Through pain comes wisdom.Â US manufacturing giant 3M has a superb business in China that by sales, growth, product diversification, brand equity, market share and margins must place it among the very best, if not the best, US companies operating here.
This overdue realization came courtesy of having a nasty little cavity filled in China. As I squinted through the pain, I saw my dentist reach for a small tube of 3M-branded epoxy to fill up the hole in my tooth. â€œ3M is American, like you, right?â€ she asked in Chinese. â€œThis is the best product on the market.â€
Dentistry didnâ€™t really much exist in China until around 20 years ago. Since then, the growth has been hypersonic. Today there are about 60% more dentists in China than in the US, 135,000 compared to 85,000. The number of dentists is growing by 15,000 a year in China. 3M helped build the dentistry market from the ground up, and now enjoys a level of market penetration and trust in China exceeding the US.
Dental products are just one among many dozens of areas where 3M has built a large and profitable business in China. Another one I know of: reflective tape used on traffic signs and glow-in-the-dark clothing worn by police and other first responders. 3M enjoys something like a monopoly here, during a time when no other country is adding as many miles of roads, and as many bright new road signs as China. I have a Chinese client that tried, without much success, to compete with 3M in the market. Despite having better government contacts and lower prices, this Chinese company has gotten steam-rollered by 3M in China.
In industrial adhesives, photovoltaic components and, of course, Post-It Notes, the situation is the same. 3M has flattened every Chinese competitor that came after it. 3Mâ€™s China strategy is as simple as it is successful: premium products, prices and market shares.
3M has been in the PRC since 1984, almost as long as the country has welcomed American investment. Over that time quietly but oh-so efficiently, it has built a powerful business in China, with revenues last year growing 16% to over $3 billion. China sales are growing three times faster than overall 3M revenue. The companyâ€™s local CEO is on the record predicting 3Mâ€™s revenues in China will overtake its sales in the US ($9.5 billion in 2013) within the next ten years.
That would be a helluva achievement. But, I wouldnâ€™t bet against 3M.Â It has as strong a platform for growth in China as any company I know of, domestic and international. It sells hundreds of different products in over eighty separate product categories in China. In a county where no companyâ€™s intellectual property (patents and know-how) is meant to be safe from pirates, 3M has defended its secrets, and stayed comfortably ahead of local brand knock-offs and copycats. Counterfeiting is a separate issue, and probably 3M’s biggest problem in China.
In a way few, if any, other US multinationals have, 3M has managed to achieve significant sales and a stellar reputation both in consumer and B2B markets. As China grows richer, 3Mâ€™s strategy looks smarter and smarter. Cheap, low-quality products are being driven out of the market here. Consumers, factories and government departments are trading up. This leaves many low-end Chinese brands in a very difficult and life-threatening position. They can only compete on price in a market thatâ€™s increasingly price-insensitive. 3M is precisely the kind of manufacturing company China most sorely lacks â€“ a serial innovator with branded products that can command higher prices.
Both my dentist and my handyman still stock lower-quality Chinese-made products. They offer customers a choice â€“ something I never ran across living in the US. You want the good imported stuff or a cheap knockoff? The price difference can be rather high. For cavity-filling compound, using 3M product will cost you about three times as much. To fix a chair leg using 3M glue itâ€™s double the price. But, both my dentist and my handyman say almost none of their clients are opting for the local brands.
3M is admired just about everywhere for the quality of its products. But, in China, it has an almost saintly reputation. During the height of the SARS epidemic in 2003, 3M disposable masks were widely publicized in the Chinese media as the most effective way to prevent the deadly disease. Today, 3M disposable masks are widely used by Chinese for another purpose, to block out the pollution and fumes that envelop big northern cities like Beijing, Jinan and Shanghai.
Other US companies with large China businesses have hit on tough times lately in China. P&G and Coca-Cola Company are losing market share to local competitors. Yum! Brands and Mondelez have both suffered from perceptions they peddle unhealthy food. Their best days in China, from my vantage point,Â are probably behind them.
3M, meanwhile, quietly and steadily goes from strength to strength. If any US company can add another $7 billion in revenue in China over next decade, 3M is the most likely.
3M not only introduced its products to China, it also transplanted its rather unique American Midwestern personality. 3M China is, by local standards, modest, self-effacing, even dull. It doesnâ€™t advertise much, or throw its weight around as one of the largest US companies operating here. The Maplewood, Minnesota-based parent barely even mentions China in its 2013 10-K annual report. When you are doing this well in the worldâ€™s strongest-growing major market and beating up your competitors, why crow about it?–