Is China An Opportunity Or Threat To Your Business?

By | March 27, 2011

We keep reading about the explosive (consistent double digit) growth in China, now the world’s second largest economy, overtaking Japan in 2010 and predicated to catch America is the next 10-15 years.

We also hear about how this growth is going to affect the Western economies with huge speculation around potential outcomes. To help make your own mind up, we’ve prepared a list of thought starter questions to help develop your own point of view.

To begin with have a look through this (slightly hyperbolic) American take on what Chinese economic growth means to the USA.

  1. The centre of economic gravity is moving east, led by China, but supported by South Korea, Taiwan, and although moribund, Japan is still a very significant player.
  2. India could be as dynamic and influential as China.
  3. The conventional wisdom that this is about chasing cheap labour to manufacture cheap goods is wrong. Value added activities like R&D, and Design are being picked up by a large, highly educated, very motivated workforce.
  4. China is playing long. It is applying a dynamic combination of one party state control/economic planning, to a mixed economy form of capitalism. With its huge aspirational domestic market combined with an export-led strategy, supported by an undervalued currency it has created a huge trade surplus. This gives it economic and political leverage.
  5. It is using some of that trade surplus to buy international influence and leverage. It owns over half of America’s sovereign debt and it the largest investor in Africa. It is buying overseas companies and their patents.
  6. 120,000 Chinese students are studying in American universities.
  7. The West is playing it short. We (led by America) are addicted to cheap Chinese goods.

What Can Your Company Do?

  1. Chinese companies don’t understand (yet) how to build brands. They are likely to try to buy rather than build. Strong brand loyalty will help protect against competition.
  2. If you export, develop a China strategy. Getting into China is a long a difficult process but it can be done, and the potential rewards huge. Volkswagen has one of the largest slices of the domestic Chinese car market.
  3. Think about partnering with companies that are either Chinese or are in China, or at least deeply understand the Chinese marketplace.
  4. Employ indigenous Chinese, or linguists who have Mandarin or Cantonese, increase your knowledge about China.
  5. Really look at your supply chain. What parts are vulnerable to China effect?

Much of what has been written here could apply to India. Learn what the differences are, develop strategies accordingly.

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