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China

China

China has halted the $37 billion floatation of the ANT group, citing major issues around compliance and governance. China is also in the news because it might block the $40 billion Nvidia semiconductor deal. And, of course, you know that China and the United States are involved in some tussles over trade, which is now extending to the way China invests in chips.

So, what’s the deep insight about China?

The Financial Times has an article about BMW’s profits, and they were much better than anyone expected. The CEO of BMW said this is mostly because their largest market, China, had a much faster and sustainable turnaround than most people had expected. I think there’s a strategic issue here that many companies are not seeing. China is a large market, and it’s a market we don’t understand.

When I speak to clients, I often ask: “Who is the most popular pop singer in the world? What is the most popular food in the world?” People tell me it’s Beyonce, it’s pizza, and so on. But the reality is, for us in the West, we don’t know who the most popular pop singer in the world is because that person is probably Chinese. The most popular food in the world is probably something in China, which we don’t know about. We don’t know much about the most important economy in the world.

Why is this important?

The Financial Times had an article sometime back about German tunnel boring equipment companies. Their biggest market was China, and those German companies were happy because they were doing a lot of business there and sales were up. But over the last few years, Chinese competitors have entered the market and have displaced German companies.

BMW is a fantastic brand—so are Mercedes and Tesla. But at some point, there will be a homegrown, Chinese version of them. China is not going to be the second biggest—and maybe one day the world’s largest—economy by only consuming products from other countries.

The question I ask CEOs and clients in our coaching program is: “What are you doing for your company today to prepare for Asian competitors?” They are coming. It’s not a question of if. You have to lay the foundation today, even if it happens 10 years from now.

It’s not the rise of China. It’s the rise of competition from China that’s going to displace your product or service. It’s normal—that’s the way capitalism works. Competitors arise, and that forces you to do things differently. Imagine what will happen when those Chinese competitors arise and start moving outside of their core markets.

If you’re a FIRMSconsulting Insider and you want to understand how a company can analyze a position where its core market is failing, we have a program about a national post office that faces tremendous competition from Amazon, FedEx and UPS while its core courier and freight units experience declining business. Our study shows how to manage that.

This is an excerpt from Monday Morning 8 a.m. newsletter, issue #4.

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