20 Apr 2008 @ 10:48 PM 

I went to a seminar by the World Trade Association of Utah today. The Speaker was Lee Boam. Lee spent his career with the US foreign service working in Europe and Asia, and spent the latter part of his career as the Minister Counselor for Commercial Affairs at the American Embassy in the People’s Republic of China. His faculty page at the University of Utah is here.

Below are some notes I took from his presentation on the present and future of China:

  1. Misconception: China has huge demand because of its huge population. The problem is that population does not translate directly into market demand. Demand equals desire plus disposable income, and the bulk of the Chinese population does not have the kind of disposable income that westerners have.
  2. China needs to stimulate domestic demand – they get no residual benefit from exported goods. For example, industrial machinery made in China and exported is not used to create more products in the Chinese economy, but is used to create products in a foreign economy, which increases GDP and employment in that country.  
  3. China is making other people’s brands – When the brand has strong value, the company is thus able to produce more inexpensively and sell at the same price, pocketing the difference as extra profit. China ends up with a smaller piece of the pie and needs to create strong brands for itself to increase the take-home value of its work.
  4. China needs to stop piracy – Two  US firms have different strategies to combat piracy: a) Coke Method – be able to produce your product cheaper than the pirates, leaving no incentive for them to compete; b) Budweiser method – Budweiser puts hard-to-counterfeit milling around the edge of their cans, making it harder and more expensive for pirates to counterfeit, and thereby creating a deterrent.
  5. De-link the RMB (Chinese Renminbi) from the USD (US Dollar) – they are building up too large of a reserve of dollars and the linked currency is hurting them.

So, what does this all mean for US businesses who have been hearing that you have to be in China to compete? I think there are a few lessons to be gleaned. The first is common sense – there is no magic bullet for industry success, so don’t be misled into believing that that’s what China is. If you are looking for a big foreign market to enter, don’t go for China because you think you just have to sell one product to each person and you’ll be wildly successful. Do the research first and find out how big the actual population is that has an interest in your product and the disposable income to buy it. You may well be better off hitting the European market first. The same is true of purchasing goods. Yes, compared to the US, goods and labor are relatively cheap in China. However, Lee advised that a few places, including Vietnam, are even cheaper. In addition there are factors to consider besides cost in determining suppliers, including the ease of obtaining satisfactory import documentation, consistency of product, ease of communication, and so forth. Another lesson may be that there may be solid business opportunities within China for those adventurous spirits willing to go the extra mile.

Posted By: TJ
Last Edit: 20 Apr 2008 @ 10:51 PM

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