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China - Emerging Opportunity

As China’s economy continues to grow at an ever increasing pace and capabilities and infrastructure develop, huge opportunities arise for businesses who decide to face the challenge of China. Since its entry into the WTO china has relaxed controls making it easier for foreign companies to do business, however it is still a challenge and any planned activities need to be carefully researched and planned.

Links and sites of interest

Background

China consists of 23 provinces, 5 autonomous regions, 4 central administrative municipalities and 2 special administrative regions with over 600 cities. 8 provinces have populations in excess of 50 million and 33 cities have populations in excess of 1 million. The total population in China now in excess of 1.3 billion.

China is 8 hours ahead of the UK (7 hours during BST) and has a land area of 9.6 million km2. The national currency is the Renminbi (RMB) and the exchange rate is currently fixed to the US $ at a rate of RMB 8.3 to $1.00.

China has developed at an incredible rate since its entry into the WTO in 2001. As part of the WTO agreement, China liberalized many of its controls on foreign businesses trading with or trading in China and as a result China has become one of the most powerful economies in the world (4th largest exporter in 2004).

There are lots of reasons why so many organisations have invested in China, these include:

  • +  Low cost base
  • +  Availability of educated skilled workforce
  • +  Huge market potential
  • +  Available support infrastructure
  • +  Foreign investment policies

Average wages in China are much lower than in the west, however there can be significant variances depending on location and type of skills required. Areas which have seen the greatest economic growth are also likely to have higher average salaries (around Beijing, Shanghai and the Pearl River Delta), although average salaries for blue collar workers are still as much as 10% of the cost for equivalent roles in the UK.

Business Options

Most businesses take advantage of opportunities through either sourcing, manufacturing, selling products or in some cases a combination of the three. It is however critical that whichever path is taken, businesses take adequate measures to effectively plan any proposed strategy. China is a land of opportunity but those who take advantage are usually the ones who invest time and effort into understanding more about the culture and business environment.

Sourcing

Product and process capabilities of suppliers in China are continuing to develop at a rapid rate and a huge range of goods and services are now available at a fraction of the cost of western sources. China’s manufacturing capabilities in higher technology industries such as automotive, aerospace and medical equipment are also developing fast providing a wider range of opportunity than ever before.

Sourcing products and services from China has become an extremely profitable strategy for many businesses however for an organisation with limited experience can be a daunting prospect. Identifying appropriate suppliers, managing relationships and controlling logistics in China can be challenging, particularly when an organisation has no permanent presence in the country.

Manufacturing

Up until China gained entry into the WTO this was a difficult if not impossible for many foreign businesses although this has changed dramatically in recent years. The two main approaches adopted by foreign companies have been to either:

  • +  Set up a Joint Venture with a Chinese company (JV)
  • +  Set up a Wholly Foreign Owned Enterprise (WFOE)

Both offer huge opportunities, but also risks which need to be mitigated, however setting up operations in China has become incredibly popular and not just with very large organisations. There is much competition for foreign investment with incentives available which can secure significant tangible benefits.

Selling

China is the largest emerging market in the world and as the wealth of the population grows, it presents fantastic opportunities with estimates that retail spending will exceed USD 1.0 trillion within the next 10 years.

Establishing an effective marketing and distribution strategy can be a challenge however as with other activities sound research is an excellent start. Assistance is available to develop an understanding of the opportunities and options available.

  • +  Sizing of local markets
  • +  Location evaluation
  • +  Competitor analysis
  • +  Existing channels of distribution
  • +  Available marketing options and costs