Tuesday, November 29, 2011

Some thoughts about Blue Ocean strategy and its practice in China

This week’s reading is a Harvard Business Review: Blue Ocean strategy, talking about how companies sustain growth and high performance in the uncontested market space[i]. I want to use this blog to extend the discussion and also express my opinions on its practice in Chinese industry.

Red Ocean strategy focuses on competition while blue ocean strategy focuses on differentiation. If we consider market as a battle ground and corporate leaders as the military advisers, then all the companies want to compete and strive for more market share in this fierce war. However, the result of this war is always the narrowing market and the shrinking profit and company growth. Compared to this, blue ocean strategy investigated the untapped market and customer needs. Thinking back to year 1900, there was no IT, communication, aircraft industry but today they are very important industries all over the world. Companies should choose to look forward, to a market that hasn’t been touched by any competitors. To realize blue ocean strategy then equals setting up a “no competitor” market.

I think using blue ocean strategy is to create brand. When we think of starbucks, Cirque du Soleli, Apple, Sumsung, the special value and characters of their products will be merged into consumers’ mind and they’ll easily differentiate them with other competitors.

Swiss watches always represent expensiveness and social reputation. Many people can’t afford it. SWATCH saw the development gap for Swiss watches and used blue ocean strategy and helped them develop a brand new market. Its value proposition is simplified designing instead of complicated inside components and procedure in manufacturing and thus save the expense. It targets young consumers. The 30-100 dollars pricing opens a market with a great customer base and attract many young buyers with relatively lower consuming ability. There are even many collectors for SWATCH.

Another example that pops up into my mind is Callaway Golf. Instead of selling expensive but undifferentiated products, this company did deep research into their customers. The special point of learning Golf is that many people give up halfway because the long learning period ranges from several months to several years. The reason behind associated with the small size of the club size, which makes it hard to hit the ball. It also required that the whole body of the players should be coordinated. Many people feel frustrated during the learning period and cannot insist until they can master the skills. Finding this information, Callaway Golf designed Big Bertha, a much bigger club head, making it easier to hit the ball. The result of this special product helps customers to gain confidence and becomes loyal customers. This blue ocean strategy successfully meets customer needs by investigating their psychology.

Recently, Nokia has decided to apply for the delisting of their shared from the Frankfurst Stock Exchange due to the decreased trading volumes of Nokia shared at the exchange[ii]. I believe this result is also attributed to Nokia’s strategy of direct competition instead of blue ocean strategy. In order to save the company, Nokia launched the new product WP7 phone and Lumia 710& 800. However, compared to the big market share that Android and IOS take, it’s so hard to compete since those phones are not innovative. The high price as well as the slow manufacturing process made the situation even worse. In such a highly competitive market place, only by coming up with new concept can enterprise save itself.

Now, I want to talk about the usage of Blue Ocean strategy in China. There is a saying that since Blue ocean is originated in western world where industry starts early and industry practice is accumulated for years, it won’t fit Chinese market. Many people said Chinese corporations succeed in market place by simply copying the western product or business models and have really weak and unregulated IP protection system and thus using blue ocean strategy will not actually fit into such situation. However, after entering WTO, Chinese domestic market has become very open and competition is more and more intensified. Low priced products are subject to protectionist pressures and under the anti-dumping litigations. Enterprises innovate not only from their products but also services to gain and retain customers. From this sense, blue ocean strategy will inevitably be applied in Chinese market as well. However, the question I have right now is:

How should this western strategy theory be appropriately customized in order to fit into different emerging markets?

[i] Kim W. C., Mauborgne R., Blue Ocean Strategy

[ii] Nokia applies for delisting from the Frankfurt Stock Exchange, November 24,2011, Retrieved from http://online.wsj.com/article/PR-CO-20111124-900701.html?mod=wsjcrmain

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