Don Sull's blog

My last post described strategic agility as a means by which US Marines allocate scarce resources to their most productive use, despite facing situations in constant flux, incomplete information, time pressure, and high stakes. Strategic agility focuses on plunging into the action, remaining alert to unexpected opportunities, retreating in the face of established resistance, and vigorously exploiting opportunities when they arise. The rise of Tingyi, a leading Chinese food company, illustrates strategic agility in action.

Based in Tianjin and traded on the Hong Kong stock exchange, Tingyi booked 2008 revenues of US$4.3 billion, EBITDA of US$625 million, and had a market capitalization of US$6 billion at the end of that year. Tingyi controls “Master Kong,” one of the best recognized consumer brands in China, as well as a distribution network of over five hundred sales offices serving nearly six thousand wholesalers and seventy thousand retailers. According to ACNielsen, at the end of 2008 Tingyi was the leader in China’s market for instant noodles with 51% share, ready-to-drink tea with 43% market share, and number two in sandwich crackers with one-quarter of the market.

Tingyi’s success in China was neither inevitable, nor particularly likely. Tingyi traces its origins to the Ting Hsin Oil Plant, founded Hede Wei in rural Changhua, Taiwan in 1958. When the founder died twenty years later, his children learned Ting Hsin’s liabilities left them with no capital to build the business. The four Wei brothers kept the business alive, but could not gain share from established competitors including market leader Uni-President.

With limited prospects in Taiwan, the brothers turned their attention to mainland China. Ying-Chiao Wei explained to me “when we took over the business from father, Uni-President was already the number one food company in Taiwan, but in mainland China, it was still a level playing field. Whether you were a big or small player, everyone began at the same starting line.” Tingyi and Uni-President both launched their instant noodles in China in August 1992.  Uni-President managers expected to leverage their superior capital, brand, and expertise to conquer the Mainland market. Instead, they ended up as also-rans while Tingyi led the market.

Plunge into the action. In volatile markets, plunging into the fray is more productive than sitting on the sidelines and trying to develop the perfect plan. In the late 1980s, all Taiwanese food companies eyed the booming Chinese market. Uni- President, the leader in instant noodles, carefully planned its strategy to enter the mainland market from the comfort of its Taiwanese headquarters. By contrast, three of the four Wei brothers who ran Ting Hsin moved their families from Taiwan to China to immerse themselves in the local market and begin experimenting with products, marketing, and distribution. The brothers built a housing complex with nearly three hundred villas to attract other Taiwanese managers to live on the Mainland. The danger of overplanning is not unique to the Chinese market.  A study of German entrepreneurs by Professor Marc Gruber and his co-authors found that more time spent perfecting a start-up’s business plan decreased the odds of survival. Entrepreneurs who plunged into the fray, experimented, and revised their plan, in contrast increased their chances of success. Plans matter, but primarily as a means to discover where they are wrong.

Reconnaissance pull. Uni- President doggedly stuck to its marketing plan, and ignored evidence that Chinese consumers preferred different flavors, had less money to spend, and shopped differently than their Taiwanese counterparts. The Wei brothers, in contrast, did not attempt to impose a pre-formulated plan, but instead followed a process of discovering the facts on the ground. As they experimented with various food offerings in China, the brothers continuously adapted their recipes, distribution, and advertising as they advanced and learned more about the new market. Anomalies are particularly important in reconnaissance, because they signal a discrepancy between a plan and the facts on the ground, and often point towards an unexpected opportunity or threat. One of the Wei brothers stumbled upon the instant noodle opportunity during an 18-hour train trip to Beijing, when he opened a package of instant noodles from Taiwan, and was shocked when the aromatic noodles, so common in Taiwan, attracted hungry glances from other passengers, some of whom asked to sample the noodles. Quick-and-dirty market research revealed that China’s instant noodle market was divided into two extremes: low quality products in shabby packaging at one end and at the other premium imported noodles sold as luxury goods in airports and boutiques.

Pass surfaces, swarm gap. Advancing into an uncertain future, companies sometimes encounter hard surfaces of entrenched competitors or indifferent customers, and other times identify gaps in the market. When allocating scarce capital, talent, and attention, it is important not to squander them trying to punch through hard surfaces, but rather pass these, and look for gaps where resources can be deployed most profitably. The Wei brothers first tried and failed to sell premium cooking oil, then egg rolls, and then biscuits, hit resistance in these segments, and moved on in each case. When they stumbled upon an unserved need for affordable but tasty instant noodle, they swarmed. Uni-President, in contrast, kept pounding away trying to implement their pre-existing plan despite market resistance.

Finish strong. When managers or entrepreneurs discover a market gap, they must switch from reconnaissance to aggressive exploitation of the opportunity. The Wei brothers believed high-quality instant noodles at an affordable price for the mass market represented their golden opportunity. They formulated flavors that appealed to different tastes in different Chinese provinces and priced their product above low-end noodles but still within the average consumer’s budget. Their test market in Beijing succeeded beyond all expectations, generating orders for three months’ production in the first day. To secure an early lead, the Wei brothers raised capital, launched a nationwide advertising campaign, invested more than $300 million in production capacity, and built distribution throughout China. By the time Uni-President executives admitted their plan was flawed, they found themselves far behind the Wei brothers in terms of brand, production, and distribution.