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Understanding China’s Growing Market
by Ray A. Work · Work Associates Inc. · September 1, 2004 - page(s): 108-110
Mainland China is poised to become a dominant worldwide manufacturer. Why is this? China has several benefits, including extremely low labor costs, low raw material costs, an endless supply of labor, a well-educated workforce and government incentives to start and grow manufacturing businesses in China. These factors produce an environment very favorable for economic development. Add to that a disciplined and hardworking workforce and management who are willing to accept help, and you have a formidable competitor in the manufacture of products for sale worldwide.
There are some issues when considering doing business in China, however. Most Chinese manufacturing is developed for sale in China first. The Chinese market is extremely cost sensitive, and when manufacturing a product, cost factors — such as raw materials, manufacturing facilities, and product design and formulation — come before quality. Many products made for Chinese consumption are not acceptable for export to developed countries.
Competition is also an issue. Once two manufacturers are in the market, prices drop to or below mill cost. The first company in a market makes money for a while, and then margins are reduced rapidly as others enter.
China as a Market
China has the sixth largest economy in the world, and the market is expanding 25 to 30 percent per year. It is a world-manufacturing base for many consumer products. The Chinese government has offered incentives for the formation of new business, especially U.S./Chinese joint ventures.
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