The hidden dragons

Most multinational corporations are fascinated with China. Carried away by the number of potential customers and the relatively cheap labor, firms seeking a presence in China have traditionally focused on selling products, setting up manufacturing facilities, or both. But they've ignored an important development: the emergence of Chinese firms as powerful rivals--in China and also in the global market. In this article, Ming Zeng and Peter Williamson describe how Chinese companies like Haier, Legend, and Pearl River Piano have quietly managed to grab market share from older, bigger, and financially stronger rivals in Asia, Europe, and the United States. Global managers tend to offer the usual explanations for why Chinese companies don't pose a threat: They aren't big enough or profitable enough to compete overseas, the managers say, and these primarily state-owned companies are ill-financed and ill-equipped for global competition. As the government's policies about the private ownership of companies changed from forbidding the practice to encouraging it, a new breed of Chinese companies evolved. The authors outline the four types of hybrid Chinese companies that are simultaneously tackling the global market. China's national champions are using their advantages as domestic leaders to build global brands. The dedicated exporters are entering foreign markets on the strength of their economies of scale. The competitive networks have taken on world markets by bringing together small, specialized companies that operate in close proximity. And the technology upstarts are using innovations developed by China's government-owned research institutes to enter emerging sectors such as biotechnology. Zeng and Williamson identify these budding multinationals, analyze their strategies, and evaluate their weaknesses.