The Chinese government has developed a city-cluster plan to encourage equitable and balanced scaling across cities as multinationals in China are looking for more strategies to overcome competition. The New National Urbanization Plan aims for an urbanization rate of 60% (about 200 million people), an increase from the 53% urbanization rate in 2013. A better understanding of regional specialization and strategic decentralization is vitally important for companies that hope to reach a wider market in China and hone their MNC strategy approach.
While external and internal demand fundamentals in the country continue to improve, Chinese authorities are committed to fending off economic risks, from elevated inflationary pressure in China’s industrial sector to local COVID-19 outbreaks in Guangdong. At the subnational level, local governments have been pushing forward their regional development agendas. Officials in Shandong are promoting green development, while their counterparts in Yangtze River Delta are bringing in more investments to grow their strategic industries. Liaoning continues to ramp up the transition toward new energy industries, and the Fujian government is stepping up efforts to accelerate its technological transformation.
Multinational executives should optimize resource allocation in each city cluster to better coordinate your sales force, distribution partnerships, and supply chain efforts. A successful cluster-based go-to-market MNC strategy could include any of the following strategies to overcome competition:
- Channel Expansion: Follow a profitable expansion sequence to address the question of whether to “go wide” or “go deep,” based on business scale and market positioning.
- Organizational Decentralization: Reallocate resources to optimize functional responsibilities (e.g., sales centers can be decentralized to regional hub cities adjacent to local businesses; manufacturing sites can be relocated to clusters with smaller specialized cities).
- Talent Mapping: Deploy high-potential employees in key offices to second- and third-tier operations to share best management practices and develop local recruitment and training programs (these strategies will be tough to execute in the immediate future).
- Product Differentiation: Conduct careful customer and industry segmentation analyses for different city clusters and develop tailor-made submarket and regional strategies.
With the rising local capabilities and complex regulatory barriers in China, multinationals will continue to experience rapid growth of competition from local players. With this in mind, executives should develop more localized strategies in order to gain competitive advantages and outperform local players in China.
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