The following commentary can also be viewed and commented on the Supply Chain Expert Community web site.
Recently, George F. Brown, the CEO of consulting firm Blue Canyon Partners, Inc. penned an article featured in Industry Week titled Early Birds and China’s Mice. This article is an important one for the Supply Chain Expert Community. While we do not agree with all of the article’s conclusions, we recommend it for your reading, especially if your role involves strategic sourcing, product management or global supply chain strategy and operations.
Brown traces some of the history of product and production sourcing within China where many companies invested in the country, including the necessary joint-partnerships, in order to gain a foothold on China’s emerging growth and market opportunities. Brown coins the term, “Second Mouse firms” which are Chinese firms that were exposed to western product technology and design as well as the learning of solid manufacturing and business process competencies from their western partners.
He refers to the saying “The early bird gets the worm, but the second mouse gets the cheese,” With access to low-cost labor pools and with intimate knowledge of China’s broader middle markets where the ultimate growth for the next decade will be found, these companies can be a competitive threat. He notes that many western companies entered China’s markets targeting the top end, where western brands would prove to be most attractive for Chinese customers. Second Mouse companies have focused on the broader middle market with a willingness to engineer out unnecessary features from the cost structure and compete on ‘good enough’ buying motivations. Named examples include Haier, in the appliance segment, Geely, in automotive and Sany, in construction equipment. The notion is that each of these firms evolved from solid manufacturing and efficiency competencies who have been quick to learn and adopt.
Brown’s conclusion is that: “Ceding these (broad middle) markets to the Second Mouse firms not only most likely hands over global leadership to them, but also enhances the abilities of the Second Mouse firms to compete in the west, both as a result of the earnings from emerging markets and from their continued access to the world’s best laboratory from which to evolve products than can compete and win across the globe.” He notes that future growth will require western companies to develop the ability to compete in the broad middle segments of emerging markets like China, and with their “good enough” products, Second Mouse firms will be able to penetrate both emerging and western markets.
While the article provides some solid food for thought, our view is that the author did not take a broader perspective as to required competencies and existing environments, including constant product innovation, global based product marketing and supply chain capabilities.
If readers dwell on the companies that are truly succeeding in China and in other emerging markets today, firms such as Apple, BMW, Caterpillar, Procter and Gamble, Nestle or Volkswagen, to name just a few, they have done so from integrating all of their broad based competencies, not the least of which has been product marketing and global supply chain business process integration. It has taken Lonovo many years and some stumbles along the way to develop such competencies. Some such as Apple and BMW continue to grow exponentially because their products are attractive to many levels of Chinese and other consumers. Other such as P&G, Nestle or Volkswagen have nurtured partnerships, local design teams and supplier sourcing to be able to competitively compete in the broad middle market, or quickly adjust to changing consumer needs.
Western companies also have to deal with the reality of protected currencies and favored trade policies. They also need to protect their own intellectual property which may prompt a need for different product strategies in different countries or regions.
While the notion that the second mouse gets the cheese seems so straight forward, in today’s challenging markets and hyper competitive economies, companies need to view strategies in the broadened lens of integrated sales, product development, marketing and global supply chain competencies. Rising to the challenge of up and coming companies and “good enough” products requires a market-driven enterprise that can leverage any number of sales, marketing and global supply chain fulfillment capabilities.
What’s your view regarding these market trends and required competencies?