China Market Entry: Best Practices For Private Companies
By: Gordon C.C. Liao and Rob Ospalik, Baird Capital Partners
February 1, 2010
Most successful companies today, regardless of revenues, have created a concrete China supply chain strategy, thought about a China supply chain strategy, or figured out a way to combat a China supply chain strategy. However, moving forward it is clear that most global businesses will be talking about something else with respect to China -- market-entry opportunities.
The United States has roughly 300 million people, growing about 1 percent per year, with 80 percent living in cities. In contrast, China’s cities are poised for considerable growth -- currently only 45 percent of China’s population, approximately 600 million Chinese, live in cities. New research by the McKinsey Global Institute projects that the country’s urban population will reach 926 million by 2025, and top 1 billion by 2030.1 There will be an enormous opportunity for global companies to support this trend with products and services.
It is no secret that 2009 GDP growth in the United States is expected to contract by 2.5 percent, while China is expected to grow by 8.5 percent. China has had the fastest growing major economy in the world for the past 30 years, with an average annual GDP growth rate above 10 percent and per capita income growth at an average annual rate of more than 8 percent. China’s economy now ranks as the third largest in the world behind the United States and Japan, but ranks second only to the United States in terms of purchasing power parity.
As per capita income has risen and wealth creation has exploded, Chinese consumers and businesses have become bolder in their purchasing habits, buying Western brands and looking to utilize strong cash positions to purchase more. Consequently, in 2010, instead of further refining a China supply chain strategy, companies of all sizes will find it necessary to execute a China market entry strategy.
Baird Private Equity invests in the United States, Europe and Asia, and has been building supply chain and market-entry capabilities in China since 2003, so the group tends to take a global approach to portfolio management. Baird Private Equity’s China-based operating team supports the firm’s 43 portfolio companies with activities such as supply chain management, quality assurance, supplier qualification, lean manufacturing implementation, and market entry support and implementation.
Though Baird Private Equity’s experience in China is not without some ups and downs, the team has compiled many best practices that companies should consider when implementing a China strategy, whether taking a supply chain or market entry focused approach:
(1) “Meeting the challenges of China’s growing cities”. The McKinsey Quarterly 2008 Number 3.