Five weaknesses of Chinese companies operating abroad

The Roland Berger Strategy Consultants have identified five decisive factors which determine the success of Chinese companies operating abroad. In what way may German small and medium-sized entities (SMEs) benefit from this knowledge? Well, everybody who knows these five factors also knows the weaknesses of those Chinese companies which are competitors to German SMEs.

Due to China´s rise as an economic superpower many Chinese companies will develop into global players over the years to come. However, first these Chinese companies will be faced with big challenges, is the warning message sent by Roland Berger consultants to their Chinese clients. Only Chinese companies with a clear-cut strategy and good international business experience will be able to benefit from globalization.

International mergers and acquisitions by Chinese companies have significantly increased over recent years. However, compared to those by European companies the number of these mergers and acquisitions is relatively small. Companies from the Chinese mainland only held about 1.5 percent of global foreign investment in the year 2005. Hongkong, on the other hand, is considered to be the most important holder of foreign investments among industrialized countries and therefore demonstrates the investment potential of the Chinese economy once the necessary experiences are gathered.

In the following the weaknesses of Chinese companies:

  1. limited R&D activities: as a consequence of which companies have so far not been able to conquer high-quality market segments
  2. only a few renowned brand names, small international marketing experience and only a few sales channels: the focus on production led to brands being disregarded. As a consequence many brand names are not well known and there is a lack of marketing experience. Furthermore, there is not enough knowledge about how international markets work. Thus many marketing strategies are inefficient in order to generate sustainable growth.
  3. little international management experience: Chinese managers have so far gathered only little experience as regards business habits and social conventions of other countries.
  4. insufficient knowledge about foreign markets: so far Chinese companies have only litte experience with foreign markets, in particular with regard to rules of competition, products, local particularities, design, rules and regulations.
  5. bad image: quite often Chinese products have the reputation of being of below-average quality and not meeting high standards.

However, Chinese companies have already demonstrated that they are able to adapt rapidly and learn from their failures. Therefore, according to experts, the question is not whether China´s companies will become global players, but how long this will take to happen. GERMAN