Biz dev strategy China vs Europe: quantity vs quality?
It was about half past six, Friday eveningwhen I sat down for drinks with Brett Bullington in a crowded hotel bar close to the San Francisco Embarcadero where we later would be going to the Social Media Network Party organized by Seth Goldstien. Being in the presence of positive and quality spirits I presented my mission for being in the USA was to introduce more SV companies to business development opportunities which existed in Europe. I understand that most American business strategists claim the market is highly fragmented and full of potential business pitfalls, but is this not anything more than notoriety the Europeans have themselves to thank for? The reality is that Europeans entrepreneurs are rigorously protectionist and a cloud of mysterious smoke and warnings of deprivation and gloom are often exuded to foreign market entrants.
However it was this evening that I began to understand that the current general consensus in SV was in fact considerably more favorable to any kind of business expansion strategy which would include China. A consensus which eludes me to some extent and by asking my colleague Nelleke to write a short market comparative analysis hopefully we will offer some grounded perspective on the subject of China. Nelleke has been working for us in China on a social economic development project for Chinese development of tourism.
E.J. Bertrand
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China’s economy runs on export, well actually import and then export. For those manufacturers that think China’s internal market is massive, think again. Massive yes, buying power no. The average worker in China earns just enough to feed his family. The economic boom in China benefits workers to the extent that their living conditions, housing, health, education, leisure time and public services are getting better. Spending power is as limited as ever, as prices are going up.
A foreigner visiting Chinese cities is easily taken in by the many modern building going up practically overnight and Western companies hanging up their shingles left, right and center. When in Chengdu (capitol of Sichuan, 14 million inhabitants) last year and the year before, the Western storefronts had doubled and it had been impressive the first time. I liked to get my morning coffee at Starbucks across from my hotel, which costs the same or more as in the US, until my official interpreter, a university English major graduate, told me that the price of our coffee was almost equal to a week’s pay for her.
On the main boulevard car dealers showed off their latest models: no Fiat 500, Ford Ka or Suzuki Alto’s here. More like Lamborghini, Ferrari, Porsche. On the corner is a department store, billboards show fashion by Dolce & Gabbana and Armani sunglasses. There is no item in the whole store that costs less than 200 dollars, I explore all 6 floors and find myself in the company of loads of charming sales girls. No wonder, I am the only customer in the place.
My interpreter in Chengdu is excellent, although she has no specific trade vocabulary, she is a fast learner. Different experiences in other parts of the country where the official interpreters assigned to me vary from as little as ‘how are you’ to being able to keep up a simple conversation. Trying to teach these the necessary language skills is an impossible task. A pocket computer is the only way to communicate.
Undeniably there are a few very rich individuals in China. Who has money to spend are multinationals and the government. The government spends its money locally and keeps their employees in company cars, expense account dinners and the newest laptops. The average Chinese Joe earning an average wage cannot afford to buy western made products, he cannot even afford to buy Chinese made products.
Why not export to China:
The dollar has only devaluated 15%. China’s provinces are very autonomous and dealing with government officials is tedious and time consuming. No one speaks English; you always need an intermediary plus a translator. Chinese consumer has no spending power.
SF Chronicle 31/3:
“The Chinese economy today is, in large measure, an assembly platform for American and foreign companies to turn components designed and made elsewhere into final products, and then to export them to the rest of the world. More than 60 percent of “Chinese exports” are, in fact, the sales outside China of multinational firms operating in China.
What Apple says on the back of every iPod is true: “designed by Apple in California, assembled in China” from chips, hard drives and screens made in America, Korea and Japan. Chinese assembly adds only a tiny amount to the value of each iPod.
The iPod is not a new millennium icon because of its components. Nor does it beat the competition on price. iPods are must-have gadgets because of their elegant and simple design, a design created in Silicon Valley, with almost all the profits returning to Apple and its U.S. shareholders.
The final China trade secret is that Americans have benefited from the vast quantities of dollars and Treasury bills (estimated at $750 billion) China has purchased in recent years to manage the dollar-renminbi exchange rate. China-funded credit kept U.S. interest rates low after 9/11 and the dot-com bust, fueling both consumer spending and the rapid run-up in housing prices.
The only way for Beijing to allow the renminbi to appreciate was to sell dollars and Treasury bills, which it has been doing in increasing volumes. But this has put upward pressure on interest rates and tightened U.S. credit markets. China did not cause the subprime meltdown, but the sale of its dollar-based assets will hinder an American recovery.”
Why export to Europe.
The dollar is at an all time low, 50% lower than a few years ago, making American goods cheap. American made products are reliable. Europe is one market: having an office in Paris, Amsterdam or Milan covers what used to be over 30 different countries and markets. Most Europeans speak and understand English. Europeans have a large expendable income.
The additional 17 former eastern European countries that became part of the European Union over the past few years represent a large expansion of affluent consumers and companies with an ever growing buying power.
Nelleke Pruijs for TWESTC
Senior Consultant on Tourism
April 5, 2008
