.CHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?THEMcKINSEYQUARTERLY1996NUMBER363Exhibit5Commonpitfall1:WaitingforpaybackLimitinvestmentinbrandDistributorsupportlimitedDistributorpushweakenedDistributorprofitsdroppedSalescoveragelimitedRetailerprofitsdroppedOutletpenetrationdeterioratedMarketsharedeclinedConsumerdemanddeclinedAdvertisingandpromotionsreducedBrandpopularitydroppedExample:BeverageMNCReinforcingcyclesAnothermultinational,thisoneasnack-foodmanufacturer,suÄferedasaresultofitsreluctancetoinvestinitsChinaorganization.Seekingtominimizeexpatriateinvolvementuntilmarketdemandcouldcompletelyjustifythecost,itlimitedmostexpatstoshort-termtrainingassignmentsandreliedalmostexclusivelyonitsill-qualiÞedpartnertotrainnewhiresandbuildtherightskills.ThiscreatedhighturnoveramongChineseemployeesanddeterredpromisingrecruitsÐmostofwhomseekÞrst-classtrainingÐfromjoiningthecompany.WithperformancesuÄfering,thejointventurewasevenlessabletoaÄfordexpensiveexpatriates.BettingonafewstrongbrandsOthermultinationalstakeafocusedproductapproachtoChina.Theyconcentrateongettingasmallnumberoftopbrandsright,recognizingthechallengeoflaunchingbrandsproperlywithlimitedresources.Theytendtobelievethatthemarkethasreachedcriticalsize,andsoinvestheavilytobuildthebrandandasalesteam.TheyassumethatitÕsfutiletocompetewithcheap,poor-qualitylocalgoodsinthelowendofthemarket,andthuspositiontheirproductsatthetopbymaintainingpremiumpricesandchannelinggoodstomodernoutlets.WhatthesenarrowlyfocusedcompaniesoÄtenÞnd,however,isthattheirvolumesarenotsuÄÞcienttocompensatefortheirhighoverheads,andthattheirunitsalesanddistributioncostsarehigherthanthoseofcompetitorswithbroaderportfolios.Moreover,theyoÄtenhavediÄÞcultygettingcoverageinthesmalleroutletsthatpreferdealingwithmultinationalswithhighervolume,broaderportfolios.Thiswaspreciselytheexperienceofabeveragemanufacturerthatenteredthemarketearlyandenjoyedinitialsuccesswithasingleproduct.WhenitsmainrivallaunchedarangeofproductsthatcouldgeneratesigniÞcantlyhighervolumes,performancefaltered(Exhibit6).Becauseunitdistributioncostswerehigher,distributorswerelessinterestedinpushingtheproduct.CHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?64THEMcKINSEYQUARTERLY1996NUMBER3Exhibit6Commonpitfall2:BettingonafewstrongbrandsExample:BeverageMNCMaintainnarrowproductlineSmalltotalvolumerelativetocompetitionHigherunitdistributioncostsDecreaseindistributorinterestReducedoutletcoverageDropindistributorprofitsLowermarketshareLowerprofitstoMNCIncreaseinretailerpreferenceforcompetitorbrandLowerabilitytoinvestinproductexpansionReinforcingcyclesThisresultedinlowermarketshare,whichalsoreducedretailersÕinterestinthebrand.ThemultinationalnowÞndsitselfadistantnumbertwo,increasinglyatacostdisadvantageandunabletopenetratetheimportantsmallerchannels.BuildingvolumefastAfocusonvolumegrowthandexpansionintonewcitiesandsmalleroutletsmarkstheapproachofathirdgroupofmultinationals.Mosthaveinvestedheavilyincapacityandareaggressivelyadvertising,promoting,andbuildingsalesforcesinthebeliefthattheswiÄtestwillbethevictors.Althoughthisapproachusuallyresultsinrapidvolumegains,itcaneasilyspinoutofcontrol.Intheirrushtobuildcoverage,thesemultinationalsneedtorelyonunreliablelocaldistributors,andasaconsequencefrequentlylosecontrolofpricingandpositioning.TheyÞndtheirsalesachievementsareactuallyquitefragile,andcaneasilydisappearifrivalsmoveintomarketsthatarenotstronglysupported.Moreover,someunderestimatethecostsofdoingbusinessonmultiplefrontsinChinaandrunintocash-ßowproblems.Oneearlyentrantintothebeermarketquicklybuiltupitsvolumesinanumberoflargecitiesthroughheavyadvertisingandconcertedcourtingoflocaldistributors.Itsrapidsuccessencouragedittomorethandoubleitslocalmanufacturingcapacity.However,thenewcapacitycameonlinejustasotherinternationalbrandsbeganenteringthemarketandtheeconomyslowed.Determinedtokeepupvolumes,thecompanyallowedspeculativedistributorstotaketheexcessproduction,andendedupßoodingthemarket(Exhibit7).RegulardistributorsfoundthemselvesholdingproductstheycouldnÕtsell,andbegancuttingpricesanddumpingbeerinlower-endoutletsinconsistentwithitspremiumimage.ThishaddisastrousimplicationsforthebrandÕspositioningand,inturn,itspopularity.Italsocompoundeddistributorturnoverproblems,furtherdamagingthebeerÕsreputationinthetradeandweakeningchannelcommitment.ThetrainofeventsexacerbatedtheCHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?THEMcKINSEYQUARTERLY1996NUMBER365Exhibit7Commonpitfall3:BuildingvolumefastExample:BeerMNCFloodmarketExcesscapacitybuiltupDemanddroppedBrandpopularitydeclinedBrandpositiondeterioratedProductdumpedintoÒwrongÓoutletsChannelsÕcommitmentloweredReputationinchannelsweakenedPricescuttounloadproductProductturnoverslowedReinforcingcyclesmultinationalÕscapacityutilizationproblem,andputfurtherpressureonittosellitsproductinanundisciplinedway.Today,thecompanycannolongeraÄfordtocompetewithaggressiveinternationalbrands,andhasbeenforcedtomoveouttolesscompetitivesecondarycities.Anothersnack-foodmultinationalranintoproblemswhen,drivenbyunrealisticcorporateaspirations,itexpandedtooquicklyintoseveralhundredcitiesandthousandsofoutlets.Largeoverheadsandhigher-thanexpectedlogisticsandinventorycostsledtodisappointingresults.AnattempttoexpandoutoftheproblemonlyworsenedÞnancialperformance,andthecompanyisnowreassessingitsstrategyinChina.Asurerwaytowin:dominate,thenreplicateAstheaboveexamplesillustrate,somecompaniesjusthavenÕtgonefarorfastenoughandarenowlosinggroundtomoreaggressivecompetitors.Andothers,thoughtheyÕverecognizedtheneedforprogressiveexpansion,arenotbuildingtheirChinabusinessesonaconsistentbasis.Thatotherwise-successfulmultinationalsstumbleandfallinChinashouldnÕtcomeasasurprise.Asdescribedearlier,themarketisextraordinarilydynamicandcomplex,andmanagersareusuallysobusysolvingtodayÕsproblemsthattheycaneasilylosesightofthelargerpicture.Yet,despitethediÄÞcultiesofcompetinginChina,somecompaniesaregettingitright,andareclearlypullingaheadoftheirrivals(Exhibit8).ItÕsinstructivetoexaminewhatliesbehindtheirsuccess.WinningcompaniesinChinaÕsconsumermarketsarebold.Fromtheoutsettheyplaytodominatekeymarkets,thenreplicatetheirstrengthelsewhere.Theydosobybuildingbeachheadsincitiestheycanwinoutright.Bygeneratingpositivemomentumwithbothconsumersandthetradetheypullaheadofcompetitors,thengoontosecuretheirpositionsbycontrollingsalesanddistributionandquicklybuildingdeeporganizationalcapabilities.Onceinapositionofdominance,theycanweatheronslaughtsfromaggressivenewentrants.ProÞtsfromtheseearlywinscanbeusedtofundexpansionintonewmarketsandhelpmaintaincorporatecommitment.Thekeytoreplicatingsuccess,however,istobalancespeedwithendurance.Toomanymultinationals,luredCHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?66THEMcKINSEYQUARTERLY1996NUMBER3Source:Interviews;literaturesearch;annualreports199219919934199219931994199219931994PackagedfoodBeveragePersonalcare160500400300200100030025020015010050012080400Exhibit8ThewideningperformancegapsatthetopRevenuein$million,1994byearly,easyvolumegains,failtoconsolidatetheirpositionsintheirbasemarkets,overextendthemselves,thenfallwhencompetitorsattack.TodominatemarketsinthismannerthenreplicatesuccesselsewhereinChina,companiesshouldheedthreeprinciples.1.TakechargeofsalesanddistributionCompaniesthatenterthemarketearlyhaveadistinctadvantagewhenitcomestoestablishingadominantposition.Theyhavetheirchoiceofproductionassetsanddistributors,theyhaveopenaccesstoshelfspace,andtheyÞnditeasiertobuildtheirbrandsinuncrowdedmarkets.Inthecolawars,forexample,whichevercompanyÞrstestablishedabottlingplantinagivencityhassincemaintainedleadershipthere(Exhibit9).Tobuildrealdepthinthemarket,however,multinationalsmustconsistentlymeettheneedsoftradechannelsandconsumers,providingdistributorsandretailerswithdependableturnoverandmargins,andcustomerswithuniformproductpositioningandconsistentavailability.Bydoingso,theygeneratemomentumwithbothcustomersandthetrade.ThisisenormouslydiÄÞcultinChina,wherethebasicdistributioninfrastructureanddistributionskillsaresoinadequate.Asaresult,multinationalsmustplayamuoreactiveroleinsalesanddistributionthantheyareaccustomed.ConcentratingonmarketingandbrandmanagementwillnotsuÄÞce.Toimprovedistributioncontrol,multinationalsaretryinganumberofnewapproaches.SomehaveinvestedinÒshadow-managingÓmajorwholesalers,assigningtheirownstaÄftoworkdirectlywiththesewholesalers,traintheirsalesforces,andinstallsystemsformonitoringinventoriesandperformance.OthercompaniesÐtypicallythosewithlargevolumes,suchasCoca-Cola,whichcanaÄfordtobypassdistributorsÐhavesubstantiallyreducedtheirdependenceonwholesalersinmajormarketsbysellingandtruckingdirectlytotensofthousandsofretailers.Thisgivesthemadistinctedgeincontrollingproductpositioningandpromotions.Similarly,multi-categoryenterpriseswithstrongbrands,suchasProcter&GambleorNestlŽ,havethescaletobuildsigniÞ-cantcostadvantagesandtoensurethatwholesalerstoethelineonpricingandmerchandisingpolicies.CHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?THEMcKINSEYQUARTERLY1996NUMBER367Source:Interviews;ChineseAcademyofSocialSciencesCoca-ColafirstBeijingShanghaiGuangzhouTianjinNanjingHangzhouHaikouNanning2923454547434138264536323077105157141634272123PepsiColafirstChengduFuzhouGuiyangKunmingNanchangCoca-ColaPepsiColaExhibit9FirstmoveradvantagePercentoftotalshare,1994ButyoudonÕtneedthecloutofthesegiantstoachievethereliabledistributionnetworksthatarecrucialtosustainedgrowth.TaiwanÕsPresidentFoodshasaggressivelybuiltteamstopromoteandmerchandiseitsproductsinthousandsofsmalleroutlets.WhileitÕstooearlytopassjudgmentontheresults,thecompanyhasgeneratedsubstantialvolumesinaveryshorttime.Similarly,SanMiguel,thePhilippinebeercompany,enteredGuangzhouearlyandworkedhardtogenerateconsumerinterest(inpartthroughaggressiveadvertising)andtobuildloyaldistributors.SanMiguelfoundthatgettingthelittlethingsrightwentalongwaytowardearningloyalty;forexample,itgavedistributorsspeciÞcorder-pickuptimessotheydidnÕtneedtolineupatthebreweryforhours.Asaresult,itisfarandawaytheleadingforeignbeerbrandinsouthernChina.2.OverinvestinbuildingorganizationalcapabilitiesTodominatemarkets,companiesalsoneedtheleadershipresourcesandorganizationalstructurethatwillallowthemtobuildlocalcapabilities.Again,conventionalmodelsforenteringmarketsdonothold.DonÕtbetooquicktolocalize.Mostcompaniesassumetheyshouldlocalizeassoonaspossible,quicklyreducingthenumberofexpensiveexpatriatesintheirChineseranks.Successfulcompanies,however,dojusttheopposite:aninformalsamplingof10suchcompaniesrevealedtheyhadalmostdoubledthenumberofexpatriatestheyemployedinthespaceofsixyears.Thesecompaniesrecognizethatexpatriatemanagersprovidethecriticalexperienceandleadershiprequiredtobuildwell-functioningbusinessprocessesandmanageunrulydistributors.Hence,theytreatexpatriatecostsasessentialinvestments,notasoperatingexpenses.TheyalsospendconsiderabletimeÞndinganddevelopingkeylocalmanagers,suchassalessupervisors.Somecompanies,Procter&GambleandPepsiforexample,havesetuptrainingÒuniversitiesÓforpivotalfunctionslikesales.Recognizethevalueofcentralizingkeyactivities.JVsaretypicallysetupasindependent,proÞt-makingentities.OÄten,thelocalpartnerhasquitediÄferentobjectivesthanthemultinational,whichistryingtobuildaconsistentbrandinmultiplemarketsandoptimizeproductionanddistribution.ThepracticeofsettingupseparatejointventuresfordiÄferentproductcategoriesÐnecessarybecauseChinesemanufacturerstendtobefairlyspecializedÐcompoundstheproblem,oÄtencreatingredundantsalesanddistributionactivitiesinthesamemarket.Ambitiousmultinationals,intentonbuildingintegrated,cost-eÄfectiveChinaoperations,arethereforeattemptingtocentralizealltheirsales,marketing,anddistributionactivitiesunderumbrellaholdingcompanies,asillustratedinExhibit10.TheserelativelynewlegalentitiesgiveMNCsgreatercontroloverCHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?68THEMcKINSEYQUARTERLY1996NUMBER3brandmanagementandsalesanddistributionactivitiesthantheycouldachievethroughtheirindividualJVs(which,asmentionedearlier,maydistributeonlytheirownmanufacturedgoods);theyalsogivethecompanyvolumeclout.Ofcourse,makingthisstructuralchangerequirespersuadingJVpartnerstoconcentrateonwhattheydobestÐmassproductionÐinexchangeforguaranteedpurchasesandperhapsequityintheholdingcompany.3.Paceyourselfforamarathon,notasprintDominatingafewbeachheadswillnotdeliversuccessinChinaÕsenormousmarket.Winnerswillhavetoreplicatesuccessinothercities.ThiswillrequiredeepÞnancialpocketsandconsistentcommitmentfromcorporateheadquarters.MaintainingthathighlevelofcorporatecommitmentandconÞdenceisdiÄÞcult.StaÄfonthegroundinChinaareworkingßatoutandarefrustratedbyÒunreasonableÓperformanceexpectationsfromdistantheadoÄÞcesthatdonÕtappreciatewhatittakestogetevenbasicprogramsrunning.Meanwhile,thoseatheadquartersaretantalizedbythepromiseofanenormousmarket,butareuncomfortablewithriskstheydonÕtunderstandandresentseeminglynever-endingrequestsforresources.Unlessthereisbetterunderstanding,Chinaexpansionprogramsarelikelytostallwhenheadquartersbalksatyetanothercallforcash.Ultimately,playingtodominatewillallowcompaniesinChinatodemonstrateclearsuccessesandjustifyasustainedcommitment.Inthemeantime,thekeyistoensurethatexpectationsÐfrombothsidesÐandrequirementsarecommunicatedloudlyandclearly,andthataspirationsarerealisticinlightoftheavailableresources.CHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?THEMcKINSEYQUARTERLY1996NUMBER369Exhibit10CoordinatingmultipleJVsthroughrestructuringChinaholdingcompanyChinaumbrellaholdingcompanyCurrent:IndependentJVsFuture:IntegratedapproachProfitcenterCostcenterProfitcenterJV1JV1JV2JV3MarketAMarketBMarketCProduction,sales,anddistributionProfitcenterJV2Production,sales,anddistributionProfitcenterJV3Production,sales,anddistributionProductioncoordinationCentralizedsales,marketing,anddistributionCurrentproblemsPoorpartnerskills,especiallyinsales,marketing,anddistributionPartnersblockinvestmentinintangibles(e.g.brandbuilding)OverlapofterritoriesandresourcesPotentialarrangementsProductionagreementstoguaranteereturnstoJVsSharesinJVexchangedforequityinholdingcompanytoaligninterestsPartnersdilutedorboughtouttogaincontrolManagecorporatecommitmentproactively.Chinamanagementneedstobeexplicitaboutmarketdevelopmentpriorities,investmentneeds,andlikelyreturns.Whiarketsmustbesecuredatallcosts,whicharesecondary,andwhichshouldbetreatedpurelyopportunisticallyassourcesofeasybutfragilevolume?HowmuchinvestmentisrequiredforspeciÞcmarketsÐnotjustinhardcapitalassetsbutalsoinsales,distribution,andmarketing?HowwilltheseinvestmentsenhancethecompanyÕsabilitytodominateprioritymarkets?Foritspart,theparentcompanymustclarifyitsappetiteforinvestmentanditswillingnesstoendurenegativecashßowsbecauseofdevelopmentexpenses.ThebetteracompanyÕsunderstandingofwhatittakestosucceedinChinaÕsmassmarket,theeasieritwouldbetosetrealistictargets.Exhibit11isaquestionnairedesignedtohelpCEOscalibratetheircompaniesÕcurrenteÄfortsandcommitmentlevel.Balanceaspirationswithresources.Whenprioritizingadditionalcities,companiesneedtoconsidernotjuststructuralmarketattractivenessÐsize,speedofdevelopment,andtheeaseofdoingbusinessthereÐbutalsohoweasilytheywillbeabletoachieveadominantpositionandreplicatetheirsuccesseselsewhere.ThediÄÞcultquestioniswhethertogoforthesmall,easywins,ortowageprotractedcampaignsforthebigmarkets.AnimportantdeterminanthereishowdeepthemultinationalÕscommitmentandresourcesarecomparedwiththeircompetitorsÕ.ManyMNCsfeeltheyhavetobeinthemostcompetitivemarkets,butendupÞghtingbattlestheycannotaÄford.Inevitably,theylose.Atthesametime,theyignoredozensoflesswell-known,butequallypopulousmarketswheretheycouldbebuildingstrength.AgfaPaper,forinstance,hasmanagedtoobtaina26percentshareofChinaÕscolorphotographicpapermarketbyfocusingoncitiesthatKodakandFujidonotdominate.Whilethismaynotbeasustainablestrategyinthelongrun,itmaybetheonlywaytobuildsuÄÞcientstrengthtocompetehead-oninthefuture.CHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?70THEMcKINSEYQUARTERLY1996NUMBER3YesNoExhibit11CEOself-assessmentquestionnaireArewecommittedenoughtowin?Arewetargetingmarketsharelevelsthatwillallowustodominate?ArewewillingtomoveourtoppeopletoChina,andperhapsforgootherimportantopportunities?HaveIpersonallyvisitedChinaseveraltimesinthepast12months?Areweontracktogaindominantpositionsinourselectedbasecities?Havewesetclearpriorities,focusedonalimitednumberofbasecities?Dowehavesufficientcontroloverourpositioningandcoverage?Isourdistributionsystemcostcompetitivewiththatofotherleaders?Dowehaveaclearunderstandingofoureconomicperformanceandhowinvestmentswillcreatesustainableadvantages?IsourChinaorganizationstrongenough?Dowehavesufficientleadershiptoinstallnecessarysystemsandprocessesandtrainlocalmanagers?Dowehaveenoughinfluenceoverourjointventurestocontrolkeyoperatinglevels?Arewedevelopingstrongdistributors?Canwesustainourpaceofdevelopment?Doweknowtherealcash-flowrequirementsforimplementingourstrategy?Dowehaveadequatefinancialresourcestosustainthisinvestment,eventhroughmarketdownturns?Canwefindandtrainpeoplefastenoughtoensureproperimplementation?Stretchresourcesthroughalliances(andmaybeacquisitions).Rapidexpansioninevitablystrainsresources,butsmallercompanieshavelearnedtostretchtheiroÄtenlimitedresourcesbyformingcreativealliances.Mars,forexample,engagedtheEastAsiaticCompany,oneofahandfulofindependentprofessionaldistributorsinChina,todistributeandsupportitsconfectioneryproductsinsecondarymarkets.Severalnon-competingmultinationalswithnarrowerorlower-volumecategories,suchasColgate-PalmoliveandJohnson&Johnson,arebandingtogethertosharewarehousinganddistributionfacilities.Stillothersusetheproductionanddistributionfacilitiesofbetterestablishedmanufacturers.Forexample,KraÄtFoodsavoidedbuildingnewcapacitybyproducingitsMaxwellHouseicecoÄfeeataPepsiplant.Evenhigh-volumeindustryleadersareusingalliancestostretchtheirlead.Coca-Cola,forexample,hassplitChinathreewaysÐamongitselfandtwoprominentAsiangroups,SwirePaciÞcandKerry.Bygivingthesecompaniesexclusivemanufacturinganddistributionrightsincertainprovinces,Coca-ColaisspeedingitsentryacrossChina.Anotherwaytogaingroundquicklyistolookforinadequaciesinthestrategiesbeingpursuedbycompetitors,bothforeignanddomestic.TheremaywellbeopportunitiesforsavvyMNCstotakeadvantageoftheirrivalsÕmissteps.Withallthenewentrants,consolidationisinevitable,perhapsleadingtoattractiveacquisitionsfortheleaders.TherewardsinChinaÕsmassconsumergoodsmarketwillbeimmense.Butwinningrequiresplayingforhighstakes,andplayingnow.Giventheescalatingcompetition,companiescannolongerexpecttoearneasyproÞtsbyjustskimmingthesurfaceofnewmarkets.Tosucceedinthe21stcentury,multinationalsmusttakeanintegratedapproachtoChina,onethatenablesthemtodominateprioritymarkets,thenreplicatetheirsuccesselsewhere.Onlythosecompaniesindominantpositions,withdeepsalesanddistributioncapabilities,arelikelytoemergeunscathedfromtheindustrybattlesthatlieahead.CHINAÕSCONSUMERMARKET:AHUGEOPPORTUNITYTOFAIL?THEMcKINSEYQUARTERLY1996NUMBER371，大小：523 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