Our customer was a large privately owned holding company based in Germany with global operations in the machinery and high-end engineering segment for big corporate manufacturers in the pharma-/medical segment.
Around 3 years ago in 2019 one of the key players and competitors was on the market and our client tried to buy the competitor but failed to do so as a large private equity firm outbid them. This was especially bad as this competitor already had a production plant in China which is and was one of the prime goals of our client as well. Building a greenfield plant was not an option as this would have been too costly and too time-consuming. Our client was looking for a fast-track solution.
However, as a first step, we were requested to do comprehensive market research in India, China, Japan, Korea, Malaysia, Thailand, Indonesia, and Singapore. Not surprisingly China was the biggest market by far and it confirmed the mindset of the board of our client that all bets must be placed on China and a production unit in China.
But this idea – as obvious as it seemed – was not a trivial call as the markets in the other markets are attractive as well and each market by itself has great potential. On top of that, the regional cooperation agreements and free trade zones in Asia are attractive to enter all Asian countries from one beneficial location in which the business environment is more conducive than in China these days.
The problem is that the Chinese industry is very political now and China has a policy now on “Buy China first” – this is felt in all industries, and we advised the client to reconsider the emphasis. Further, we found out that their toughest competitors on a global scale are more and more coming from China. They need to be careful that they will not fall prey to a takeover bid from the Chinese competitors.
Another finding was that the second-tier companies in China which are a possible acquisition target are typically family-owned businesses that are usually not for sale due to family traditions. It will also be very difficult to integrate a Chinese family that runs into a German holding structure.
Consequently, we recommended that the better option is to study the possibility to partner with a company from an ASEAN country. Naturally, they may not be as strong in China then but to have a production hub in Malaysia, Singapore or Thailand would be an excellent position to be in to penetrate the Asian markets.
The elephant in the room throughout the project though was and is a large looming threat to many companies in Europe. The cost structure and the huge price differences are not often tolerated and/or accepted by the clients if they get a workable alternative from an Asian competitor if the solution is “good enough”. The warning signals cannot be overheard and the tsunami from Asian competitors is rolling towards them steadily. It is about time that the members of the board rooms wake up and work on it – fast and furious.
Five key lessons learned:
1. Asia is much more than China – consider alternative locations even if China is on your mind
2. Study the “new” Asian competitors in-depth – they are much more advanced than you think
3. Do your homework and find cost-effective (alternative) solutions to make your products more affordable and competitive
4. Educate yourself about the Asian market’s country by country – it may look similar to Europe but it is not
5. Even if you have loyal key accounts who are your regular clients – be sure that they are testing the waters with alternative suppliers from Asia to reduce CAPEX and investments costs.
For further information please contact
Volker Friedrich – firstname.lastname@example.org
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