Competition Among Foreign and
Local Firms in China and Abroad

Session 8

Discussion Questions
What are the competitive advantages

and disadvantages of Chinese local firms compared with foreign firms in
China?
Why are some local Chinese firms more successful than others?
Why are some foreign firms more successful than others?

Examples of Successful Chinese Firms

Lenovo
Haier
Huawei
BYD
Geely
ZTE
Tsingtao beer

Huawei

Initially……
When foreign MNCs first entered China,

they entered high end markets via product imports or the local assembly of imported parts and compete on the basis of technology and brand
Local firms occupy the low end of the market and did not really compete with
MNCs initially.
However, starting in the late 1990s, competition between foreign and local firms intensified as local firms start to move up the value chain by emulating the foreign firms’ technology, design and products.

Do Chinese Firms Have
Competitive Advantages?
YES?

 NO?

Do Chinese MNCs have Competitive
Advantages?
YES?
Privileged access to capital
Privileged access to natural

resources
Insights into customer needs
Low-cost R&D
Ability to operate in harsh environment with institutional void (flexible)
Young and no pre-existing traditions to bind them
Excellence in production process management

 NO?

No cutting-edge

technology
No global brand
No international experience Limited distribution outside home

Emerging Local Champions
1. They tend to be private firs run by entrepreneurs or

incorporated firms run like private firms despite state ownership o Speed and flexibility - Down-to-earth, execution-oriented

culture that enable quick decision-making, e.g.,
 BYD, Chery and Geely in automobile
 Longliqi, Nice and Shanghai Jahwa in consumer products
 Huawei and ZTE in telecom equipment industry

2. They tend to possess a great capacity for learning o Leverage learning in global market and upgrade

skills/capabilities through acquisitions/partnerships (e.g.,
Lenovo)
o Invest in innovation
Huawei: 46% employees are in R&D
BYD: Developed a technology for making batteries at ambient

temperature as opposed to in expensive heated dry rooms.
Lower the cost of making lithium-ion batteries from $40 to $12.

Emerging Local Champions
3. Cost advantages and strong distribution

channels o o o o o o

Rural areas with abundant cheap labor
Not abound by global health and safety standards Free from the expensive overhead costs of
MNCs
Local government support
Low cost innovation (e.g., Haier’s wine refrigerator is