MNCs and Hidden Dragons: Does a Pure Global Business Model Even Exist?

The nature of China’s unique culture and ever evolving society requires MNCs to evaluate whether their existing business models will succeed in the Chinese market. This is not a phenomenon unique to China, however, or to MNCs for that matter. In fact, differences in culture, market environment, and technological advancements are just a few of the differences any size company must consider before attempting to execute their domestic business model in a foreign country. When Dell first entered China, for example, it made a drastic change to its business model and chose to initially sell its computers indirectly through distributors rather than through the direct B2C method that had made it successful in the US. Dell had learned from Whirlpool’s earlier mistake and did not assume that Chinese customers knew its brand. Dell knew that it first had to establish a reputation for quality and that its Chinese customers would not spend the equivalent of two to three month’s salary on a computer that they could not examine in person. There were also initial concerns whether the appropriate channels existed to support the just-in-time inventory management that was required to make Dell’s direct sales model a success. It was unclear if Chinese suppliers could deliver needed parts on time, if there were domestic carriers who could deliver computers in a timely manner, or if there was a domestic sales force capable of applying the direct sales model. Dell’s website had also become an extension of the direct sales model in the US, but China’s low Internet adoption levels was another cause for concern that the direct sales model would not work in China. Eventually, Dell did adopt the direct sales model in China, but only after cultural perceptions, the market environment, and the implementation technological advancements were given enough time to evolve and create an environment that would support the direct sales model. Perhaps pure global business models do exist, just at staggered stages of implementation.

Chinese companies are also learning to adapt their domestic business models when expanding into international markets. The Hidden Dragons have been successful in modifying certain aspects of their business models that have made them successful at home to fit the needs of international markets. For example, Haier, a National Champion in the Chinese market, did not attempt to challenge the established brands when it entered the US market, but rather chose to find a niche that had been ignored by its competitors. This proved to be a very insightful strategy because Haier “snuck” into the US market by going after the underserved and ignored compact refrigerator market. Haier was able to use it economy of scale back home in China to produce low cost compact refrigerators that met the basic needs of customers in the US without raising concerns from US companies. Haier gained time to establish its brand in the US and create a following of price sensitive customers should it decide to expand its product offerings in the US.