There is so much chatter now in the international business world about new business opportunities in China. A primary reason for this is that the Chinese domestic market is so damn huge, and consumers in China are increasingly demanding more, newer, and better products and services.
Retail sales in China are growing by a whopping 15% a year. Currently 12% of the world’s luxury goods are bought by China, and Ernst & Young predicts that by 2015 this figure will reach 29%. Although there are pervasive issues surrounding distribution of wealth, social injustice, and poverty—especially among migrant workers and in China’s Western provinces—as a whole, standards of living are rising, per capita income is increasing, and Chinese consumers are becoming more sophisticated and demanding. Savings are diminishing and spending is snowballing, especially among China’s emerging middle class which is larger than the entire population of the United States. In the past 5 months, the GEP class has met many successful entrepreneurs that have struck it big in China: with import-export, real estate, cars, pharmaceuticals, French wine, digital advertising, high-tech tracking products, and a sprawling gamut of commodities and consultancy services. China’s domestic market is the next great frontier for international companies to conquer, and all of the corporate cowboys and trailblazers are going out East for a piece of the rewards.
Some cautionary tales from American companies in China: this March, Mattel closed down its flagship Barbie store in Shanghai because Chinese girls simply weren’t interested in buying overpriced, blonde American dolls; Home Depot shut down its Beijing outlet because in China, labor is relatively cheap and the notion of DIY is almost nonexistent; this January Best Buy announced that it would close all of its Chinese stores since the Chinese electronics appliance market is already saturated with cheaper local competitors like Guomei and Suning. There are common motifs to these Chinese failures: sometimes it’s entering late to an already developed local market, but most of these corporate botches are due to a fundamental cultural misunderstanding of Chinese consumers and an inability to localize.
US companies that did strike it big in China were exemplary localizers: KFC—with the help of Taiwanese management—designed a menu of congee, sesame-seed cakes, and spicy chicken rice, which Chinese can’t get enough of; Wal-Mart has also succeeded spectacularly in the East, expanding into the grocery business and selling popular fresh produce. China’s domestic market is full of opportunities, but it seems that if companies want to make their millions, they must recognize the complexity of China and adapt their products to the market—not try to adapt the market to their Western bestsellers.
Since the first capitalistic reforms and its opening up to international business in 1978, China has become the ‘factory of the world’…a place of sweatshop conditions and an army of cheap workers, environmental degradation and lax regulations…where any multinational could manufacture their products for cheap and undercut the suckers still basing production in their home countries. As a consequence ‘Brand China’ was not known internationally for its rich history, or scenic beauty, or for being the ancient technological pioneers of the world…but rather as a cheap factory for economy goods, a massive corporate playground that could be ravaged for its natural resources and desperate people that would work for near slave-level wages. The same sad story of supplier nations and developing countries all over the world…
But things have changed… Chinese companies like Gilee (which took over Volvo), Lenovo (which acquired IBM’s PC division), and Shanghai Tang (internationalizing high-end fashion), are revolutionizing the way China is perceived globally. China is not just the place to produce your products—which is becoming more and more expensive, and multinationals are beginning to infiltrate new production bases like Vietnam and Laos—but a place to sell them. As China is now the largest recipient of FDI in the world, it is clear that many foreign entrepreneurs and companies are setting up shop here to take advantage of this country’s alluring domestic market.
So down to the matter at hand… as a GEP class—a pack of 59 supposed international entrepreneurs—what have we done about the opportunities at our doorstep in China? How have we taken advantage of being immersed into this promising and lucrative business scene? Will we start up in China?
In short…I can proudly say that we’ve done a lot! And despite being thrown into a completely different culture, and being stuck in punishing classes for so many hours, many of us have gotten our hustle on and seized opportunities and really tried to get things started in China.
On that note, I’m going to dedicate some of the next posts to celebrate our grind as true entrepreneurs... To praise some of the entrepreneurial initiatives and business ideas that have come out of our GEP experience in China.
Look out world, here we come…
-Seb
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