Even multinational corporations with global cachet must think and act like local companies in order to succeed in China‘s fast-growing market, leaders from some of Atlanta‘s biggest companies said Monday.
They also must forgo the temptation to try and earn a quick buck, instead taking the long view on China, executives from Coca-Cola Co., Siemens One and United Parcel Service Inc. said during a China business conference hosted by the National Association of Chinese Americans in Buckhead.
All three companies are betting heavily on China to drive long-term growth, engaging in high-profile marketing efforts and investing billions of dollars across the country.
While international reputations for quality have helped them make inroads, the companies are increasingly using local innovation and design in their China operations, the executives said.
Coca-Cola has been sold in China since the 1920s, excepting the period from 1948-79, when the country had no diplomatic ties with the U.S., said Clyde Tuggle, Coke’s senior vice president for global public affairs and communications.
Now, China is Coke’s third largest market behind the U.S. and Mexico.
It’s also one of the beverage giant’s “biggest bets” for the future, Mr. Tuggle said. Coke plans to invest $2 billion in China over the next three years. This week the company opened new bottling plants worth $240 million, bringing Coke’s tally of bottling plants in the country to 41.
China is the top market for Sprite. Coke also owns the top juice brand in China despite the fact that Beijing regulators scuttled Coke’s $2.4 billion bid for a major Chinese juice company last year, Mr. Tuggle said.
As in all 206 countries where it works, Coke’s formula in China is to become part of the fabric of daily life. With 15,000 salespeople and products in more than 7 million outlets around the country, Coke seeks to ensure that communities are invested in its success at all levels of the supply chain, Mr. Tuggle said.
“In China, the Coca-Cola business should be considered a Chinese business,” Mr. Tuggle said, adding words of wisdom for the audience: “Localizing your business as fast as you can is also the key, which means that everybody else has a stake in your business. And for us it’s our retailers, it’s our supply chains, everybody who touches the profit from the business.”
On the other hand, it’s vital to make sure the company is investing in the community. In China, Coke promotes healthy lifestyles and sustainable development practices, he said.
Coke was a premier sponsor of the Expo 2010 in Shanghai, which drew 73 million visitors over six months. The Coca-Cola Happiness Factory, one of few freestanding corporate pavilions at the massive world’s fair, attracted more than 1 million visitors, who sometimes queued for more than three hours.
In 2008, Coke invested $90 million on a research and innovation center.
Every day Coke adds eight new salespeople, installs 400 coolers in retail stores and distributes to 800 new sales outlets in China, Mr. Tuggle added.
Localization has also been vital for Siemens, a German giant that got its first Chinese contract 138 years ago.
China accounts for $7 billion in revenues, making it Siemens’ second largest overseas market. The U.S. market brings in $35.5 billion in revenues, but many Siemens products have higher market share in the China than the U.S.
They’re also growing rapidly, considering the fact that Siemens products are necessary to meet some of the country’s most pressing challenges, said Ken Cornelius, president of Siemens One, the company’s U.S. unit.
Siemens makes equipment for telecommunications, transportation and power generation. It also makes medical devices and technologies across a wide range of industries.
Mr. Cornelius said the company doesn’t share the dissatisfaction of other large companies, which have complained in recent months about restrictions they say exclude foreign firms from some government procurement contracts.
Nearly all of Siemens’ 34,000 employees throughout China, including its top executive there, are Chinese nationals. Acting as a Chinese company has built rapport with the government and helped Siemens better understand the market.
“The more you can localize helps everything you do. We try to localize as much as possible,” he told GlobalAtlanta.
Still, Siemens is a global company, and it develops products based on what Mr. Cornelius called “megatrends” – urbanization, population growth, climate change and globalization. In China, demographic trends make handling these issues uniquely difficult.
In the next few decades, for instance, tens of millions of Chinese peasants will move into cities, leading to a surge in demand for transportation and energy infrastructure.
“The number of power plants that are being built over the next 25 years in China will be more than have been built in the U.S. since they’ve been building power plants,” Mr. Cornelius said.
China also has an aging population and a health care system currently being reformed. One of Siemens’ top-selling products in China is an MRI machine that is designed and manufactured there and sold around the world, Mr. Cornelius said.
That’s indicative of a trend toward productivity and innovation in China over the past 15 years, he said.
“One of the major strategy changes that we’ve had in the last few years is to develop products in China, use the talent, use the engineering resources,” he said, adding that for Siemens, the speed of innovation in China is “just as fast or faster than anywhere in the world.”
UPS, the world’s largest package delivery company, was a relative latecomer to China. It worked there through joint ventures throughout the 1990s and entered the market with its own operations in 2004.
Now, UPS has 92 Chinese facilities, including an international cargo hub in Shanghai and an intra-Asia hub in the southern city of Shenzhen. Since 2000, the company has invested more than $1 billion in what has become its “No. 1 priority market,” said Joseph Guerrisi, UPS’s vice president for corporate marketing.
UPS doesn’t want only to ferry packages between China and other countries, but to be a prime logistics services provider within the domestic market, Mr. Guerrisi said.
With more than 1,000 small package and logistics firms, it’s a tough market to crack, but UPS hasn’t wavered, he said.
In 2005, UPS inked a deal to become a local sponsor for the 2008 Beijing Olympics.
“Our strategy was to be able to communicate, to be able to show our capabilities within the China market and what UPS brings to the table from a worldwide logistics perspective,” Mr. Guerrisi said.
UPS got its wish during the Games, when the company was tasked with operating a 2 million-square-foot warehouse that received and distributed materials at Olympic venues. All told, UPS moved 16 million items over three weeks.
“We have a way to go. We’ve learned a tremendous amount throughout these years in China about what approach works and which one doesn’t,” Mr. Guerrisi said.
In China, companies must hire the right people, invest in employee education, stay abreast of rapidly changing government regulations and commit to the market, he added.
“Our approach has always been that we are going to be in this for the long run,” Mr. Guerrisi said.
All three executives made it clear that companies can’t expect to succeed in China without taking this approach. None mentioned the concerns other companies have voiced in recent months, namely that China favors its own companies and manipulates its currency values.
Mr. Tuggle said Coke doesn’t lend its voice to that debate, but he added that more buying power for the Chinese people would be good for any company selling consumer goods there.
“What will boost our business in China is the continued expansion of disposable income and the continued growth of the purchasing power of the average Chinese, particularly in urban areas,” he told GlobalAtlanta.