The business side of China!!

Chinese economy has been booming since the 1950’s; the economy has been increasing so rapidly over the past decade that some analysts predict overheating but the Chinese analysts feel that this boom is supported by the substantial improvement in the economy’s potential for further expansion. This claim is supported by the rapid advances in industries like electricity, coal mining, petroleum and infrastructure etc. China has more than enough funds to sustain this phenomenal growth. The people of china have built up a large amount of private wealth and one of the reasons for this is the development is funded through FDIs. There is a solid inflow of foreign investments in china due to the huge potential for demand in China. Some of the economists feel that the Chinese economy size is undervalued since the Yuan is undervalued. One dollar is nearly equal to 7.0 Yuan whereas if we consider the goods that we can buy in a Dollar, the exchange is around 4.0 Yuan.

The analysts feel that China is moving from being the world’s producer to the world’s market. Therefore all the major companies want to cash in on this huge potential market. The accumulation of private wealth in China is making the baby boomers in China a huge market. The domestic consumption in China has seen an increase since 2002. The rural population has seen an increase in their earnings due to the income re-allocation scheme introduced by the government in 2002. The government has even allowed people to shift into the cities by providing PR status. The analysts say that this situation has improved due to government’s efforts to lay more emphasis on public welfare of pensioners and rural workers.

This dispensable income with Chinese people has had many benefits to the economy; one of them is the growth in the fashion and luxury goods industry a Louis Vuitton brand manager talked to us about the growing need for luxury goods in China. China is already the third biggest consumer of luxury goods. The manager also talked about the prestige value associated with these goods and how the Chinese people place a lot of emphasis on this prestige value. But the problem facing the government is the rip-offs or the lack of a system of intellectual property rights of these luxury brands. The fake markets are hurting the brand image and the sales of companies like Ralph-Lauren badly. But the big brands are still going to China because their researches have shown that there is a section of rich Chinese society that doesn’t mind overpaying for these luxury goods and this segment is increasing. Even sports like NBA recognize the importance of China and its huge potential market for the sport. The NBA created a separate entity called NBA China this year to promote basketball in both rural and urban part of China. A speaker involved in this process talked about the huge expected revenues this body can generate by popularizing this game in China through TV rights and selling NBA merchandize.

Some of the analysts felt that to have a successful business in China, it is necessary to follow both differentiation and cost leadership. While this strategy might not work in a developed market like United States where the brands are established and sales are possible through differentiation only. In China’s developing market cost is very important and it is tough to sell items only through branding. This concept was highlighted by Lenovo’s success over other competitors like HP and Dell. Another very important aspect necessary to succeed in China is to build strong relation with the government as the government is strongly involved in most of the successful businesses.