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China:ThePursuitofCompetitiveAdvantageandProfitableGrowthTHEBOSTONCONSULTINGGROUPBCGJune2003TheBostonConsultingGroupinGreaterChinaHongKongTheBostonConsultingGroupInternational,GmbH34thFloor,ShellTowerTimesSquare,CausewayBayHongKongCHINATelephone:852-2506-2111Facsimile:852-2506-9084ShanghaiBostonConsulting(Shanghai)CompanyLtd.21stFloor,CentralPlaza227,HuangpiBeiLuShanghai,200003CHINATelephone:86-21-6375-8618Facsimile:86-21-6375-8628BeijingTheBostonConsultingGroup(Beijing)Unit902,TheExchangeBeijingNo.118JianGuoLuYi,ChaoYangDistrictBeijing,100022CHINATelephone:86-10-6567-5755Facsimile:86-10-6567-5799TaipeiTheBostonConsultingGroup(GreaterChina)LLCRoom702,23/F105,Tun-hwaS.RdSec2Taipei106,TaiwanTelephone:8862-2755-0000ext.722Facsimile:8862-2784-1632TheBostonConsultingGroupisageneralmanagementconsultingfirmthatisagloballeaderinbusinessstrategy.BCGhashelpedcompaniesineverymajorindustryandmarketachieveacompetitiveadvantagebydevelopingandimplementingwinningstrategies.Foundedin1963,thefirmnowoperates58officesin36countries.Forfurtherinformation,pleasevisitourWebsiteat:TheChinaSourcingImperativeConsumerMarketsBreakingOutofChina’sValueTrapCatchingtheWave:MarketinginChinaTechnologyandCommunicationsTheDragon’sRevenge:ToughTimesforTelecomVendorsinChinaAutomotiveCompetingtoWininChina’sFast-GrowingAutomotiveMarketRethinking“MadeinChina”CarsandPartsHealthCareChina’sGrowingDrugMarket:WillYouBeaContender?020510273723FOREWORD2Formorethan20years,Chinahasbeenexperiencingadramatictransformationfromacentrallyplannedeconomytoamanagedmarketeconomy.Itisdifficulttooverstatetheachievementsofthe1980sand1990s,culminatinginChina’saccessiontotheWorldTradeOrganization(WTO)in2001.Witheconomicgrowthintherangeof7to8percentannuallyandforeigndirectinvestmentexceeding$50billionperyear,Chinaisclearlyamajorforceintheworldeconomywhoseimpactwillonlygrowwithtime.Muchhasbeenwrittenaboutthepoliciesthathaveenabledorhinderedthisprogress.Thatisnotourpurposehere.InsteadofevaluatingtheChinesepoliticalsystemorthecountry’smacroeconomicandindustrialpolicies,wewanttoshareourperspectivesonhowtobuildsustainablecompetitiveadvantageandachieveprofitablegrowthwithintherapidlyevolvingChineseeconomy.China:ThePursuitofCompetitiveAdvantageandProfitableGrowthisananthologyofarticlesaboutChinapublishedbyTheBostonConsultingGroupoverthepasttwoyearsandwrittenbyBCG’sleadingconsultantsworkingintheGreaterChinaregion.ThesearticlesaddresstopicalbusinessissuesfacingbothmultinationalanddomesticChinesecompaniesinabroadrangeofindustries.Atthesametime,theyareinformedbyBCG’snearly20years’experienceworkingwithsuchcompaniesonthegroundinChina.Finally,theydrawonthefunctionalandindustryexpertiseofBCG’sextensiveglobalnetwork.Forbothmultinationalsanddomesticcompanies,Chinaofferstwomajorbusinessopportunities.Thefirstistoselltoalargeandgrowingdomesticmarket.Invirtuallyeveryindustry,Chinarepresentshugegrowthpotential.Itisalreadyaleadingglobaleconomyand,ifcurrentGDPgrowthcontinues,itwillbeamongthelargestintheworldby2010.Chinaisalreadythenumberoneproducerinmorethan100productcategories,anditisthenumberonemarketinmany.ThesecondopportunityistoleverageChinaasagloballow-costsupplybase.ExportsfromChinahavebeengrowingatapproximately15percentforthepastdecade,drivenbylowlaborcostsbutalsobyfavorableindustrialpolicies,anincreasinglyeducatedworkforce,thecreationofmorethan500specialeconomiczones,thewideavailabilityofelectricpower,andpragmatic,probusinessgovernmentpolicies,includingspecificinvestmentandtaxincentives.Asaresult,exportsaregrowingacrosstheboardintextilesandapparel,electronicsandhomeappliances,metalsandchemicals,awiderangeofindustrialgoods,and,mostrecently,automotivecomponents.Formostcompanies,sourcingfromChinaisnowanimperative.AlthoughChina’smarketislargeandgrowing,andthelow-costsupplybasecontinuestoexpand,thecountryremainsachallengingmarketformostmultinationalcompanies.EachcompanythatcompetesinChinastartsfromauniquepositionandtosomeextentfacesuniquecompetitivechallenges.Still,somecommonchallengesrunlike“redthreads”acrosssectorsandcompanies.Developingmarketinsightstoinformactions.MakingsenseofthelocalmarketisoneofthegreatestchallengesinChina.Theinherentcomplexityoftheenvironment,therapidpaceofchange,andthepaucityofreliabledataaremajorchallengesforleaderswhobelieveinmakingfact-baseddecisions.Fortheseveryreasons,informationaboutcustomers,competitors,distributors,orsuppliersisfastbecomingakeysourceofcompetitiveadvantage.Companiesthathavebuiltsuccessfulnationaldistributionnetworkshavehadtoscreenliterallythousandsofdistributorstodeterminehowproductsflowandwhichdistributorsareoptimallyplaced.Evaluatingwhichsuppliersarecapableofdeliveringqualitygoodsreliablywithsustainablecoststructuresisextraordinarilytime-consuminginamarketwheresuppliers’capabilitiesvarybyordersofmagnitude.Thosecompaniesthatdevelopwell-informedmarketinsightshavearesourcethatishardtoduplica