The Battle for China’s Good-Enough Market

Key ideas from the Harvard Business Review article by Orit Gadiesh, Philip Leung, and Till Vestring



Between now and 2030, China will account for one-third of the world’s GDP growth. Yet many multinationals are losing share in this critical market. That’s because local businesses are targeting China’s ballooning cohort of midlevel consumers with reliable, low-cost products that are displacing multinationals’ premium offerings. And the regional upstarts making these “good enough” products plan to use the same strategy to challenge incumbents in other emerging markets.

To defend your China position and prevent local competitors from becoming global threats, say Gadiesh, Leung, and Vestring, consider entering China’s good-enough space. For instance, attack the competition from above by lowering your costs and distributing simplified, reasonable-quality offerings. If you can’t reduce your costs quickly, use acquisitions to gain a toehold in this space.

By managing the risks and opportunities inherent in China’s middle market, you’ll claim your share of this pivotal market. And you’ll strengthen your competitive position elsewhere around the globe.


Attack from Above
Moving to the good-enough segment in China is risky if you’re already thriving in the premium space. For instance, your new offerings could cannibalize your high-end products. To mitigate the risks:
• Analyze the differences between China’s premium and good-enough segments. You may discover strong geographic distinctions you can capitalize on.
Example: GE Healthcare expanded sales of its MRI equipment in China by creating a line of simplified machines targeted at hospitals in China’s remote and financially constrained second- and third-tier cities.
• Determine which capabilities and resources you’ll need to seize opportunities in the good-enough space.
Example: GE Healthcare assigned a special team to observe target hospitals’ operations. Members also talked with administrators and physicians to determine the kinds of medical equipment they wanted, features they needed, possible price points, and required distribution and services. GE then reconfigured its existing networks of sales, distribution, and services to serve this new market.
• Stake claims in the good-enough space to box out emerging local players and global competitors that might be eyeing the same target market. By entering this space ahead of the pack, GE Healthcare defended its position against local upstarts, capturing 52% of the $238 million market in 2004.

Use Acquisitions
If you can’t alter your cost structure or business processes quickly enough to compete with local players, consider mergers and acquisitions.
Example: Anheuser-Busch owned 27% of Tsingtao Brewery, one of China’s largest brewers. It outbid competitor SABMiller to acquire Harbin, the fourth-largest brewer in China. The acquisition enabled Anheuser-Busch to reach the masses while preventing Harbin from swimming upstream.

Note, though, that non-Chinese acquirers are facing tougher M&A approval processes. To increase your chances of gaining regulatory and political approval:
• Draft a compelling business case for the acquisition, citing benefits for local companies and authorities.
• Be willing to adjust the structure, terms, and conditions of the deal.
• Engage in heavy-duty relationship building, to woo critical players.
Also, to ensure that each acquisition delivers the maximum possible value:
• Select a target company that offers cost and distribution synergies with your firm and whose products won’t cannibalize your premium brands.
• Overinvest in the due diligence process.
• Take a systematic approach to postmerger integration.

(http://harvardbusinessonline.hbsp.harvard.edu/)

EBay's new in-house blogger sounds off

New eBay recruit and social media veteran Richard Brewer-Hay will launch a blog next month that aims to give eBay's users a direct, unfiltered communications link with the company. Can he repair the company's battered relations with its users?
By Brandi Stewart (From:http://money.cnn.com/2008/03/06/smbusiness/ebay_ink.fsb/)
First Published: March 6, 2008: 4:25 PM EST


(FORTUNE Small Business) -- In the uproar within eBay's merchant ranks over the site's upcoming fee and policy changes, one complaint dominated discussions: the charge that the company doesn't respond to the feedback and opinions of its sellers.
eBay (EBAY, Fortune 500) hopes to dispel that perception next month with the launch of "eBay Ink," a no-holds-barred corporate blog helmed by a new company recruit, social media veteran Richard Brewer-Hay.

Unlike eBay's existing blogs and forums, which focus on more traditional (and sanitized) corporate communications, eBay Ink aims to give readers a peek inside eBay's internal operations. Brewer-Hay has pledged to write unbiased entries about what he observes as an all-access employee of the $7.7 billion dollar company.

Though eBay Ink is not a direct response to the recent seller boycott and frustration over ongoing changes, eBay's communications team says that a forum for frank discussions is long overdue. "There hasn't been one place where investors, industry analysts, employees, [eBay] buyers and sellers, and PayPal and Skype users can talk to someone from the company, or listen to someone from the company discuss what changes mean from a high level," said company spokesman Jose Mallabo.

Brewer-Hay was hired in January and has spent the past two months learning the ins-and-outs of the corporation. Fortune Small Business got first crack at him; below are edited excepts of our conversation about his ambitious mission and why he believes eBay Ink, launching in April, will change the dynamic between eBay's top executives and its user community.

FSB: What brought you to eBay?
RBH: I started meeting with them late last year. I come from a new media company called PodShow, where I've been for that last two years. Prior to that I was at a PR firm that specialized in social media tools such as blogging and podcasting. It became a natural progression.
When I was speaking with some of the folks at eBay, I had some friends here already, and they had approached me asking if I knew of anyone who would a good fit as an editor-in-chief of a corporate blog. I actually thought it would be good for me. So, that's how I got here.
FSB: What have you been doing since you joined eBay in January 2008?
RBH: First, I've been designing the blog from scratch. There was nothing in place already. The team had been planning for this for about six months before my arrival; I thought it was very shrewd of them to hire from the outside rather than the inside.
I came on board and started designing a blog, finding out what people wanted, what they didn't want - bringing my personal experience creating blogs in the past. Then I met with executives and different groups and created an editorial calendar. Once we get going, there are going to be a lot of topics to cover on a weekly basis.

What are some topics you're thinking of covering?
RBH: You name it, we're going to blog it. On one day I might sit down with [eBay CEO-in-waiting] John Donahoe and talk about how he sees where we're going. The next day, I might be meeting with the head chef of our cafeteria here who's cooking for 7,000 people every day.
I also plan on having guest authors from people within eBay. The majority of the posts are going to be from me and the other 30% to 40% are going to be from other people within the company. I plan on traveling to Asia, to Europe, you name it, and meeting with those folks and soliciting their input too.
There are so many different topics. EBay as a recycler: how green is the company? I also plan on setting up an open Q&A for readers and subscribers to the blog. I really want it to be a conversation between eBay and the outside world. - an open conversation. So, I'm going to invite people to e-mail me questions that I can pose to certain people in the company.
I'm new here. I've got a clean slate. I'm sure people out there have a lot more questions than I do off the bat, so I'm going to use them.

FSB: Would you respond to something like the boycott that happened a couple of weeks ago - is that something you would blog about and talk to senior management about?
RBH: Definitely. I think the corporate blog is perfect for things like that. I wish I could have come on sooner. It would have been great to have this blog up and running in January, because I think it's a perfect opportunity for that dialogue to take place. Instead of away from us, it's directly with us.

FSB: Have you ever sold anything on eBay?
RBH: I've never sold anything on eBay but I've bought on eBay.
We are very much an eBay household. My wife has been a member since 1999. My New Year's resolution was that I'm not buying anything without going to eBay first - unless it's food, of course. I've been good for that so far for three months, and I plan on doing that for the whole year.
I'm going to have a tracker on my blog, on my bio, that has my feedback score going up and the number of things I've bought. And I'm going to start selling things too. My wife was telling me the things we have in our house that she got on eBay. I had no idea! Our chest of drawers with our clothing in it, eBay. The TV in the kitchen, eBay. Our dining table.

FSB: What does your wife sell?
RBH: She buys and sells everything. It runs the gamut. She sold all her riding equipment, because she used to be an equestrian.

FSB: Did your wife have anything to say about the recent policy and fee changes?
RBH: We're mostly buyers, so it didn't really affect us.

FSB: Your blog will be linked from eBay's PR webpage. How much influence will eBay have on what you write?
RBH: My words go straight up onto the blog, unedited.
It's got to be transparent. There's got to be an authenticity to it, an honesty to it, otherwise there's no point in doing it in the first place. I'm going to open up my e-mail to questions from folks. People can comment, too, and comments are going to be open. You're going to get the good, the bad, and the ugly.
It kind of goes back to what I was saying at the beginning. They hired from outside the organization. I have no prior agenda with any of the execs or people in the company. I'm still in the process of getting to know them. I haven't met a lot of them yet. That's a big, important thing.
The other thing is, this is my job. There are no other jobs that I'm doing. Some corporate blogs are just side gigs for existing employees, but I'm doing this 100%, day-to-day.

FSB: EBay is okay with you being honest and possibly writing negative things about the company?
RBH: Yes. So far, the reaction has been overwhelmingly positive and enthusiastic. In fact, pleasantly so. I met with the legal team last week, typically one of the primary hurdles in getting a corporate blog off the ground. I showed them what I had in mind and I got a 100% green light from them. They just want to be notified if I'm interviewing a C-level exec or if there's going to be some big news coming out.

How Strategists Really Think

Key ideas from the Harvard Business Review article by Giovanni Gavetti and Jan W. Rivkin
From:http://harvardbusinessonline.hbsp.harvard.edu/

When Charles Lazarus replicated successful strategies from the supermarket industry to launch Toys ‘R’ Us (think exhaustive selection, low prices, self-service), he used analogical thinking: He drew lessons from one business setting and applied them to another.

Sometimes analogies spark breakthrough strategies—as Toys ‘R’ Us’s successful launch shows. But when analogies are based on surface-level similarities, they can lead managers astray. Consider Enron: By ignoring key differences between natural gas trading and broadband trading, Enron embarked on a diversification scheme that proved disastrous.

How to tap the power of analogical thinking while sidestepping its pitfalls? First, articulate the analogy your management team is using to weigh a potential new strategy. Only by making your analogy explicit can you then assess its soundness. Ford Motor Company, for example, examined Dell Computer’s innovative supply chain model before deciding that production similarities between the auto and PC industries were outweighed by differences in industry cost structures. Finally, decide how well your strategy will translate to a new setting—and fine-tune it to address key differences.

It’s impossible to make analogies 100% safe. But by employing several straightforward steps, you can boost your chances of avoiding analogical thinking’s dangers—and make smart, successful strategic choices.

The Idea in Practice
To tap the power of analogical thinking, apply these steps:
• Articulate the analogy. In deciding to launch CarMax, a chain of used-car outlets, successful electronics retailer Circuit City drew an analogy between the electronics-retailing environment of the 1970s (its “source” setting) and the used-car industry of the 1990s (its “target” setting).
• Identify why the “source” strategy worked. The 1970s electronics-retailing industry was dominated by small, local retailers of variable quality and efficiency. Untapped efficiencies (for example, unexploited economies of scale) and unmet customer needs (stores suffered frequent stockouts) also characterized the industry.
Circuit City’s strategy? Offer large stores that stocked exhaustive selections and pair automated distribution centers with sales-tracking technology to ensure product availability. Differentiating itself on selection and product availability, the company crushed smaller rivals.
• Assess similarities and differences between the source and target setting. The 1990s used-car industry strongly resembled the 1970s electronics-retailing industry. For example, customers didn’t trust retailers; economies of scale and barriers to entry were limited; and information and distribution technology were primitive.
But important differences existed as well. For instance, in consumer electronics, Circuit City had a large base of dependable, reputable suppliers—while most used-car dealers bought inventory from variably reliable wholesalers or individual car owners.
• Translate your strategy to the new setting. Circuit City’s strategy for CarMax closely matched its electronics-retailing operation. For example, CarMax’s large-lot “superstores” offered broad inventories of 200 to 550 vehicles. Moreover, the company sold cars at fixed, posted prices, with no haggling—which reduced mistrust between customers and used-car dealers. It also paid salespeople a flat fee per vehicle—eliminating incentives to push more expensive cars on customers.

But CarMax adjusted Circuit City’s formula to reflect the two settings’ differences. For instance, unlike the electronics-retailing industry, the used-car industry lacked reliable supply sources. CarMax addressed this difference by placing well-trained buyers in each store who offered to buy used cars directly from consumers. Then it thoroughly inspected and reconditioned used cars before reselling them.

CarMax’s reward? Revenues of $4.6 billion in 2004, a multibillion-dollar market capitalization, and equity returns that roughly matched the S&P 500’s.

Corporate Change

How companies think about climate change: A McKinsey Global Survey

A McKinsey Quarterly survey finds that most executives think climate change matters for their companies. Although few have taken action, they are optimistic about the possibilities.

February 2008
Against a backdrop of rising global concern about the environment and climate change, a McKinsey Quarterly survey finds that executives view climate change issues as important for their companies, seeing both opportunity and risk.

The survey,1 which included respondents from a range of industries (some 40 percent of whom are evenly split between finance and manufacturing, with another 8 percent in energy, transport, or mining), finds that fully 60 percent of global executives view climate change as important to consider within their companies’ overall strategy.

Further, nearly 70 percent see it as an important consideration for managing corporate reputation and brands, and over half say it’s important to account for climate change in such varied areas as product development, investment planning, and purchasing and supply management. About one-third of respondents say their companies places more emphasis on climate change than on most other global trends.

Relatively few companies, however, currently appear to be translating the importance they place on climate change into corporate action. Fully 44 percent of CEOs, for example, note that climate change isn’t a significant item on their agendas.

Further, many respondents report their companies consider climate change only occasionally at best when managing corporate reputation and brands, developing new products, or even managing environmental issues. And more than one-third of global executives say their companies seldom or never factor climate change into their companies’ overall strategy. When asked how well their companies do take climate change into consideration in strategy, more than half of CEOs say somewhat well at best.

Executives are relatively optimistic when anticipating the business prospects that climate change could present. About one-third view climate change as representing an equal balance of opportunities and risks (more than the amount who see either a preponderance of risk or of opportunity). And 61 percent of respondents view the issues associated with climate change as having a positive effect on profits if managed well.

Given the considerable uncertainties around climate change regulation, it is noteworthy that more than 80 percent of global executives expect some form of climate change regulation to come to their companies’ home country within five years. Relatively few executives say their companies are likely to respond to new regulations in geographies where they operate.

Moreover GoTo http://www.mckinseyquarterly.com/article_page.aspx?
ar=2099&pagenum=1
(From ; The McKinsey Quarterly , 5 March 2008)

Are You a Thought Leader?

You may have heard the phrase thought leader bandied about. It means someone who is a trusted resource in his or her field of expertise. Although some thought leaders contribute ideas to the community without any specific goal, many see the process as a great way to attract new clients. It's a method you should consider.

Anyone with specialized knowledge has the potential to become a thought leader. You can use a medium as informal as a blog that dispenses helpful tips; or on the other end of the spectrum you might want to offer white papers and survey results. But whatever your media strategy, David Meerman Scott has some solid advice for aspiring thought leaders:

Understand the purpose of thought leadership. You want to educate and entertain, not sell. "This type of marketing and PR technique is not a brochure or sales pitch," writes Scott. "Thought leadership is not advertising." So it's important that you don't write about your company—at all.

Cater to your audience. Address issues of interest to prospective customers. And present the information in an engaging fashion. Remember: This is about your readers, not you.

Promote, promote, promote. Alert carefully chosen bloggers, reporters and analysts with links to your material. Also, place easy-to-find links in online venues you control—even in your staff's email signatures.

The Po!nt: "Thought leadership content is designed to solve buyer problems or answer questions," writes Scott, "and to show that you and your organization are smart and worth doing business with."

Source: MarketingProfs. Vol. 1, No. 70 September 17, 2007
Click here to read the full-length article.
(http://www.marketingprofs.com/small-business/index.asp?nlid=118&cd=dmo121)