One of the more painful takeaways for western businesses in China is the realisation that success or failure is often simply a question of timing.

The point is vividly brought home by Gordon Orr, MD of McKinsey's Greater China office, in an article in the Financial Times ($).

Moving too early often means a long and potentially ruinous uphill slog to establish a product or brand. But leave it too late, and the competition may be so intense that the rewards no longer justify the risk.

Spotting the right moment to act, what Orr calls the “tipping point” — after Malcolm Gladwell's famous book — has thus become the name of the game for many western businesses.

He quotes the case of China's local consumer electronics superstores, which have seen their market share jump from 20% to 60% in tier-one cities over the past year after embarking on a land grab to snap up the best locations.

But international consumer electronics chains moved too slowly. By the time they had a chance to react, local competitors had already occupied the best sites, making it substantially harder for foreign companies to find good locations.”

Having effectively seen off foreign competition, the local companies now have the scale and market position to focus on developing essential retailing skills, such as product assortment and marketing, which they largely ignored during the land-grab phase.

The Tipping Point: How Little Things Can Make a Big DifferenceThis probably explains why US electronics chain Best Buy recently changed strategy by opting for an opportunist tie-up with Jiangsu Five Star Appliance rather than depending solely on organic growth of own-branded stores to drive expansion in China.

Orr says multinational companies should try to anticipate possible changes within their industry and plan accordingly. Two clear examples are the finance and telecommunications industries, which frequently feature in EngagingChina.

What if China opened up the banking sector to full competition tomorrow? Or if China required third-generation mobile network operators to use the local TD-SCDMA standard?

Companies often do not anticipate these disruptions, relying on expectations of linear growth, Orr warns. Tipping points can be found in plenty of other industries and the trick for western businesses is to spot them — before its too late.

In spite of having an often overwhelming advantage in global experience, foreign companies risk losing the race to nimbler local players or paying a substantial 'late entry' fee.”

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