China is such a big market, and so important to the development of some companies, that it is no longer being seen as a part of the traditional “international” startegy. Rather, it may be a “second home market”, as in the case of Danfoss, a 2 billion Euro, valve and compressor business from Denmark.
According to an interview with the CEO, Jorgen M. Clausen in the McKinsey Quarterly,
There were two events that cased him to look at China in a new light. He notes:
- ”First, I read an article in a newspaper one day about a big European manufacturer that was happy with its 40% growth in China until it discovered that the entire market for its product category was growing by 80%, which meant the company was actually losing market share. This made me wonder how successful we really were in China, and if we too were being fooled by growth rates that were vastly superior to the ones we were getting in Europe.”
In the second case, he was “was struck by…how relatively modern and well organized things seemed to be in this very remote area, so far from Beijing and Shanghai. In Ürümqi, I peered through the window of a dressmaking factory and saw that it was highly automated, which I was surprised to see in a remote area where labor must be very cheap. In a department store, we mingled with ordinary Chinese shoppers and were surprised to find exclusive dresses and $100 ties on offer. Something that particularly caught my eye was a refrigerator with inverters that control the speed of the motor and thus save energy–a luxury category one wouldn’t find even in a large Danish town.”
Having initially moved some manufacturing into China, Danfoss made it a key part of their strategy to be a market leader, and to establish market share before local companies became too strong. They are now looking for 50 percent growth a year, and to gain market share of 15-20 percent (similar to their position in Europe), by understanding local needs (e.g. requirements for energy-saving functions and dust covers) and adapting products for the lower-end, more price-sensitive, clients. 15 years down the line China is expected to be a large-scale market for the full range of mid and high-end products (which are already sold in the major cities), and Donfoss should have a strong competitive position.
Clausen has good advice for other CEOs considering how to address the China challenge:
- “…you cannot make a decision on China when you’re sitting behind a desk back home. You’ve got to get up from your chair, buy a ticket not just to Beijing and Shanghai but to other parts of China as well, and see the opportunities and risks with your own eyes.” Well said!
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See related news and the full interview:
Making China A Second Home
Forbes – USA
Like many global companies, Danfoss had been taking a slow boat to China. During the mid-1990s, the company moved some of the manufacturing …