New direction

But the bleak situation is also a strong impetus and a great opportunity for Chinese companies to reshape themselves and move up the value chain, something that is essential for China's future transformation, analysts say.

"Times have passed when Chinese enterprises could win market share with lower prices. Only those enterprises that can move up the value chain and provide more value-added products will survive the hard times and reap the benefits," says Xu Xiao-nian, a professor at the China Europe International Business School.

Private enterprises have already embarked on this journey and there has been a steady increase in the number of patents owned by such companies. The top 500 Chinese private companies so far own 74,631 patents this year, a 58.4 percent growth over the same period in 2010. The list also shows that 163 private companies in the top 500 have investments in new and environmentally friendly industries such as green energy.

Changsha-based construction machinery maker Sunward Equipment Group is one of the companies that is actively exploring the overseas markets as part of its efforts to further expand business. He Qinghua, founder and chairman of Sunward Equipment Group, says that the group is already in active talks with several European companies for possible merger and acquisition opportunities. "The deals will help boost Sunward's R&D capabilities and after-sales network.'

The company has also upgraded its entire product line with an eye on the export markets. The company now has more than 100 types of high-quality products for exports such as excavators, skid steer loaders, rotary drill machines, piling machinery and forklifts. According to He, Sunward's annual sales are expected to hit 20 billion yuan by 2015, with 15 to 20 percent of the revenue coming from the overseas market.

Talent shortage is another issue that has often derailed the expansion plans of many private entrepreneurs. "The talent shortage and general preference for being employed in State-owned enterprises have made it difficult for many private companies to find the right candidates for key managerial positions. In overseas markets, the problem is even more acute due to the cultural differences," Liu from Lenovo said.

For many Chinese companies, the transformation might be long and painful, as in most cases it involves huge investments and no positive effects in the short term, says Steve Tappin, a British CEO coach and the author of The Secrets of CEOs, which tracks management skills of more than 200 CEOs from across the globe.

"Take a look at the Apple outlet in Beijing's Sanlitun area. So many customers visit the shop every day. I strongly believe that soon we will see Chinese brands that are as popular as Apple in the future. But it needs patience to foster and wait. It is an unavoidable and unique way for Chinese companies to move ahead in the global stage, if they want to become the Apple of the eye for customers worldwide."

huhaiyan@chinadaily.com.cn