Chinese companies have been more successful in catching up with and sometimes surpassing, their global competitors in some industries but not all of them. This holds true for markets in China and international markets. In this article, we show how both the demand and the supply sides of an industry explain these differences, in terms of the existence of market and capability ladders that can help a new competitor climb from the low end, though the middle, and to the top. We then propose several alternative strategies that multinational companies can follow to respond to growing Chinese competition and recommend strategies with the most potential for a particular market and industry.

While much of the Western world focuses on aspects of China that appear to threaten other nations, we should not ignore the lessons that can be found in China’s remarkable evolution as a marketplace innovator. The first key fundamental lesson to take from China’s digital innovators is the benefits of fully embracing user-driven innovation, starting with unmet customer needs, rather than transformational technology embodied in what you are sure will be a killer product. The second major lesson that Chinese digital innovators can teach us is to go beyond digital functionality and offer users an all-embracing digital lifestyle. While Google and Facebook derive most of their revenues from online advertising, Tencent and Alibaba’s online advertising accounts for a fraction of their revenues, because they follow a different business model, which constitutes the third fundamental lesson that the West can learn from China’s digital innovators. While Western companies fret about growing user bases to grow advertising, most Chinese digital innovators focus on generating profits by selling an ever-increasing portfolio of products and services designed to satisfy unmet customer needs or contribute to a more complete digital lifestyle.

Most companies find it extremely difficult to achieve high organizational fluidity—even leading firms like Cisco and Microsoft. However, Huawei has made significant strides toward closing the gap between internal flexibility and the rate of external market change. The authors of this article carried out face-to-face interviews in Shenzhen over a period of five weeks, beginning in September 2015, with 15 former senior executives of Huawei, including seven vice presidents, two senior vice presidents, and one executive vice president. So how does Huawei achieve superfluidity? First, Huawei is structured primarily around customer needs so as to ensure the customer is at the centre of everything. Second, its support functions are built around flexible platforms. Third, its management-level employees are continually rotated between different jobs. Fourth, its culture is one obsessed with maintaining the pace of change. Huawei’s recipe for creating a superfluid organization is radical. It overturns the conventional wisdom that manufacturing companies need to be structured as a matrix of product-based business units, functions, and geographic subsidiaries, in favour of the kind of project-based organization used by construction companies, consultants, and investment banks.

The rise of emerging-market MNEs (EMNEs) often is characterized as a process by which they catch up with the superior resources and capabilities of incumbent, developed-country MNEs (DMNEs). We argue that this characterization needs to be rethought as the requirements for competitive success in global markets are changing. Emerging markets are becoming more important, the value-for-money segment in developed countries is expanding, global retailers are gaining leverage, and the flexibility to deal with economic and political volatility is becoming a key organizational capability. Typically, EMNEs are stronger in these areas than DMNEs. This leads us to frame the competition between EMNEs and DMNEs as a race to the future in which each type of firm has capability holes that it needs to fill in order to thrive in the global economy of the future. We then discuss the strategies that EMNEs and DMNEs have been using to plug their respective capability holes. We hope future studies can apply this framework to analyze rivalry between EMNEs and DMNE in specific industries.

Not long ago, many observers worried that ever-expanding multinationals -many of which had revenues exceeding the gross domestic products of smaller countries -were going to take over the world. But as globalization marches onward, powerful local companies are increasingly winning out against multinational competitors. This is especially true in emerging markets, where multinationals are assumed to enjoy superiority and CEOs are counting on growth. In China, the ice cream, laundry detergent and appliance markets provide interesting examples of this phenomenon. Despite the presence of multinationals in these markets, the market-share leaders are local companies. A similar pattern is being repeated in other emerging markets. The authors note, however, that in some cases multinationals have been able to resist the market gains of local competition, whether through first-mover advantages or by acquiring the leading local players and nurturing their local identity and strengths. For decades, multinationals were able to make good returns by acting as efficient global conduits for assets that were difficult to transfer, including intangibles such as product designs, technologies, management systems and company cultures. Transfers within the multinational company were more efficient than obtaining those assets through open-market transactions. However, a number of forces have been eroding that advantage. First, in the drive to reduce costs, established multinationals increasingly focused on activities with the highest returns. This meant that lower-value activities were outsourced and often offshored to emerging economies, creating global markets in which local companies can also source components and services. The result is that once-closed value chains have been opened up, enabling local players to source "plug-and-play"modules that can be combined to create products very similar -and sometimes superior -to those of foreign multinationals.

This is an MIT Sloan Management Review article. Chinese companies are opening up a new front in global competition based on reengineering R&D and innovation processes to make new product development dramatically faster and less costly. This new emphasis is unlikely to generate stunning technological breakthroughs, but it allows Chinese competitors to reduce the time it takes to bring innovative products and services to market. It also represents a different way of deploying Chinese cost and volume advantages in global competition. Chinese companies, including manufacturers such as Lenovo Group Ltd. and Guangzhou Pearl River Piano Group Co. Ltd. and Internet players such as Tencent Inc., are pioneering new ways of industrializing innovation. They are pushing the boundaries of simultaneous engineering, leveraging rapid "launch-test-improve" cycles and combining vertical hierarchy with horizontal flexibility. For example, when Lenovo acquired IBM's personal computer business in 2005, its new product development cycle was 12 to 18 months. Since then, Lenovo has managed to cut that cycle in half. Accelerated innovation and many of the processes and techniques it draws upon are not unique to Chinese companies, authors Peter J. Williamson and Eden Yin concede. What's noteworthy is how Chinese companies have learned to accelerate innovation across a wide range of industries, using rapid scale-up, low cost and "good enough" quality. Even if the results don't lead to breakthroughs, the innovations can powerfully disrupt incumbents' profit models. The authors describe three ways that non-Chinese companies can respond. The first way is to reengineer the company's own innovation processes based on the principles pioneered in China. The second way is to task their R&D units in China to focus on time-sensitive projects and by hiring local staff. The third approach is to develop alliances with Chinese players in order to tap into accelerated innovation know-how.

Though China’s foreign investment in Africa is still relatively small, it is growing at a phenomenal rate and attracting international attention. Investment is especially pronounced in the mining and energy sectors, as China consumes a quarter of the world’s annual production of minerals and Africa accounts for thirty per cent of the world’s mineral reserves. This article views China’s foreign investment in Africa through the lens of the mining industry and argues that supply and demand considerations, not political factors, are the primary drivers of Chinese investment. China has designated seven Special Economic Zones in Africa that make broad contributions to economic development in various countries by supporting industries ranging from seafood processing to the production of ceramics, textiles, medicines, and furniture. Various large infrastructure projects exist, like the 2008 Sicomines resource-for-infrastructure deal in the Democratic Republic of Congo. With $6 billion earmarked for road, railway, and water projects, it will represent the largest infrastructure upgrade in Congo since colonization. Western investors, meanwhile, face pressure from shareholders to keep activities focused and are narrower in their infrastructural contributions. On the negative side, Chinese state-owned enterprises are insufficiently transparent (e.g. in the reporting of local tax payments). Their environmental record invites scrutiny, and some critics argue that Chinese SOEs show a laissez-faire attitude and exploit weak institutional structures. Ultimately, the reality of Chinese foreign investment in Africa is neither one of “saints nor sinners.”

Changes in the global environment are generating opportunities for companies to build advantage by creating loosely coupled networks or ecosystems. Ecosystems are larger, more diverse, and more fluid than a traditional set of bilateral partnerships or complementors. By leveraging ecosystems, companies can deliver complex solutions while maintaining corporate focus. This article describes six keys to unlock ecosystem advantage: pinpointing where value is created, defining an architecture of differentiated partner roles, stimulating complementary partner investments, reducing the transaction costs, facilitating joint learning across the network, and engineering effective ways to capture profit.

China's economic progress has been so dazzling that people often forget that China, Inc. has seen its share of failures too. Just look at the first cross-border acquisitions that Chinese companies made. Many of those high-profile deals-including TCL's acquisition of France's Thomson, SAIC's takeover of South Korea's Ssangyong Motor Company, and the D'Long Group's purchase of America's Murray, Inc.-ended badly. But for the Chinese, failure is not about falling down; it's about refusing to get up. They quietly changed course, altering the kinds of targets they pursued and their rationale for M&A. Chinese acquirers have learned to steer clear of deals that involve costly turnarounds or tricky integration. Instead of buying brands, sales networks, and goodwill, they now look for hard assets, like mineral deposits and oil reserves, or state-of-the-art technology and R&D. And where they once tried to buy market share abroad, today they focus on acquisitions that will help them strengthen their share in China. Most telling of all, they're more willing to walk away-perhaps one of the surest signs of M&A sophistication.

Although innovation investments are the right strategy for the long term, it is rare that CEOs increase their innovation budget while the effects of a recession persist. This article suggests that the solution to this dilemma lies not in changing the level of innovation spending, but in rethinking the type of innovation investment made. Given their potential benefits in a recessionary environment, it is important to understand three non-mainstream approaches to innovation. Cost innovation involves creative ways of re-engineering products or processes to eliminate elements that do not add value (e.g. many Chinese firms). Application innovation means creating a new application for an existing product or technology (e.g. the sandwich). Business model innovation entails redesign of a business model to create more value for customers (e.g. low-cost airlines). The authors’ extensive research with Chinese companies has yielded four guidelines for pursuing a broad innovation agenda: start from the market; simplify, don’t complicate; play the beggar, not the duke; and go for immediate impact.

In tough economic times, some companies have outmaneuvered rivals to become market leaders through value-for-money strategies. That is, they have enabled recession-hit consumers to economize (do less and spend less), become more efficient (do the same for less), or become more effective (do more but spend no more). To implement such a strategy, argue this British professor and Chinese academic, companies must go beyond refining cost-cutting capabilities to develop expertise in cost innovation. That may not be good news for many U.S., European, and Japanese corporations, because multinationals from emerging markets, which have long experience with value-conscious customers, have already built cost-innovation capabilities that are unlocking mass markets in both developing - and developed - countries. Some, like battery maker BYD, have learned to sell high-tech products profitably at mass-market prices through a combination of lower labor costs and manufacturing innovations. Others, like drinks purveyor United Spirits, have dominated industries by blanketing sizable niches in their home markets with a full range of products or customized options. And still others, like appliance manufacturer Haier, have used low-price offerings to turn small, unguarded niches into mass markets in developed countries. In response, the authors argue, Western companies should turn to developing countries for vital lessons in lowering the cost of building brands and developing and manufacturing products. They should enter into alliances with emerging giants to gain cost-innovation capabilities. And they should use their superior financial strength to beat emerging giants at their own game of growing mass markets in developing countries. Multinationals that fail to learn from emerging rivals are unlikely to weather the recession well - or stay competitive for very long.

It's a competitor's notion of the perfect storm - low-cost and value-added provider. These authors have valuable advice to help managers weather the storm.

This is an MIT Sloan Management Review article. Many companies have supply chains that are global. They start with the sourcing of components and raw materials from around the world, then move their basic manufacturing to low-cost locations overseas. But few organizations have innovation processes that are equally global. That is, rarely do businesses have innovation activities that integrate distinctive knowledge from around the world as effectively as global supply chains integrate far-flung sources of raw materials, labor, component, and services. But some companies--Nokia, Airbus, SAP, and Starbucks, among them--have managed to assemble an integrated "innovation chain" that is truly global. They have been able to implement a process for innovating that transcends local clusters and national boundaries, becoming what the authors call "metanational innovators." This process requires three steps: prospecting (finding relevant pockets of knowledge from around the world), assessing (deciding on the optimal "footprint" for a particular innovation), and mobilizing (using cost-effective mechanisms to move distant knowledge without degrading it). When done properly, metanational innovation can provide companies with a powerful new source of competitive advantage: more and higher value innovation at a lower cost.

This is an MIT Sloan Management Review article. As China prepared to enter the World Trade Organization in 2001, many multinationals planned to invest new billions in operations there. But their ambitious growth plans must be viewed with caution. Experienced multinationals have long been aware of the challenges, summed up by the adage that in China "everything is possible, but nothing is easy." But few predicted the most formidable obstacle to success: the emergence of tough competition from local Chinese players. The authors' research over the past five years reveals that although market dominance by local champions is not universal, it's becoming more frequent. Multinationals must face the fact that the competitive edge that is potentially available to them from superior technologies, products, and systems will be blunted unless they build stronger local competencies. Specifically, multinationals must show a new determination to master the complexities of distribution, sales, and service in China's secondary cities and rural heartland and to learn how to adapt products, processes, and marketing messages more sensitively to the peculiarities of the Chinese market.

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. 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.

This case describes Banyan Tree Resorts & Hotel's rapid growth starting from a single resort converted from a disused tin mine in Phuket, Thailand, to become an international resort operator and one of Asia's top 20 brands. It explores the realisation of an innovative lifestyle concept, the subsequent challenges involved in replicating its original success in different parts of the world, the company's marketing strategy, and the development of service operations capabilities to back the brand, as well as the challenges faced in extending the brand into new businesses including branded goods and a travel portal.

This series of 3 cases describes the creation of a dotcom start-up in Singapore and its penetration of the Chinese market. The company, MyWeb Inc.com started as a web designer, but moved quickly into set-top boxes for Internet access using TVs, as well as the design of a portal with localized content for China. At the end of the case, the inventors of the dotccom realize that their original business model is not viable and they evaluate the different options they have to create a profitable business model.

Supplement to case IN1082. This series of 3 cases describes the creation of a dotcom start-up in Singapore and its penetration of the Chinese market. The company, MyWeb Inc.com started as a web designer, but moved quickly into set-top boxes for Internet access using TVs, as well as the design of a portal with localized content for China. At the end of the case, the inventors of the dotccom realize that their original business model is not viable and they evaluate the different options they have to create a profitable business model.

Supplement to case IN1082. This series of 3 cases describes the creation of a dotcom start-up in Singapore and its penetration of the Chinese market. The company, MyWeb Inc.com started as a web designer, but moved quickly into set-top boxes for Internet access using TVs, as well as the design of a portal with localized content for China. At the end of the case, the inventors of the dotccom realize that their original business model is not viable and they evaluate the different options they have to create a profitable business model.

These days, a Western company's toughest competition in Asia is likely to come not from familiar rivals but from lesser-known Asian companies based in countries other than Japan. These companies often use unusual tactics and strategies, and those who wish to compete with them should learn eight new rules of Asia's competitive game. First, it is better to be always first than always right. Second, control the bottlenecks in the supply chain. Third, build walled cities; that is, create a dominant position in an industry. Fourth, bring market transactions in-house. Fifth, leverage your government's goals. Sixth, use a networked style of company organization. Seventh, make commercialization the equal of invention, and eighth, remember that what you don't know, you can learn. Western companies must learn the rules of the new competitive game and then decide whether to follow them or to break them.