The Competition Strategies of the Dominant Chinese Regional Enterprises and Recommendations for Japanese Companies

ABSTRACT

Foreign-branded products that swept through the Chinese market from the 1980s to the first half of the 1990s have been curbed by newly emerged local-branded products and are likely to be subject to a setback in market share. From daily products to durable consumer goods and IT products, the market share of local-branded products is expanding in China.

Local field surveys and analyses of statistical data and relevant materials have revealed that leading local companies have both weak and strong points. Their weak points include: 1) technical capability that is still behind industrialized nations, which is reflected in their few technical development input and few patent applications (patent applications being a barometer of technical capability), 2) a weaker physical constitution the closer to the production floor one gets, which can be explained by a weakness in their new-product designing capability, operational technique, maintenance technique, process control, quality control, and inventory control, and 3) brand power in the formation stage, which is clarified by surveys of local consumers on brand images.

The strong points of leading local companies include: 1) a high sales capability, which can be explained by a deep understanding of local markets, a physical constitution that starts with marketing and sales, and accumulated bill collection expertise, 2) the regard of human capital as important and the establishment of an incentive mechanism that can be confirmed by internal human resource markets established by active innovation in human resource management in regarding human capital as important and establishing a work-reward system, and 3) an operating style that regards profitability and cash flow as important, which can be understood from thorough financial control, efforts toward no-debt management, a system of allowances for inventories and bills, and active M&A activities.

Japanese-affiliated companies should align technical capability with profitability and hasten to build business models with China: 1) enormous technical stocks should be reevaluated to strengthen corporate earning power through technical transactions, 2) sales capability, human management capability, bill collection expertise, and cost control - all merits of local companies - must be incorporated into their policies to enhance competitiveness in business with China, and 3) existing relationships with local companies should be reevaluated to look for new tie-ups with partners who have and are able to make the most of strong external management resources in strengthening their own competitiveness.