The Idea in Practice

Gadiesh, Leung, and Vestring offer these guidelines for entering China's good-enough space:

Attack from above
Moving to the good-enough segment in China is risky if you're already thriving in the premium space. For instance, your new offerings could cannibalize your high-end products. To mitigate the risks:

Analyze the differences between China's premium and good-enough segments. You may discover strong geographic distinctions you can capitalize on.

Example: GE Healthcare expanded sales of its MRI equipment in China by creating a line of simplified machines targeted at hospitals in China's remote and financially constrained second- and third-tier cities.

Determine which capabilities and resources you'll need to seize opportunities in the good-enough space.

Example: GE Healthcare assigned a special team to observe target hospitals' operations. Members also talked with administrators and physicians to determine the kinds of medical equipment they wanted, features they needed, possible price points, and required distribution and services. GE then reconfigured its existing networks of sales, distribution, and services to serve this new market.

• Stake claims in the good-enough space to box out emerging local players and global competitors that might be eyeing the same target market. By entering this space ahead of the pack, GE Healthcare defended its position against local upstarts, capturing 52% of the $238 million market in 2004.

Use acquisitions
If you can't alter your cost structure or business processes quickly enough to compete with local players, consider mergers and acquisitions.

Example: Anheuser-Busch owned 27% of Tsingtao Brewery, one of China's largest brewers. It outbid competitor SABMiller to acquire Harbin, the fourth-largest brewer in China. The acquisition enabled Anheuser-Busch to reach the masses while preventing Harbin from swimming upstream.

Note, though, that non-Chinese acquirers are facing tougher M&A approval processes. To increase your chances of gaining regulatory and political approval:

• Draft a compelling business case for the acquisition, citing benefits for local companies and authorities.
• Be willing to adjust the structure, terms, and conditions of the deal.
• Engage in heavy-duty relationship building, to woo critical players.

• Select a target company that offers cost and distribution synergies with your firm and whose products won't cannibalize your premium brands.
• Overinvest in the due diligence process.
• Take a systematic approach to postmerger integration.