Strategy- the Supreme Art to Win in China

November 24 2015

“The supreme art of attack is to take by strategy,” said Sun Tzu, a Chinese military philosopher, in The Art of War 2500 years ago. Today The Art of War is widely applied in business, and this quote addresses the importance of strategy in the business world, especially in the Chinese market.

Strategy has two dimensions in this regard – China’s national strategy, and businesses’ strategy to succeed in China by leveraging China’s strategy.

China has opened its market to western world for over 30 years. However China’s economy is guided and greatly influenced by its Five Year Plan - China’s national strategy bible. Hence, mastering China’s Five Year Plan is a key success factor to identify opportunities, avoid risks and leverage its policies to succeed.
Currently China is on its 12th Five Year Plan which focuses on sustainability as follows:
  • Sustainable GDP composition: China’s economy in the past decade heavily relied on government investment and export.  Hence Chinese government is encouraging domestic consumption to build a less dependent and more stable economy. To do so, China has reduced import tariff on a large scale in the past 2 years to boost import of consumer goods, and issued policies to slow down property price growth for consumption diversification.
  • Sustainable environment: China’s air and water pollution has never been worse than now. Smog  and water pollution is a major concern of both foreign expats and local residents in China. Chinese government is importing products and services to handle the severe pollution.
  • Sustainable industry structure: China is transforming from a low cost, labour intensive exporter to a supplier of valued added products and services. China National Reform Committee updates its policy every couple of years to guide foreign investment to industries which fit in China’s national strategy to go green and go hi-tech while restricting or forbidding investment in high pollution sectors.
  • Sustainable society: One major cost China paid for the fast economic growth in the past 30 years was the increasing wealth gap between the rich and the poor. China’s Gini coefficient has stayed at a relatively high level of between 0.47 and 0.49 in the past decade, far above the warning level of 4.0 set by United Nations.  This is a potential cause of social turmoil and poses a high risk for China. Since his coming onto power, China’s President Xi Jinping has been determined to tackle it by issuing series of policies to crack down corruption, reform the remuneration system of state owned enterprises, dis-encourage opportunistic investment in property and inject a pragmatic and thrifty culture in the public sector. China’s anti-corruption campaign hit the luxury goods market. According to global consultancy Bain & Co, the luxury market in the mainland stands at 116 billion yuan in 2013, up just 2 per cent from a year ago compared to 7% growth in 2012.
 
As we have seen above, the 12th Five Year Plan offers great opportunities for exporters in the following sectors: consumer goods, environment and green energy, high-tech, professional services and personal services. However, opportunities do not guarantee success. To seize opportunities in China, businesses need to fully understand the fast changing market condition and consumers’ mindset and develop a robust China strategy which leverages such changes and trends.

China’s current strategic focus on anti-corruption for a sustainable society is reshaping Chinese consumers’ mentality and behaviour. Chinese consumers are becoming more sophisticated and also recently educated to feel ashamed to waste and spend big on luxurious good. They are shifting from brand display and show-off to experience consumption, and they demand value for money while being after quality. Businesses need to understand such subtle but fast changes in China,  and develop a robust strategy which positions and markets themselves smartly  to gain a winning position at the beginning by leveraging  such trend.

Sun Tzu’s Art of War works in the business world of China - “Victorious warriors gain a winning position first and then go to war, while defeated warriors go to war first and then seek to win”.