China.
It's A Damn Big Market.

China is a growth story. It has a population of close to 1.5 billion people and an economic growth rate of 10% per year. Within 20 years China could become the world’s leading economic power.

China gets blamed for a lot of things. The high price of oil, copper and that huge smog cloud floating over California. Much of the population lives in poverty among rural areas. The only chance of success is moving close to the cities to be able to work in factories. The Chinese labor pool is the cheapest source in the world.

Build things they do: 70% of the world’s toys, 50% of its bicycles & shoes, and 33% of all TV’s & air conditioners. China plans to maintain its dominance as a manufacturing hub. One of their competitive advantages is the ability to make what others made….but for a lot less.

China’s growing middle class is the sweet spot for marketers. But this is a middle class unlike any other. To be successful you must be cognizant of the local ground rules. Here are ways to reach this relatively new middle class:

• Promise safety. Safety is important in the sense of preserving well-being and staying healthy. This carries the promise of preventing disease. The Chinese are aware that their products have a less than stellar reputation. Global brands are valued because they are considered safe. Fitness & beauty are secondary.

• Family is important. Portray how your products keep the family safe, together and create an emotional connection.

• Frugality is smart. The Chinese have to make their paycheck last; so being a little stingy isn’t something they need to be reminded of. Treat value shopping as being a smart shopper.

• You have the power. The Chinese people have lived under an authoritative rule for years and years. Let your marketing show how your product can help them achieve power and individualism.

• Understate; don’t claim your underarm deodorant will have women ripping your door down. Keep expectations realistic.

• When all else fails, use a child. In China’s predominantly one-child per family nation, the child is king. The child’s care, protection and future aspirations are the most important thing.

Pollution in China is so severe that cancer is the leading cause of death. Air pollution is blamed for several hundred thousand deaths each year and close to 500 million people lack access to safe drinking water.

Only 1% of Chinese residents living in the city breathe air determined safe by the EU.

No country can experience the rise to an industrial power without environmental damage. China is no exception. The culprit is coal. It is the most readily available energy source and the dirtiest. Even though the government acknowledges how treacherous their state of pollution is, scientists don’t see it getting better any time soon. All 340 cities do not meet clean air standards.

The growth factor is too strong and China is bent on becoming a world economic power house.

China’s enormous success is not without its challenges. For decades the government has instituted a one-child policy. The preference of male over female has lead to aborted female fetuses or infanticide.

Most countries report a birth rate of 105 males to every 100 females. China reports 117 males. With China’s large and disperse population, it will be more difficult for young men to find wives. In addition, one worker may have to support two parents and maybe even grandparents.

There is a large aging Chinese population...this burden is falling on fewer younger worker.

The economic and political institutions are weak. The banking system has made unsound loans based on noneconomic reasons. Political motivation is the usual basis.

China is not a democracy. Its human rights record is miserable. There have been thousands of peasant uprisings and demonstrations. The government has also expropriated farmland for the building of factories and power plants.

When you hear the term “innovation” what do you think of? Product enhancements, new features and technical sophistication. All this and more….and a premium.

The Chinese think the same way. But at a discount. When a Chinese competitor enters a market they may go after the low end products. Western companies can make the mistake of thinking they might as well give up the low end market since the margins were small.

At this point the Western companies move upstream producing higher end products at more margins. However, the volumes are uneconomically low. Government financial support give many firms advantages the West cannot compete with. As a matter of fact, many Chinese companies started out as government units.

The labor pool is enormous. There are more than 340 million rural workers so wages are unlikely to rise.

Motorola developed a very successful cell phone; the A6288. It was the first phone specifically designed in China for the Chinese market. It features handwriting recognition for Chinese characters.

If you're in the raw materials business...this country is a gold mine.

Chinese companies usually do not enter a market at its infancy. They wait until the product has gone through some maturity and then identify ways in which to build something similar.

Counterfeiting and pirating is a huge problem. Some agencies estimate the approximate value of the counterfeit market is $30 billion. Of course the margins are higher and sophisticated supply chains exist.

China likes companies that open R&D sites in their country. Over 200 multinational firms have complied to be able to gain access.

Advantages to competing with Chinese firms are:

• If labor is not a major cost component in manufacturing…..that’s a good start.

• If you can’t beat ‘em….join ‘em. Consider partnering with a Chinese firm or become a supplier of parts. Or at the very least….outsource to them. Make their advantage your advantage.

• If you’re not in the business of coal, copper, cement, environmental management or nuclear power…..China is your best reason to start.

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