The China Market Opportunity
The Economic Times - March 2002
Dominique Turcq, a McKinsey consultant, described India and China as "Asia's Non Identical Twins" - many similarities, and yet starkly different too. This phrase leapt to my mind on a recent visit to China. While today, the economic differences between India and China are very stark (all we need to do is drive through Shanghai or look at the economic indices), the similarity in the structure and culture of these markets is very real too. This makes for a genuine opportunity (not one that is defined by hype and hope) for Indian companies to leverage their business experience and skills to create businesses in China which can be at least as large as what they have in India.
Like India, China is a complex multi tiered market in various simultaneous stages of evolution - the bullock cart to car continuum, and the Government to MNC continuum co-existing, be it healthcare or computers or toilet soap. Like India, changing market structures driven by economic, consumer evolution or policy changes, are a fact of life. Like India, the game isn't over yet, where the rules of the market have been made, and the winners declared. The game is still open and there is still room for new entrants. The MNC view of the China market is the same as it is of India - a long haul market, not for the impatient, no shortcut magic to quickly building a dominant position or making money, and global strategy transplants work to a limited extent. The only difference is that financial returns from the China market seem more tangible and imminent than the Indian market, given the difference in stride between the two.
Turning to the differences, senior managers of Indian companies operating in China and Indian CEOs of MNCs in China (more than one would have imagined) provide anecdote after anecdote about how India has what China lacks and vice versa. One has discipline, the other has creativity; one has infrastructure the other has the talent to leverage that infrastructure; one has superb execution skills, the other has better honed strategic thinking capability. All this makes for a compelling case for Indian companies to build a strong strategic position in China, partnering with local Chinese business or even with MNCs, (where the deep pockets come from the MNC partner and the management of the business comes from the Indian partner). The advantage with China is that the Chinese believe that "it doesn't matter whether you are a white cat or a black cat, as long as you are smart cat". And they do believe that India has something to offer in the 'smart' department. Further, materialism is God, and they worship the colour of the money, not the colour of the skin - so far at least! Today, with the exception of a few Indian companies, NIIT, Dr. Reddy's Laboratories and Essel Propack among them, the rest who are present in China view it either as a sourcing or trading base, or as an opportunistic market where the game is to jump in and take advantage of demand and supply gaps while they last. Merely having local manufacturing facilities does not qualify as building strong, sustainable strategic business position.
Higher Education is China's most interesting market opportunity for India. Like us they are a child centric culture, and see education as a gateway to a better life. The little ones start school at 18 months, and being a single child country, their hopes and aspirations are all pinned on the performance of the child. As a collective, they see education as something that will give them the ability to make even greater strides in the world at large. Learning English and computers are the two ready high demand markets (maybe NIIT ought to think bigger and broader and deliver both). We have several institutions of repute and several models of higher education to offer, and the India brand of higher education is certainly positive in China. What's more, the education market is not restricted to the special economic zones. The hinterland is even hungrier for the good life and historically, culturally, education is seen as a way for the small town lad to get to the big city to better his lot.
Healthcare is yet another interesting opportunity. The healthcare sector is changing rapidly creating new opportunities. For example, the Government is slated to reduce its spend on health care, and insurance does not cover a large proportion of the population, signalling an impending OTC boom, fuelled by increasing health consciousness among people and the peculiar burden that the one child policy places on young couples having to look after parents and grandparents on both sides. Hospitals, which comprise the customer base in China, have similar (though not exactly the same) structure and conduct as in India, and thousands of retail licenses are being given out, making it all a familiar game. Similarly, there is an opportunity available to appropriate a position between the premium and the discount price-quality segments, comprising MNCs and a whole host of local players respectively. Again, familiar territory for many Indian pharma companies. Then there is the large base of traditional Chinese medicine. Modernising tradition and contemporarising traditional remedies into powerful brands is again something that quite a few Indian companies have considerable experience at, and should examine whether they can replicate it in China.
Like India, China is a market where the poor are far larger in number than the rich, and the business model of 'state controlled' capitalism is not going to change this income structure in a hurry. It is amusing to hear market researchers repeatedly say "Please understand Shanghai is not China, the real China is very different", the same way we say "India is very different from the 4 metros". There is a definite opportunity for Indian FMCG companies to a take their painfully learnt 'low cost' or 'popular' business building and brand building capability and experience to China and exploit market opportunity. Cavin Kare? Nirma?
Indian companies have convinced themselves of the superiority of 'local Chinese competition'. If we really can't beat them, let's buy into them and build from there. But let us seriously address ourselves to getting a piece of this huge action going on in our neighbourhood - and where we have a good chance of winning too.