Chuanr and the competitive environment

As almost anyone with a penchant for mutton and beer will tell you one of the best things about living in Beijing, providing you don’t live right next to a stall, are chuanr or kebabs. Mutton, chicken hearts, tendons, washed down with a bottle or two of Yanjing beer are, for me at least, pretty much indispensable to life in Beijing. But what can this tell us about the business environment? It must be one of the toughest markets to be in, and in may ways is fairly representative of the competitive environment in China.

Take for example, a quick look at Porter’s Five Forces applied to this business.

The threat of new entrants: obviously barriers to entry a low and switching chuanr vendors is fairly easy.

Supplier power: the raw material, mutton and other assorted parts, forms the substantial part of costs relative to total purchases, and there are almost no substitute inputs. To make matters worse, these raw material costs have a huge impact on total cost.

Threat of substitutes: again a problem, as it’s not difficult for the customer to switch to ma la tang or rou jiamo.

Customer Power. Price sensitivity of customers is pretty much a given of many markets in China, and chuanr are no exception. Buyer information in this case buyers know the going rate as it is the same everywhere, leaving little room for incremental increases.

Backward integration, on the face of it this is less of an issue as most of us will be pretty unwilling to invest in our own barbecuing equipment. Where there is a problem here, is when selling through a small restaurant, as there is little to prevent the “partner” setting up there own stall.

Rivalry or competitive intensity. Here we have a very fragmented market, almost sole composed of sole traders. Fixed costs are low, having a limited impact here on rivalry in some respects as they do not have a great role in the unit cost of chuanr, however this does mean that entry barriers are low. The nature of the raw material, mutton, has an impact here, as these perishable products must be sold immediately. Fortunately, exit costs are low, as equipment is not highly specialised and no one is “forced” to stay in the market. This is also not a market that lends itself to product differentiation or branding, thus almost commoditising the market.

So what does this tell us? Many of the markets we look at in China, exhibit some of these characteristics, particularly in the areas of new entrants, substitutes and low levels of differentiation. There are, though, examples of companies growing or moving out of unattractive markets and differentiating themselves from the competition in a seemingly commoditised market. Equally, there are some examples of differentiated product and service and expansion in the chuanr business, but that’s for another time. After the next fix.