The China-based service business wants to expand. How should it proceed?
Bob Jones is the expat owner of a 20 person travel-related service business in Shanghai. He and his marketing team decide to develop the middle-class Chinese market for overnight business travelers. Reaction to his initial promotion was unsatisfactory. What should he do next?
- 1) Focus on the ex-pat SME market, where he is stronger. Let the new campaign fizzle out on its own.
- 2) Invest more energy and resources to the new campaign – at the expense of his existing business.
- 3) Conduct a series of meeting with insiders and paid consultants to analyze whey the campaign failed, and create a new plan based on the outcome.
Which would you advice Bob to do? Which would you do yourself?
Many of us would recommend that Bob do #3. I can’t speak for all of you, but there’s a very good chance I’d end up doing 1 to protect my existing business. It seems safest — but is it really?
In fact, none of them are necessarily WRONG. But each has strengths and weaknesses in a Chinese business environment.
Option 1 – Cut losses. Bob tried and failed. No harm, no foul. He picks himself up and returns to safer ground – to build up resources, study the environment and live to fight another day. Cutting options is safer – but only if Bob realizes that he’s searching for niche markets that may disappear as quickly as they open up. There’s nothing wrong with testing new markets in China, but Bob is competing head-to-head with swarms of Chinese businesses that act the same way. He’s not building a market – he’s trying to discover one. The odds are he won’t be able to hold onto it when he finds one.
Option 2 – Dig in and fight. If option one is a butterfly flitting from place to place, then #2 is more like a bulldog who sinks his teach in and doesn’t let go. There’s nothing wrong with this – if you understand the costs involved and have analyzed the potential benefits. This is the market-building option – and it requires investment, energy and planning. The payoff is that Bob can end up controlling a lucrative market and enjoying a hard-won competitive advantage. Chinese companies tend to avoid this strategy, so Bob will have less of a competitive threat. The downside? Threefold. First, there is no guarantee that all of Bob’s hared work and investment will pay off. It may continue to flop. The second danger is that of opportunity cost. This option is time and energy intensive – not to mention expensive. Bob won’t be able to pursue more than 1 or 2 new opportunities at the same time without stretching himself too thin. But the third possibility is the one we have to watch out for in China – which Bob will educate a market, develop a product and create a need that low-cost Chinese competitors can rush in and exploit. You don’t get points for being first – unless you have a bullet-proof method of building a long-term competitive advantage.
Option 3 is the MBA answer. It sounds great and rational – but carries a hidden downside. What could possibly be wrong with option 3? Well, it has some of the weaknesses of option 2 and some of the weaknesses from option 3. It’s expensive in terms of time and effort – and if you do end up with an outside consultant it’s probably not going to be cheap. Instead of just taking up just your time, it’s monopolizing your entire operation. It only works if you have excellent people on your team – and even then it’s not a sure thing. Option 3 has two possible outcomes – you end up dropping your new product, or you pursue it. If you bail on it, your costs have just gone up dramatically. If you end up pursuing it you have significantly raised the hurdle on profitability. Still, it’s always good to get outside assistance if you need it – but its only help if it helps. Beware of consultants and experts who make mountains out of molehills and then bill you for Everest.
Option 3 carries with it hidden costs – time to find a consultant, time to direct the research effort in-house, the more importance you put on this project, the more “vested” you will feel and the higher the chances of you making an unsound decision. There are times, however, when you have no choice if you want to succeed.
