Sunday, March 30, 2008

Dragons at Your Door review

I just reviewed a good book on Chinese businesses taking market share from American ones.

Most of the book focuses on tactics rather than strategy. They have many examples of how Chinese companies do what they do, and some interesting ideas about how American companies can and do fight back. For me the major point is that China backs these companies, and has set the rules to support them. They want to encourage technology transfer to China. If we do too well under the existing rules they can always change them.

A huge company makes refrigerators. They probably sell some of their smallest and cheapest refrigerators to students in dorm rooms. Now suppose a small Chinese company wants to break into the market. They can use their cheap labor costs to build cheaper products. The best Chinese companies even use the cheaper salaries of engineers to design products better as well as cheaper - but many major stores don't want to retail brands their customers have never heard of. Now suppose these small refrigerators can convert into desks with movable tops. Besides limited funds, dorm students are often short of space. Now there's a special product to appeal to what most companies never even considered a separate market. Once retailers have sold a product by a formerly unknown product to happy customers, the manufacturer has begun building name recognition with both retailers and end users.

1 comment:

Pun Ditter said...

Good article, but as you said, it is mostly tactics. The strategy, I believe, is to offer manufacturing (outsourcing) to American companies with established brands, get expertise in the manufacturing, start selling own labels to other markets, and once they have a superior product come into the US market and cause the downfall of the original manufacturer. They have the advantage of the long term planning vs. our quarter-by-quarter short term view.