Case Study - US Manufacturer in China

A medium-sized US-based provider of materials and related services entered China, where it had essentially no market presence, with a world-scale plant investment.  The company believed that having excellent products and services and a huge potential market in China (as defined by the target industry size) failure was impossible.  However the company encountered a difficult environment as the market was already being served by low-end products at a price point around 1/5 that of its own products.  In addition, Chinese customers were not at all receptive to the “outsourcing” model successfully used by the company in North America, in which the materials, equipment to apply them and service were consumed in a package deal.  The Chinese preferred to purchase materials, equipment and services separately, pushing down the price of each by forcing competition among multiple suppliers.  Only one year after startup, having failed to adapt its offering, the company had only secured one stable customer for its “package” offer and was forced to write down over half its investment and layoff staff.  Where did they go wrong?

-  No meaningful market study – success in China is never “guaranteed” on the basis of extrapolation from other markets
-  Underestimating the local competition – entrenched low-tech products from Chinese competitors were doing the job
-  Overinvested where an incremental approach might have had better chance of success
-  Did not adjust business model to reality – customers had no reason to change

VALUSHAR’s President directed this company in various areas including revising its business model, developing new products in line with market needs and seeking new partnerships, helping it to turn around a major loss to near-breakeven in one year.

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