One Country, Many Consumer Groups

Transcription

A Publication of the ACRC
Winter 2006
Retailing in China:
One Country, Many Consumer Groups
The lost generation, now in their fifties, were once embroiled in the
Maoist battle against the bourgeoisie. They have survived hardship
and deprivation. As a result, they are keen savers and cautious
spenders. To attract this consumer group, shopping centres must
appeal to their multiple roles as matriarchs, protectors of tradition,
and doting grandparents.
For the most part, this greying generation looks for domestic brands,
good value for money, utility, educational qualities and durability.
And they want the products to be available in a pedestrian friendly
environment with a social element.
Deng Xiaoping cultivated the soil from which the second consumer
group, the middle class, emerged. His moves toward radical
modernisation resulted in a new entrepreneurial class, which hailed
mainly from rural areas, and which was taught to value enterprise,
knowledge, commerce and self reliance. This group prefers big box
With the opening of the Chinese markets, Chinese customers have
formats like Ikea as they seek to decorate the home they now own.
been offered an increasing array in the products and services they can
choose to consume. As a result, distinctly different customer segments
The middle class enjoys a mix of domestic and international brands
have emerged based on age, income, experiences and evolving value
that target all ages. They look for good value but also occasionally
systems. Retailers, whether local or foreign, must not only recognise
these differences but also cater for the diverse needs of consumers if
they plan to have a lasting and profitable presence in China.
indulge in luxuries. When spending, they want a place to meet and
eat out. They also enjoy impressive architecture, leisure options and
events.
The third distinct segment of the Chinese market is the girls of the
In “Xiao Kang: Dreams of Prosperity”, Paul-Henry Cox, country
economic miracle. Modern women in China have benefited from the
head for Jones Lang LaSalle, China, identifies six distinct market
growing belief that “women hold up half of the sky”. As their talents
segments in mainland China: the Lost Generation, the Emerging
Middle Classes, the Girls of the Economic Miracle, the Little Emperors,
Eyes Turn to
Asian Business
Leaders and
Enterprises
the Vibrant Youth, and the New Elite Rich and Super Rich.1
1
This special report by Paul-Henry Cox is a part of the World Winning Cities Series published
in the fourth quarter of 2005 by Jones Lang LaSalle. This special report by Paul-Henry Cox
is a part of the World Winning Cities Series published in the fourth quarter of 2005 by Jones
Lang LaSalle.
Please turn to page 7
P.8
and contributions have been recognised, a
China’s vibrant youth are the fifth market
income, there is no guarantee to individual
segment of middle class women have become
segment. They idolise homegrown stars of
retailers that their formula will work in China.
highly educated, career oriented and
music and sport. Their major influences are
Retail organisations will have to do their
cosmopolitan.
powerful pop icons, including authors,
homework to ensure that they are reading the
painters and rappers like Dai Lai, Feng
demands of the consumers correctly. If they
Zhengjie and Xue Cun, respectively.
do, shoppers will be served irresistible products
As avid consumers, they are lynchpins in the
success of sophisticated shopping centres.
at affordable prices in a location that is ideal
Beauty treatments, luxury items and travel
For this set, retail opportunities lie in shopping
centeres rate high among this groups’ buying
centres that incorporate music, live events and
– for their particular consumer segment.
habits. Meeting places and coffee
shops have little appeal for them,
as family and friends are
This article is based on a special report that is part
relatively low in importance for
of the World Winning Cities Series published in
this glossy group.
the fourth quarter of 2005 by Jones Lang LaSalle.
Not surprisingly, China’s “one
child per family” policy has
China retailing cases by the ACRC
resulted in a consumer group
known as the little emperors.
Carrefour in China: Refulgence Still?
Many of these people were born
Zhigang T ao, Li Dongya
after 1977 and grew up with
The Dilemma for Avon in China:
Direct-Sale, Beauty Boutique, or Both?
significant advantages, including
being pampered by two parents and four
specific branding that draws on the Chinese
grandparents.
pop idol scene. China’s new youth require
Zhigang Tao, Li Dongya
flexible surroundings, funky designs, the latest
Wumart Stores: China’s Response to
Wal-Mart
technology and public meeting places.
Ali Farhoomand, Zhigang Tao, Iris Wang
live primarily in Beijing, Shanghai and
The new elite rich and super rich are the sixth
Guangzhou. They are typically unmarried
and last segment of China’s consumer market.
Wal-Mart Stores: “Everyday Low
Prices” in China
and well travelled. They crave modernity,
Highly visible in their luxurious cars,
differentiation, style and status. To them,
expensive jewellery and designer outfits, this
boutique-type shopping centres which provide
group has all the material comforts. According
personal space, and high quality products and
to Merrill Lynch, there are 236,000 high-net-
personal service are preferable to the jumble
worth individuals in China, while Forbes
Lianhua Supermarket: Success
through IT Application
of mega-centres.
reckons that 200 among them possess personal
Wenbo Chen, Xianghua Lu
An elite education in Europe or the US has
given way to the Chinese nouveaux riche who
wealth of US$250 million.
Ali Farhoomand, Iris Wang
L’Oreal: Expansion in China
Motorola in China: Failure of Success?
Ali Farhoomand, Kavita Sethi
The spending habits of this group are based
on quality, status, power and visibility of
wealth, with price being irrelevant where the
purchase will demonstrate membership in an
elite class. Luxury retailers offer home visits
to these clients to show new lines and to create
exclusivity. Retail centres offering “members
only” areas, exclusive design and exceptional
service are likely to have a magnetic appeal
for this group of consumers.
By 2010, China is expected to have seven of
the world’s ten largest shopping malls. While
there is no doubt that the relative wealth of
mainlanders is increasing, and that
consumption typically accompanies disposable
2
Whirlpool’s Roadmap in China: 2004
Pan Yigang, Kavita Sethi, Thomas Leyu Yang
Anheuser-Busch Versus SABMiller:
Bidding War in China’s Beer Industry
A Publication of the ACRC Winter 2006
Interview with
Sandy W. Chen
China Retail Analyst with Citigroup Investment Research
Sandy W. Chen, CFA, is an equity research analyst with Citigroup Investment Research based in Shanghai, China.
He is a graduate of the Shanghai International Studies University and now specialises in equity research with a focus
on stocks related to the Chinese consumer and retail industry. Citigroup Inc. is a leading financial services company,
with accounts in more than 100 countries.
ACRC: What should organisations that want to
be major players in the Chinese domestic retail
market keep in mind?
SWC: They must bear in mind that China is not one homogeneous
economy. It is one country with many regional economies as well
as different income and demographic profiles. On the retail
consumer side, organisations need to know where the purchasing
power actually is and where it is emerging. For example, urban
and rural areas have a wide income disparity. The urban per
capita income is three times that of rural areas. And in fact, there
is a divergence in per capita income within urban centres as
well. 1 These are very important issues when talking about the
ACRC: How has the playing field levelled in China
for all types of retailers in the past decade?
SWC: China was admitted into the WTO in 2001, which was
followed by a three-year protection period. Since the end of 2004,
most of the restrictions on foreign retailers have been lifted, and
wholly foreign-owned retail operations are now allowed. Until
then, however, foreign companies had to enter into joint ventures
with Chinese companies and could have a maximum stake of 65%.
There were also restrictions on how many stores they could open
in a given area. Now, foreign-owned retailers are more on a level
playing field with their domestic retail counterparts.
retail business and trying to understand which customers to
target.
ACRC: In July 2006, Gome acquired China Paradise to
become a bigger player in the electronics market. Do you
expect more such mergers of Chinese companies?
SWC: Mergers are prevalent not just among Chinese companies,
ACRC: Why have foreign companies like Wal-Mart and
Carrefour been such successful retailers in China?
but also among foreign companies trying to take over Chinese
retail operators. In July 2004, a major acquisition occurred when
SWC: How you measure “success” depends on the region in
the UK’s Tesco bought a 50% stake in Hymall, a Taiwanese-invested
which they’re operating. Overall, Wal-Mart and Carrefour have
retailer in China. Tesco was a latecomer to China compared with
been reasonably profitable in China only in the past one or two
Carrefour and Wal-Mart, so this move gave them immediate access
years. Carrefour is very successful in Shanghai mainly because
to Chinese consumers. But they paid a high price for it.
it started out in the city with a reasonably good partner, Lianhua
Supermarket, which is a retailer on its own in Shanghai. It also
helped a great deal that Shanghai was under-serviced ten years
ACRC: What are the benefits of growing by merger
and acquisition versus growing organically in China?
ago when Carrefour became the first retailer in the city with the
hypermarket format, which Carrefour is very experienced with.
SWC: Acquisitions give you immediate access to regional markets
However, Carrefour is not successful everywhere in China. As
that you’re not familiar with. But there are many risks, such as the
for Wal-Mart, I understand that it has always had a positive cash
integration risk. When a company consolidates results of a lower
flow in China, but has not necessarily been making profits until
income area and those of a more profitable region, it can have a
more recently, owing to the depreciation of heavy investments
drag on the results. This is what happened when Lianhua
in distribution centres to begin with. Annually, Wal-Mart sources
Supermarket, a Shanghai, home-grown supermarket chain,
US$18 billion worth of merchandise from China and sells much
acquired a hypermarket in Guangxi province and integrated results
of it through its retail chain in the US and elsewhere. So although
from the region with those from Shanghai.
Wal-Mart as an overall group makes a lot of money, it does not
necessarily do so by selling in China.
1
According to the China Statistics Yearbook 2006, a survey on per capita urban income
grouped by decile showed that the average urban per capita income is RMB10,493,
with the lowest income being RMB2,496 and the highest being RMB28,773.
3
ACRC: What are the risks and benefits for retailers who
focus on first-tier cities, compared with focusing on
second- or third-tier cities?
ACRC: How do you see the competitive landscape
of China’s retail sector in five years?
SWC: Assuming a level playing field, I think that foreigner operators
SWC: Although the income gap is widening in China, the income
trend is moving upwards for everyone, across the board. So, one
risk is to price too high to attract mass consumers. Retailers who
want to expand into second- and third-tier cities have to keep the
cost of their retail premises low, choose the right merchandising
mix catering to local preferences, and determine a pricing strategy
to suit consumers’ incomes. Logistics also pose a risk because the
infrastructure around second- and third-tier cities may not be as
good as that in first-tier cities or along coastal areas. Incidentally,
there may not be distinct criteria to measure the tier level of a city.
Generally speaking, it is based on the size of the population and
per capita income.
will grow very strong in the food retail sector in the next five years.
Foreigners are very familiar with the hypermarket format and
more experienced than their local Chinese counterparts. The
shopping environment is better at foreign hypermarkets. The stores
are typically cleaner, better lit and more neatly organised in terms
of merchandise displays than local hypermarkets. Foreign retailers
like Carrefour have also been good at adjusting their merchandising
mix to suit the local needs, for example, opening a wet market
within the store to provide fresh fish. A recent domestic survey
by the China Commerce Association reported that average sales
per square metre by local retailers made for 70% of sales by foreign
retailers. That gives an idea of their sales efficiency.
ACRC: How are state-owned retailers in China faring
against their competition?
SWC: State-owned enterprises are trying to change. They are
trying to expand, and they are renovating stores and rebuilding
their image. Lianhua Supermarket, for example, has made changes
2
to fit the downtown market in Shanghai by adjusting the
and convenience stories. The hypermarket is typically found outside the downtown
merchandise mix and improving the overall shopping
area; it is larger and offers a wider variety of merchandise (50% food and 50% non-
environmentan effort which is paying off as they see increased
food) at lower prices than supermarkets. Supermarkets, which are smaller stores
growth in sales. Supermarket operations are really their
strength. 2
There are three formats in the food retail industry: hypermarkets, supermarkets
that are closer to downtown, offer mostly food (65% or more) and other daily
necessities. Finally, there are convenience stores that are very small and offer less
variety at higher prices, but they have very convenient locations and hours.
The International Community of
Case Publishers Met in October 2006
The ACRC was invited recently to join the
world, ICCP strives to address some of the
and Stanford, which are all renowned for their
International Community of Case Publishers
community’s concerns about the relevance of
advocacy of and innovation in the case method.
(ICCP). ICCP started in 2005 as an informal
business educational materials.
meeting between Harvard Business School
Publishing and Ivey in North America, and
As a principal member,
ECCH, IESE, INSEAD and IMD in Europe. The
the ACRC will be
mission of the group is to become an
involved in setting and
authoritative organisation which promotes the
steering the direction
growth of the case method and disseminates
and formulating the
their shared message and goals.
overall strategy of ICCP.
At the same time, the
In October 2006, ICCP met for the second time
ACRC will greatly
in Paris, where it saw an expanded membership
benefit from the insights
of prestigious institutions, including the
and experiences of such
University of Hong Kong. By bringing together
institutions as Harvard
the top ten producers of case studies in the
University, INSEAD
Professor Ali Farhoomand of ACRC (backrow, left) at the 2006 ICCP Meeting
4
The Educator’s Perspective
Dr Zhigang Tao is a professor of strategy and economics and associate dean of
the Faculty of Business and Economics at the University of Hong Kong. He received
his PhD in economics from Princeton University in 1992 and a BSc in management
science from Fudan University in 1986. Before he joined the University of Hong Kong
in 1998, he taught at the Hong Kong University of Science and Technology as an
assistant professor of economics for six years.
ACRC: To be competitive in the Chinese retail market, retailers
must know the desires and expectations of Chinese consumers.
What do the Chinese want in terms of retail offerings?
ZT : Huge variations in income and expectations exist throughout
the country, and even within the same city. In the supermarket
business, customers consider three things: the quality of the product,
the shopping experience and the price. However, in most areas
across the country, the price is still the most important thing. I
ACRC: Can mainland Chinese consumers recognise
the difference between good and poor quality?
ZT : No, most can’t, and there are clear reasons for their naiveté.
For people to recognise good quality, the following are necessary:
press freedom to inform the public about scandalous products and
companies, and properly trained lawyers who can prosecute
companies that produce dangerous products. But China doesn’t
would say that 80% to 90% of consumers care most about price,
have these. The Chinese government is very paternalistic. It believes
whereas only around 10% of consumers, those concentrated mostly
it can solve all consumer problems on its own, so it discourages
along the east coast, care more about quality. In the interior
provinces, there is the kind of poverty that Shanghai experienced
negative press about companies and the market. But these scandals
should be exposed and left to the market’s discretion.
almost three decades ago, before the economic reforms were
initiated. So it is not surprising that they care more about price
than quality. It is a very practical concern.
ACRC: How important is the shopping experience to
customers in China, compared with the actual products
being purchased?
ACRC: Do foreign retailers demonstrate that they understand
the wishes and expectations of shoppers in China?
ZT : More and more consumers in China want a comfortable and
luxurious shopping experience, but for the most part, the retail
ZT: Not really. They typically copy strategies that have had winning
business is still about selling basic goods. Most people are very
results in Europe and the US, and they expect them to work in
busy, so they don’t want too many choices when they go shopping.
China too; but evidence suggests just the opposite. For example,
Essentially, they want to go to a store where quality is assured and
Wal-Mart’s winning strategy in the West is sourcing products
controlled. Consumers want the store to make choices for them
globally so that it can pass on low cost to consumers. However,
and offer a limited range within the same category of products.
its products are not really considered low-priced in China, especially
They do not require countless brands of toothpaste, for instance,
when compared with what the Chinese can buy in street markets
to choose from. So far, foreign retailers do not necessarily offer a
where there are extremely low prices and fake products. Having
better shopping experience than Chinese companies. In Wal-Mart,
said that, multinational companies are learning really fast. The
for example, there are too many choices for most people’s taste;
French retailer Carrefour, for instance, has its best store in Shanghai
the quality is acceptable, but not great, and displays and aisles in
in a district where many Taiwanese and Hong Kongers live. And
some stores on the mainland are often messy or disorderly, making
they have differentiated themselves in terms of having “many
it difficult to find what you want.
imported products from abroad” instead of pushing claims of
having the lowest prices in town.
5
ACRC: What advantages and disadvantages do Chinese
retailers have over foreign retailers in China?
prime location, very convenient. The strategy is highly effective
because it attracts consumers who weren’t necessarily going to
ZT: There are really two types of Chinese retailers: the state-owned
Hymall and exposes them to Hymall ads on the bus along the
enterprises (SOEs) and China’s non-state-owned retailers. The main
way.
disadvantage of the SOEs is the unchecked incentive reward systems
of CEOs, but that’s changing as companies go public and active
shareholders monitor what’s going on in the company. There is
also the pressure to keep social harmony, which makes it difficult
ACRC: What role does credit or the lack of credit cards
play in the retail industry in China?
to lay off people. The SOE’s advantages, however, are protectionist
policies and a good relationship with the Chinese government,
ZT : Credit and credit cards do not play a major role in China’s
which make it easy for them to get loans. When they don’t meet
retail industry for three reasons. First, not many people borrow
their budgets, they can blame it on their inability to lay off workers,
money in China. Second, only 2% of the people who have credit
and they can get subsidies from the government. They also have
cards make payments late, which is the main source of revenue
definite geographic advantages in that they already have a vast
for banks. Third, China caps the interest rate on credit cards, so
network of spacious retail outlets in good locations.
credit cards are not very profitable. Instead, debit cards are very
China’s non-state-owned retailers experienced all sorts of challenges
before they gained formal property protection rights in 2004.
They’ve had a difficult time getting loans, and they’ve been treated
poorly by suppliers. Now, however, they do have some advantages.
popular—virtually everyone in China has one. The banking industry
recently introduced annual fees on debit cards, which is a good
source of revenue, though in the process of introducing the annual
fees, not a single bank wanted to be the first to do so.
They have CEOs with incentive and the freedom to focus on the
bottom line of the organisation instead of on social welfare issues.
In fact, China’s non-state-owned retailers have developed ingenious
ways of having de facto protection of property rights by getting
involved in politics. By getting to know local officials, they find
favour and are able to affect legislation or the implementation of
laws for private properties. What’s more, by donating money to
charity they have managed to raise their profile among bankers
and suppliers, so they are treated better.
ACRC: How do you expect retailing in China to
change in the coming decade?
ZT : It is difficult to make such a prediction. However, if the
experience of China’s manufacturing industry (which experienced
foreign competition much earlier than the service industries) is a
good guide, then we will see an initial onslaught of foreign retailers,
then the reform of China’s state-owned retailers, and finally the
growth and dominance of China’s non-state-owned retailers. The
ACRC: How has competition in the Chinese market
added value to retail products?
retail industry is by nature not very competitive because of
significant operational costs for retail stores and the unique tastes
of the local people. So I do not expect foreign retailers to dominate,
ZT : Prices have definitely dropped and quality has increased
especially if they do not adapt their strategies to the Chinese
because of more competition. But the industry is highly fragmented
environment and continue to follow their winning strategies in
right now, and although having more market players usually
developed economies. The retreat of Wal-Mart from South Korea
creates more competition, there are a lot of small monopolies in
and Germany are good examples of a foreign company not being
China in the form of neighbourhood stores. In the future, the
able to successfully adapt its strategies.
industry will consolidate, but competition will become more intense
as large retailers expand and cross over onto the territory of other
retailers. When that happens, although there will be fewer retailers,
they will be larger and the competition will be vicious.
In the long run, I believe that China’s non-state-owned retailers
will be the most competitive in the market because they can combine
the best of both worlds: they do not have the historical burden of
the state-owned retailers in terms of providing social welfare and
maintaining social stability, and they do not have the incentive
ACRC: How have successful retailers in China reached their
customers, in terms of advertising and marketing strategies?
ZT: Neither marketing nor advertising strategies are very important
in China. Most consumers want convenience and products at low
prices. They do not need fancy advertisements to attract them. In
Shanghai, Hymall uses a bus service to transport people to and
from their store. This makes their supermarket, which is not in a
6
problems that are particularly severe with the senior management
of state-owned retailers. When compared with foreign retailers,
China’s non-state-owned retailers have a better understanding of
Chinese culture, and they know how to cultivate long term
relationships with local suppliers.
Eyes Turn to
Asian Business Leaders
and Enterprises
Recognising the global demand for insight
In the last issue of “Silk Road”, we featured
atomic-style time, where only one second is
into business in Asia, the Asia Case Research
three of the volumes in the series, namely MTR
lost per month. “We appeal to the world with
Centre and the Journalism and Media Studies
Corporation, Pearl River Piano and Biocon.
unique technologies. Everything unique sells
Centre at the University of Hong Kong have
In this issue will take a peek into Seiko Watch
in today’s world. That is what we’ve learned.
created a “business leaders” case study and
Corporation and Phoenix Satellite Television.
When we introduce something technologically
video series. Under the direction of Jim Laurie,
unique, we are confident that our brand can
award-winning journalist and broadcaster,
Seiko Watch Corporation
appeal to consumers, not with diamonds and
and Professor Ali Farhoomand, founder
Having spent more than a century in the
jewels, but with the unique inner working of
Director of ACRC, the 11-volume FocusAsia:
business of precision time keeping, Seiko now
the watch,” says Hattori.
Business Leaders series profiles leading Asian
aims to target an upscale audience. Although
enterprises and their executives.
the company has been on the cutting edge of
inventing and improving watch technology
Already a force in Asia, these organisations
and their leaders are leaving a lasting
impression on the global market. Among the
companies featured in the series are Seiko in
Japan and Phoenix TV based in Hong Kong.
Whether a family-owned conglomerate with
over a century of experience, or an innovative
for the mass market since introducing the
world’s first quartz wristwatch in 1969, it is
not satisfied. It is determined to penetrate the
luxury market. But does the great-grandson
of the company’s founder have what it takes
to lead the organisation in a new direction in
the coming years?
Among the Japanese, there is no question
about whether Seiko and its upscale brand,
Grand Seiko, are seen as high quality.
However, when looking abroad, where
absolute punctuality may not be as critical
and brand identity reigns supreme, Seiko may
have trouble in being recognised as a
prestigious brand. To many onlookers, Seiko
is an innovator with mass appeal but not a
broadcaster pushing the envelope in China,
luxury item with the brand punch of Chopard
or some other growing organisation, the
or Patek Philippe.
companies featured are benchmarks of success
According to Roland Buser, Chopard’s
on many levels.
managing director for Greater China,
FocusAsia’s Global Reach
producing a smaller number of their latest
innovations and marketing them to a different
Tentacles of FocusAsia are stretching across
consumer segment would be much more
the globe via numerous channels. Throughout
the American Public Television distribution
According to Shinji Hattori, president and
service (PBS), close to 350 public television
CEO of Seiko Watch Corporation, a vision for
stations in the US will have the opportunity
the company is a part of his being: “I was told
to carry the series. Since 5 October 2006, KCSM
about Seiko from an early age; therefore, my
TV in San Mateo, California, has been
mindset and commitment were very much
broadcasting one video a week through cable
focused on Seiko. That’s different from the
and satellite television to 6 million viewers in
normal type of CEO that changes [companies]
the San Francisco area. Starting in November
every few years. It gives a long term
this year, Singapores Channel News Asia will
perspective to the position and I think it
be showing the series. In October and
benefits the company.”
November, travellers on Dragonair and China
Airlines may see select videos through in-flight
His dedication to perfection can be seen in the
services. Interest in the series is expected to
new spring drive technology, which has taken
grow in the coming months.
28 years to develop and offers consumers
beneficial for Seiko than trying to sell as many
watches as possible. “The more you produce,
the more the innovation is diluted. The
products will be appreciated more if they
[Seiko] limit the quantity,” says Buser.
In fact, in order to compete with the traditional
luxury brands, Seiko may have to disassociate
a new brand from the company name
altogether, according to the senior editor of
the Asia Pacific Journal of Management,
Professor David Ahlstrom in the Department
of Management, Chinese University of Hong
Kong. He cites Toyota and its introduction of
7
Lexus as an example of a company that
development. This is an important part of
successfully developed a prestige product that
Phoenix’s strategy,” says David Bandurski,
is highly competitive by separating the new
China Media Project Research Associate, the
brand from the company’s past reputation.
University of Hong Kong. “The elite he is
Although Grand Seiko has sold very well in
targeting have benefited from China’s
Japan, Ahlstrom doubts it will have the same
economic reforms and have a vested interest
success overseas.
in seeing that growth go forward. He sees
himself serving the overall project.”
To develop new sales and marketing strategies
transmission, while Murdoch was able to crack
and to take Seiko to the next level, will the
the highly restricted Chinese market.
organisation have to introduce professional
While Liu is looking to alliances and
deregulation to grow his business in the future,
management instead of relying on the Hattori
A decade later, no other foreign media
the foreign competition looks to Phoenix as a
family for leadership? Buser thinks it may not
company has managed to match the success
benchmark in the media industry. “Before 2008,
be necessary: “To transfer the message and
of Phoenix in China. Targeting the influential
it will not be likely that another foreign
the real strategy of the family from the top to
and highly educated on the mainland, Phoenix
company will do as well as Phoenix has”, says
the bottom, it’s normally better to have family
has been able to sell 30-second prime time
Vivek Couto of Media Partners Asia. “The
in management. But this varies from
commercials for US$6,000 each. The result has
success of the company is a combination of
generation to generation.”
been revenues that are nearly ten times those
the charismatic and intelligent leadership of
of any foreign broadcaster seen in China.
Mr Liu and its unique play on advertising
Professionals looking at best practices in
growth in China.”
business and the standards set by international
Broadcasting via satellite out of Hong Kong,
governance bodies might have a different view
Phoenix manages to reach Chinese viewers
point. “Empirical evidence suggests that most
across the globe in Europe and North America,
of the big family-run companies in Taiwan
and throughout Asia. On the mainland alone,
and among the overseas Chinese in particular
Phoenix is watched in an estimated 55 million
have been gradually professionalising their
homes. However, only 16 to 20 million of those
management. They really have to, as Wall
are watching the talk shows, news and
Street, the local stock markets, and the
entertainment legally. The majority have access
governance people are encouraging them to
to the colourful programming via illegal
do so,” says Ahlstrom.
downloads, private satellites and other
unofficial means. Only in Guangdong province
No matter how Seiko decides to carve a new
in the south of China does Phoenix have
niche in the market, one thing is certain: it is
landing rights.
prepared to invest generations in its goal and
it has an entire nation and culture behind it
It is said that connections in China are the key
for support.
to Liu’s success, but he sees the landscape
differently: “Connections are no longer the
Individual volumes or the complete series are
available for purchase at www.acrc.org.hk.
The 11 titles of the series are:
• C. K. Chow and the MTR Corporation
Limited
• Lawrence Wong and the Hong Kong
Jockey Club
• Vincent Lo and Shui On Group
• Tong Zhicheng and Pearl River Piano
Group
• Kiran Mazumdar-Shaw and Biocon
• Liu Changle and Phoenix Satellite
Television
Phoenix Satellite Television
key to business in the mainland. It was said
The man who has put a glamorous face
that they were in the 80s, and that courage
forward for news in China is an unlikely mix
was the key to success in the 90s, but in the
• Pavan Vaish and IBM Daksh
of talents and experiences. Liu Changle, the
21st century, it is intelligence.”
• Shinji Hattori and Seiko Watch
Corporation
founder, chairman and CEO of Phoenix
Satellite Television, has been a farmer, a
labourer during the Cultural Revolution, a
colonel in the People’s Liberation Army, a
radio reporter and a business magnate.
Liu’s calculated approach to safe content and
China-friendly news helps to assure viewers,
cable operators and advertisers that watching
and doing business with Phoenix won’t get
• Viveca Chan and WE Worldwide Partners
them in hot water with the Chinese central
• Lawrence Fung and Hong Kong
Economic Times
His great leap forward in the broadcasting
government. Although journalism purists may
industry occurred in 1996 when he founded
accuse Phoenix of self censorship, Liu has
Phoenix as a joint venture with Australian-
always been public about his agenda.
born media giant Rupert Murdoch. By teaming
up, the two men acquired mutually significant
benefits: Liu gained access to satellite
8
• Ho Kwon Ping and Banyan Tree Holdings
Ltd
In several interviews, Liu has spoken plainly
about his dedication to China’s economic
Please visit our website for more
information about FocusAsia: Business
Leaders and to watch a 3-minute overview
of the series.
Newly Released Cases
For full case summaries, please visit our website www.acrc. org. hk
China
Huawei: CISCO’S Chinese Challenger
Ali Farhoomand, Phoebe Ho
The Dilemma for Avon in China: Direct-Sale, Beauty Boutique,
or Both?
Huawei, China's largest telecommunication equipment provider, boasted
an annual revenue of US$6.7 billion in 2005, of which 60% came from
international sales. The case explores how the company could leverage
its strengths to climb up the technology value chain, replicate its success
in low-end telecom networking in high-technology products and
services, and build a global brand.
In April 2005, the leading global direct-sales cosmetics company, Avon,
gained exclusive rights from the Chinese government to test directselling in China. This provided the company with a rare opportunity
to expand its business in the world’s fastest growing cosmetic market.
The case probes whether or not the direct-sales model, which had
worked well for Avon in other markets, would also be successful in
China.
Strategy and General Management, Management of Information Systems
Strategy and General Management
Carrefour in China: Refulgence Still?
BHP: Negotiating Iron Ore Prices with China
Within ten years Carrefour showed outstanding achievements in the
Chinese retail market, becoming one of the top three retail companies
in China. The case examines how the company could keep its strong
position in light of local and global retailers’ emergence, moving the
future battlefields to the inland and second-tier cities where Carrefour
lacked sufficient presence. Encountering these changes, the case explores
whether Carrefour can retain its first-mover advantages.
Zhigang Tao, Ian Png, Carola Ramon Marstrand
GOME Electrical Appliances: The “Tuangou” Challenge
China, the largest iron ore consumer and largest steel producer, relies
on a handful of producers, including Australian-owned BHP Billiton
Ore. The case highlights how a demand for an extra charge sparks a
furious response by Chinese steel producers. It provides a good example
of pricing and business strategies, and the issue of bargaining power
in a highly fragmented industry (steel) versus a highly concentrated
one (iron ore).
Economics and Business Policy, Strategy and General Management
Benjamin Yen, Andrew Lee
GOME and other retailers in China face a new challenge—Tuangou,
or group purchase. The case discusses how Chinese consumers leverage
their collective bargaining power through internet chat rooms to demand
discounts from retailers, and show up en masse at stores at pre-agreed
times and dates. The case also highlights how retailers react to this new
phenomenon.
Wal-Mart Stores: “Every Day Low Prices” in China
Ali Farhoomand, Iris Wang
Although Wal-Mart, the world’s largest company by revenue, was into
its ninth year of operations in China, its stores were still losing money.
The challenge Wal-Mart faced was whether it could transport its
successful model from the US to China to win a market with many
differing characteristics which threatened its low cost structure and
which could nullify its competitive advantage. This case is concerned
with the application of established domestic business models in
international expansion, shedding light on issues such as market entry
strategy, localisation versus standardisation, and the effect of regulation
changes on the competitive landscape and firm performance.
Lenovo: Countering the Dell Challenge
Phoenix Satellite Television: The Art of Broadcasting in China
Yuen-ying Chan, Amir Hoosein
Phoenix TV is the only foreign TV broadcaster to target news
programming at mainland Chinese viewers. The case explores how the
company needs to grapple with challenges brought about by the
convergence of telecommunications and broadcasting, the further
liberalisation of China’s media industry, and the gradual roll-out of
digital TV networks around the country.
Related material: 30-minute DVD
Interconnectivity in China’s Telecoms Market
M. Bushehri, Kasra Mottahedeh
China’s accession to the WTO obligated it to ensure full and fair-priced
interconnection in the telecommunications market. The case evaluates
the government’s efforts to implement interconnection through the
issue of regulations, convening the carriers and calling on them to cooperate. It also focuses on the role of the Ministry of Information Industry
in achieving full interconnection, calling into question its capacity to
inhibit foreign competitors.
Economics and Business Policy
Pan Yigang, Kavita Sethi
Since its inception in 1984, the Lenovo Group grew from a company
engaged primarily in the distribution of imported computers to being
the largest IT corporation in China. While Lenovo was able to hold on
to its position as market leader, competitive pressure was increasing,
particularly from Dell. The case discusses how the company could tackle
Dell’s direct sales model while at the same time tap into international
markets and diversify its product portfolio.
Long Lines, Lost Profits: China’s Regulated Fuels Market
Marketing, Strategy and General Management
Economics and Business Policy, Strategy and General Management
Ka-Fu Wong, Mark Stimson
The case examines how prices of gasoline and diesel in China fail to
move in line with international oil prices, squeezing the margins of local
refiners. It also shows the difficulties of Western companies entering and
operating in price-controlled markets.
9
Unocal Corporation: China’s Unwelcome Bid
Ka-Fu Wong, Mark Stimson
The case examines the issues surrounding the “controversial” takeover
bid of Unocal, a mid-sized American oil and gas firm, by CNOOC,
China’s state-controlled offshore oil company.
Economics and Business Policy, Finance and Investments
Hong Kong
Hong Kong Disneyland: Where is the Magic?
MTR: Strategic Challenge of Entrenching Locally While
Expanding Globally
Ali Farhoomand, Emily Ho
The case discusses how MTR Corporation transformed itself from a local
transportation company to become a global player. Despite MTR’s proven
rail-property model in Hong Kong, the company is faced with a new
set of economic, cultural, regulatory and operational challenges abroad.
This case illustrates the growth model of a local company during
internationalisation and the trade-offs involved in its strategic decisions.
Bennett Yim, Josephine Lau
Negative publicity plagued the Hong Kong theme park: green groups
asked the park to ban shark’s fin soup from its menu, district councillors
accused Disney officials of discrimination for refusing to switch to the
greener fireworks technology, while local unionists attacked the poor
working conditions and long hours at the park. To make matters worse,
the company missed reaching its visitor target in its first year of operations
in Hong Kong. The case explores why Disneyland’s model is not working
in Hong Kong, and what could be done to smoothen the delivery of the
“American fantasy” in the alien culture of the Middle Kingdom.
Urban Renewal of Wan Chai: A Collision of People and Policy
P.S. Tso, Emily Ho
The case explores the issues surrounding the urban redevelopment of
Wan Chai, one of the oldest districts in Hong Kong. It highlights the
tension between the community leaders, residents and town planners
on one hand, and the government on the other. It illustrates the classic
scenario of disputes between policy and people in urban renewal projects
and the dilemma of urban renewal and preservation of culture and
community network.
Ocean Park: In the Face of Competition from Hong Kong
Disneyland
Bennett Yim, Grace Loo
In April 2006, Ocean Park launched a syndicated loan to raise money
for its redevelopment plan. The Park had worked hard to strengthen
its position in the run-up to the opening of Hong Kong Disneyland and
strong attendance at the Park had affirmed its strategy. The case explores
whether Ocean Park’s differentiation and positioning strategy would
remain competitive if and when Hong Kong Disneyland would overcome
the initial glitches of its market entry.
Shui On: Branding Properties for Sustainable Growth in China
Frederik Pretorius, Emily Ho
The case explores how Shui On, a large Hong Kong-based property
developer, leveraged its established relationship with the Shanghai
government to obtain the rights to participate in a very large urban
redevelopment project to build the now world-famous Xintiandi retail
and entertainment centre. It also probes whether or not the company
could repeat its success in other Chinese cities by exploiting the brand
value of its flagship project.
The Hong Kong Jockey Club: Repositioning a Not-For-Profit
Powerhouse
Ali Farhoomand, Amir Hoosain, Shirley Chan
The Hong Kong Jockey Club, with a statutory monopoly on horse racing,
football betting and lotteries, is not only the territory’s largest single
taxpayer, it is also its largest charity and community benefactor. The
case explores how the company had to tackle the threat posed by illegal
and unauthorised offshore gambling operators, and how it should
reposition itself.
10
Rhine Garden Holding Company Limited: The Next Strategic Move
Simon Lam, Amy Tang
The case shows how a restaurant chain operating in satellite towns in
Hong Kong could expand into high-rental, commercial districts.
Production and Operations Management, Strategy and General Management
A Cost for Cleaner Air: Hong Kong's LPG Vehicle Scheme
Chester Chan, Ka-Fu Wong, Mark Stimson
This case studies a Hong Kong government environmental mandate to
replace the territory’s diesel-powered taxicab fleet with liquefied
petroleum gas powered vehicles. In order to encourage the transition,
taxi owners were given cash grants to purchase new LPG vehicles and
drivers were promised “cheap” fuel.
Japan
Bank of Japan's Meeting in March 2006: An End to the Quantitative
Easing Policy?
Mitsuru Misawa
The Bank of Japan (BOJ) policy board convened for a two-day meeting
in March 2006 to discuss its five-year super-loose monetary policy. It
was expected that the board would terminate the policy. The case
discusses the unorthodox policy, known as “quantitative easing”, which
had been designed to combat persistent deflation through zero and nearzero interest rates, but had also flooded the market with excessive
liquidity, leading to unexpected complications.
Nireco Japan: Introduction of the Poison Pill
Mitsuru Misawa
This case examines how Japanese corporations deal with the looming
threat of hostile takeovers brought about by the rapid dissolution of
cross-shareholdings that began in the 1990s, in particular, between
creditor banks and corporate borrowers. It shows how the company
introduced the “poison pill” defense to counter possible hostile takeover
bids from foreign investors.
Accounting and Control, Economics and Business Policy, Finance and Investments,
Social Enterprises and Ethics, Strategy and General Management
Introducing the IT Industry Transformation Series
The Global Software Industry in 2006
Ali Farhoomand, Samuel Tsang
Since the dotcom crash in the early 2000s, sales and profits of
“traditional” software had been on a downward trend. With the advent
of the internet and the emergence of new business models related to
the provision and distribution of software, the whole software industry
had to reinvent itself. The note examines the industry’s new growth
cycle and investigates the specific opportunities and challenges brought
about by such a transformation.
Introducing the India Series
Jharna Software: The Move to Agile
IBM’s “On Demand Business” Strategy
Indranil Bose, Minyi Huang
Jharna Software is a medium-sized Indian software developer with an
offshore centre in the US, where systems analysis and design work are
done at the customer’s site, while the rest of the development process
is undertaken in development centres in India. The case discusses how
the company finds itself increasingly pressured by its main US clients
to adopt the emerging agile methods to produce quality software in a
shorter time and within limited budgets.
In 2002, IBM made a high-profile announcement about its new corporate
strategy, the so-called “on demand business”. Followed by the
disappointing financial results in the first quarter of 2005, however,
some began to doubt whether the “on demand” strategy would deliver
the promised results. The case revolves around the question of whether
or not the new strategy would prove viable in the long run, and the
kind of structural changes the company has to make to implement its
new strategy successfully.
Management of Information Systems
Daksh and IBM: Business Process Transformation in India Part I. The Formative Years
In one of the largest acquisitions in India, technology giant IBM took
over Daksh eServices Ltd in April 2004. Since its inception, Daksh eServices
had mirrored the fiery growth of the Indian business process outsourcing
(BPO) sector. In the short span of four years, it had acquired 6,000
employees with facilities in five locations. The case examines the issues
surrounding different financing models opened to a start-up by weighing
the pros and cons of different options. It also gives a detailed overview
of BPO and business process transformation.
Microsoft’s Diversification Strategy
With the launch of the game console Xbox 360 in 2005, Microsoft hoped
to reposition itself. The case discusses whether the company could
regain its past glory by wading into new territories, the opportunities
and challenges it would face in markets where it did not have proprietary
advantage, and the best way it could execute its diversification strategy.
Management of Information Systems, Strategy and Management
SAP’s Platform Strategy in 2006
Honda Motorcycles and Scooters India Ltd
Debi Saini, Management Development Institute, India
Globalisation, outsourcing, changing regulations and rapid technological
innovations have compelled most companies to put in place enterprise
applications that are open-source, simple to implement and easy to
integrate. Because traditional enterprise resource planning (ERP) systems
are generally complex, proprietary and difficult to install, ERP systems
providers had to reposition themselves strategically. The case discusses
how SAP, the leading company in this space, faces the challenge of
transforming itself from a closed source software developer to an open
source software integrator.
The case highlights Honda’s plight when it found out that accumulated
grievances had led workers to turn hostile and form a union with the
help of the trade union wing of a political party. The case brings about
lessons for MNCs operating in India, raises pointers towards building
and implementing a commitment model of HRM strategy, and points
out the dynamics of state power in Indian industrial relations.
Human Resources Management
Technovate
Vanita Yadav, Management Development Institute, India
This case is about a Business Process Outsourcing (BPO) service provider
in India, which was set up to provide contact centre services, BPO
services and IT services to its parent company in the travel services
sector. The case shows the risks and challenges involved in a real life
outsourcing scenario by focussing on the critical transition sub-phase
of the outsourcing lifecycle and the evolving growth strategies of
business process outsourcing.
Management of Information Systems, Production and Operational Management
11
HP at a Strategic Crossroad
Dell: Overcoming Roadblocks to Growth
Ali Farhoomand, Mary Ho
The case examines the paradox of bringing in a charismatic leader,
Carly Fiorina, to spearhead organisational changes in a company
renowned for its strong legacy and culture. With Fiorina’s ouster, the
case also opens for discussion the strategic options available to Mark
Hurd, HP’s new CEO.
In spring 2005, Dell announced a new goal of boosting its annual sales
from US$49 billion to US$80 billion by 2009. The goal was fairly
ambitious for Dell, especially in the face of fierce competition from its
main rivals, HP and Lenovo. The case examines whether Dell could
get its revenue growth back on track to realise its bullish vision. It also
looks into Dell’s opportunities in terms of geographical expansion and
product diversification.
Human Resource Management, Strategy and General Management, Management
of Information Systems
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12

One Country, Many Consumer Groups

Transcription

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