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CHINA DOING BUSINESS IN A UNIQUE MARKET

26 July 2017

CHINA DOING BUSINESS IN A UNIQUE MARKET

China has been known as one of the most powerful countries in the world for decades, in terms of both its economy and its manufacturing workforce. However, with the changes of the past few years, China is facing new challenges. The world’s second-largest economy is no longer the de facto source of low-cost manufacturing. Its rapidly changing demographics, rising per capita income and growth in per capita spending change the portrait of this unique country. Given all these changes, the question is: How should you conduct business in China in 2017?


SUB-MARKETS

It’s not a secret that China is a one-of-a-kind competitive market. Companies that want to enter it need sturdy corporate structure and better-than-average preparation. Even though China is the world’s most populous nation, it’s composed of many small, unique markets, and each one has very specific characteristics. It’s actually an assemblage of singular sub-markets defined by immensely divergent demographic, economic and cultural characteristics. There is no single “Chinese customer” profile.

That’s why mass targeting is not a strategic approach. To get results in Chinese markets, you need to use an approach that’s focused on a particular sub-market. And it’s why companies need to be well-prepared, flexible and able to offer innovation that is unique.


UNDERSTANDING YOUR CHINESE CUSTOMER

In order to stand out in this country’s vast sea of products and customers, a company must offer something distinctive. Knowing which customers will consider your products distinctive means understanding who you’re talking to—or more importantly, who is listening when you’re talking. True, that’s key to success anywhere, but it’s even more important in China. Key to understanding submarkets—and entering them—is hiring and developing a local team. After all, who knows their market better than the Chinese themselves?

Not only that, but having local people working with you in China bolsters your customer relations and helps you navigate complex cultural behaviors. Success in this country is directly related to strong local relationships that have grown over time. So if you’re aiming to establish your company’s long-term presence in China, keep in mind that working with local people could be vital to your success.


WHAT’S AHEAD?

China is entering a completely new era in manufacturing. Gone is the reliable cheap labor of earlier years. The integration of robotics into Chinese production lines is now critical for success. Urbanization is more important than ever and a new generation of skilled workers uses state-of-the-art technologies that enable companies to increase production efficiency. This includes robotics, and in the industrial sector, an increasing scarcity of cheap labor is forcing China to embrace robotics. The Unit Labor Cost in China is now almost the same as in the West, making it difficult for manufacturers that employ Chinese workers to realize a profit.

Consequently, to maximize profit in Chinese plants, some major manufacturers have started automating their facilities by installing robotic packaging equipment. The investment is worth it, particularly in the meat and poultry industry. That’s because this sector has undergone major changes in the last few decades, resulting from the country’s rising standard of living. As seen in other countries, when personal income increases, so does meat demand and consumption.

More than 12.8 million tons of chicken are consumed each year in China, making it a very lucrative market. But producing that much protein demands technology that maximizes production, and this is how automation plays a big part in the success of Chinese companies. The meat and poultry sector’s adoption of automation is just one example of how industries are evolving in China, and suggests that other sectors will adopt automation in the near future.


RAPID EXPANSION LED TO …

The result of the population’s growing demand for meat was an exponential growth in feed production between 2000 and 2010. Demand was so strong during that decade that it attracted investment from around the world. As a result, Chinese companies expanded rapidly, which led to excess capacity in many industries. After 2010, the Chinese economy faced new challenges and started to slow. The growth rate of the previous decade was no longer sustainable because it had led to serious side effects such as inflation and environmental issues. To remedy the situation, the country’s current “Made in China 2025” plan emphasizes the quality of growth instead of the rate of growth.


A NEW STRATEGY

In so doing, China aims to promote growth throughout the entire economy, not only in select industries. The country intends to accomplish this by removing excess capacity and reducing inventory in most industries. In order to drive its new growth strategy, China will focus on industrial centralization. This means that mills and manufacturers that are small and/or produce low quality products will slowly disappear. They will disappear as a result of market competition, acquisition or by administrative order. Ultimately, this will result in fewer producers, manufacturing on a larger scale.

Another important factor influencing China’s 2025 plan is the increasing in cost of labor. Younger workers who grew up during the economic boom of 2000–2010 are no longer willing to perform repetitive jobs. Adding to this financial pressure on manufacturers is a tightening of labor laws, which are resulting in employers being required to provide a full social welfare system. Couple these pressures with the demographic reality that the country’s current workforce is aging, and it becomes apparent that the era of “made in China” goods is over.

In parallel with the “Made in China 2025” plan, China has launched the “Industrial 4.0” plan. The latter plan is focused on increasing the quality of production by adopting solutions that are environmentally responsible and are engineered to be smart enough to be unaffected by human error. Solutions are to be “green,” smart, lean, and integrated.


HARNESSING AUTOMATION

However, despite all these challenges companies still need to attain sustainable growth, which presents great opportunity for equipment manufacturers. This is because customers will be more focused on the quality of their end products. As a result, customers will seek lean, integrated high-speed solutions in order to achieve high yields and add value to the cost of manufacturing.


PREMIER TECH CHRONOS IN CHINA

Since 2010, Premier Tech Chronos has had a presence in China. Having a team based directly in Changshu and partnering with the right people gives us insight into the uniqueness of this market. We’d be delighted to introduce you to it.

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