How far is China Really?

Prof AJ Smit (UNISA)

Index

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Topic

Leadership in practice

1,347,350,000
MASSIVE MARKET
POTENTIAL
relative to US

1,210,193,422
4.3

3.85

313,967,000

Prof AJ Smit (UNISA)

Index

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Topic

Leadership in practice

Maddison (2003)
China 118 Years US 2000 p/capita
India 5000 Years US 2000 p/capita

Prof AJ Smit (UNISA)

Index

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Topic

Leadership in practice

India- relatively small number of

consumers that can afford global brands

Tier 1

Much larger number of consumers but

less attracted to global brands

Tier 2

Massive group loyal to local customs,

habits and local brands

Tier 3

< $20 000

$10 000 to
$20 000
$5 000 to
$10 000

60

63

15

330

125

27

800

700

105

> $5 000

Huge group - unlikely customers anytime

soon

Tier 4

70%

nearly 100 multinationals respondents reported that they had overestimated market
potential China for their products or services
Shoprite close doors in Mumbai (2010) after 6 years of unsatisfactory growth.
According to CEO Whitey Bason the groups shops in Africa show a drop in sales of 4.3%
(R3605 million)
SA sales increase in same period by 11.9% and profits by 17.5%
Prof AJ Smit (UNISA)
Index

End

Topic

Leadership in practice

 E.g. Mobile phones (per capita income between $2000

and $3000 pa)
Chinese per capita income $ 8,382 vs $3,694 for India.
Thus China market 2.26 x > India.
2005
Country

Estimate

Mobile Phones/1000 people

Population

Mobile Phones

China

65.8

1,347,350,000

87,577,750

India

3.5

1,210,193,422

4,235,677

Market potential China > India

20.7

Prof AJ Smit (UNISA)

Source: Ghemawat (2008)

Index

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Topic

Leadership in practice

 Prof AJ Smit (UNISA)

Index

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Topic

Leadership in practice

Multilateral
Absolute Differences

SA

India

Brazil

China

Growth Competitiveness Index (104)

58

55

57

46

Business Competitive Index (103)

55

33

38

42

Corruption Index (145)

121

90

59

71

India
CAGE

SA

CAGE

Brazil

CAGE

Relative Differences

China

Bilateral
Prof AJ Smit (UNISA)
Index

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Topic

Leadership in practice

 Prof AJ Smit (UNISA)

Index

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Topic

Leadership in practice

Economic System

Legal System

Political System
Entrepreneurial
Resources

Culture

Administrative Geographic

Human
Resources

Economic
Natural
Resources

Substitutes

Formal
institutions

In-formal
institutions

Suppliers
Competitors
Capital
Resources

The Firm

New
Entrants
Technology
Resources

Customers

Industry structure

Institutional context
Resources Context

Market structure
Prof AJ Smit (UNISA)
Index

End

Topic

Leadership in practice

Topics

Resource Endowments
Institutional context

There is no SPACE outside CAGE

space

CAGE X

Industry structure
Market structure

Using CAGE distance captures

the relative differences and
similarities between countries

Differences between
countries still matter
very much!

CAGE Z

Applications:
Understanding the liability of
foreignness
Comparing; competitors,
markets, industries, institutions
at the firm level

CAGE Y

The CAGE framework is most

valuable when applied at the
industry level

Prof AJ Smit (UNISA)

Index

End

Topic

Leadership in practice