I recently received a call from an old friend who had just sold his business, asking about opportunities in China. The best advice I could give him was come to China and look around, not only in Beijing and Shanghai, but in the second- and third-tier cities.
I emphasized that he should not expect to come to China and plan on doing what he had done before. This is not to imply that his previous skills were useless, simply that they would have to be adapted to adding value in a completely different market.
China has plenty of people. They are intensely competitive and they work for a fifth of what someone would expect in the United States. You have to bring something that is not available or developed here, or you have no competitive edge.
To the contrary, you don’t speak the language, have any local friends or know the customs, laws, culture or tastes, so it would be hard to imagine how you could help someone here.
I also told him not to count on some cushy job with a big multinational. As it is, the number of “full boat ex-pats” (expatriates with large salaries and generous benefits packages, including housing, car, school and travel allowances) are dwindling, as companies localize their operations to cut costs and gain local expertise.
So what are the opportunities for small and medium sized entities (SME’s)? Simply, unless you plan to go head-to-head with the big players who dominate the established markets, or you have a better mouse trap and can protect it, forget about competing in existing markets and concentrate on creating new markets.
China today is, roughly speaking, similar to our economy during the 50’s and 60’s. Economic progress has created a large group of people with growing disposable incomes. In 1989, a sewing machine, a watch and a bicycle were the items of consumer desire and status. Today, the Chinese dream has gotten bigger. Those who can, buy designer clothes, $100,000 dollar watches and Rolls Royce’s. Putting aside the couple of million who can afford the ultimate in luxury, you have 1.4 billion people who have more money to spend than they ever had before. For the majority of these, a house, a car and providing for their future are still at the top of the list; but on a day-to-day basis, people are still trying to find out what suits them in terms of clothes, appliances, entertainment, music and gadgetry.
It is similar to the transition everyone goes through when they get their first paycheck. The sudden ability to make buying decisions is heady stuff; $5 coffees, a car, clothes, cell phone, tickets to see a band, making extra payments on your school debt or saving money for a big ticket item like a house or car – the choices are only limited by your cash, credit limits and common sense. The buying decision though, becomes a complex formula involving personal characteristics, peer pressure, perceived needs and expectations. In China, the formula is still evolving.
In the 50’s and 60’s, the post-war economy was booming and people found themselves in the same position the Chinese are in today. Keeping up with the Joneses became a national preoccupation. Luckily, we had Madison Avenue to tell us what we wanted. The Chinese are just developing their consumerism, and based on their evolving tastes and sense of things, there is an unparalleled opportunity to create products that they find attractive.
In the 1960′ and 70’s, my grandmother worked for Hamilton Industries, the first company to take the clothes dryer to the mass consumer market. Her job was to convince housewives that they needed to spend a lot of money on a gadget which did the same job some cheap clothes pins and rope could do better. In addition she faced the dilemma of overcoming the badge of bourgeois respectability, hanging out the washing on Monday’s. Faced with changing people’s thinking as well as habits, she and the company crafted their marketing campaigns to make owning a clothes dryer a status symbol, something grateful children could give their mother on Mothers Day to make her life more enjoyable. Later, it became a “household necessity” as wives entered the job market and spending the day with the washing was not an option. The point is that they made money by creating a market.
The most profitable markets in China are the ones which have not yet been created. If you come to China looking for opportunity, bring new ideas, not old ones. Look at what might work, instead of simply trying to shoehorn your product or service into an already intensely competitive market.
Go to the places people are buying, look at the magazines and look at the people. China is a boom market where opportunities abound, but first you have to realize that China is a different market. Trying to sell them products and services developed for our market is naive. Like everywhere else, it’s adapt or die.