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Tackling China? Judo is the best move

May 07, 2003 17:25 IST

When Dr Reddy's Laboratories abandoned manufacturing norfloxacin not long ago because Chinese competitors started hawking the same drug at half the price in India, it was following a principle of judo -- be flexible and give way when attacked directly by superior forces.

Dr Reddy's is not the only Indian company to have adopted the principles of judo -- rapid movement, flexibility and leverage -- to influence the strengths of the Dragon, China.

As a report (Leveraging the Dragon) by Universal Consulting India (which updates a 2002 report on the same topic) points out, judo is based on three principles: rapid movement to uncontested ground to avoid head-to-head conflict, flexibility (which involves giving way when attacked directly by superior forces) and leverage (exploiting leverage that uses the weight and strength of opponents against them).

Moving rapidly to uncontested ground to avoid head-to-head conflict (or moving to new pricing models that competitors are unable to emulate): Large Indian IT companies such as Tata Consultancy Services, Wipro and Infosys have moved up the value chain from low-end staffing to system integration and IT consulting services.

TCS entered China by launching a subsidiary, a marketing office and development centre in China and signing a MoU with a Chinese company to provide value added services.

Infosys shelved its earlier plan to set up a software development centre in China and instead it proposes to set up a representative office in China.

Similarly, JK Tyres tied up with a large manufacturing company in Guangzhou to outsource tyres and export them to South East Asia and the Gulf under its own brand name.

After almost a year and a half of its Chinese operations, says the Universal Consulting report, JK Tyres has derived two advantages from sourcing tyres from China: this has released capacities at its domestic plants for rolling out radial tyres (and so saved on new investment costs); it is 20 per cent cheaper to source tyres from China.

Exploit leverage that uses the weight and strength of opponents against them (that is, turn the competitor's strategic commitments and investments to your own advantage): JK Tyres sells in India under the JK name tyres made in China at a 20 per cent premium. JK also expects its global business to be worth around Rs 800 crore (Rs 8 billion) in the next three years and half of this to come from China.

Similarly, Bajaj Electrical imports table, pedestal and wall fans from China as this works out 20 per cent cheaper than manufacturing fans in India.

Bajaj Electricals jointly brands fans imported from China's Midea, the world's largest fan maker (17.5 million fans -- the total Indian market comprises 1.5 million fans). Bajaj Electricals sold 150,000 Chinese fans in 2000-2001 and net profits doubled to $0.6 million in that year.

The report points out that proactive Indian companies view China as an opportunity, rather than as a threat and so are reaping benefits.

The objective of the report was to provide not only a view on how Indian businesses are responding to the Chinese challenge, but also to provide some perspective guidelines that Indian business can use to develop a plan of action to respond to the potential opportunity.

The report also debunks some myths. Myth one, says the report, is that China's growth was largely fueled by foreign direct investment. The two factors that have been the sources of China's growth are the huge Chinese domestic market and strong productivity growth.

Also, the rapid increase in China's middle class has contributed to the steady growth in domestic demand, with GDP growth on an average being 7-8 per cent.

On the myth that Chinese goods were of poor quality, the report says that factories in China built from scratch by multinationals are as competent and rigorous as their counterparts in US and Europe.
George Smith Alexander in Mumbai