Better Safe Than Sorry
By Ron Cune
Many entrepreneurs still consider China as the Shangri-la of infinite possibilities. The immense population and the annual ‘double-digit’ economic growth result in a projection of flashy Scrooge McDuck dollar signs in the eyes of numerous businessmen.
Of the ‘so-called’ 1,3 billion potential clients, an estimated 80% lives far away from the major cities with an annual income of EUR 600,=. It is unlikely, however, that they constitute your target group. This leaves about 260 billion customers. In this group – according to Chinese standards – about 180 million people earn EUR 2,000.= up to EUR 4,000.= each year. This is sufficient to buy a car, pay for the children’s education and occasionally enjoy a holiday. Nevertheless, the salary is still less than the average salary in, for example, a country like Latvia (EUR 550.= a month) and is, therefore, insufficient to purchase the ‘Made in Europe’ products.
The remainder is a group of roughly 80 million Chinese with the same purchasing power as us. This number equals to the population of Germany, but it is spread out over an area that is 20 times larger.
The number of potential clients in China is unfortunately frequently overestimated. This inevitably results in companies taking far greater risks because the expected ROI induces visions of golden mountains.
Of course, there are fantastical success stories of companies that managed to capitalize on the Chinese market. However, this usually concerns unique products such as the First Mover. China, with its fast-growing economy, certainly is a land of opportunity, but the only way to begin moving the golden mountains is by carrying away small stones.
Therefore, investigate your target group and its purchasing power before coming to China.
Better safe than sorry.
Ron Cune, Dragondancers
September 15th, 2008 at 2:53 pm
I agree. I think it is important to look at China with a long-term strategy in mind. So many people go into China looking to make a ‘quick buck’ and ironically end up poorer as a result. I do feel, however, that although the number of potential customers at the present moment is overestimated, the number of consumers we will see emerging over the next two decades does present many exciting opportunities for large and small companies alike.
Larger companies entering the Chinese market do, for the most part, have a long term strategy in mind. It is important smaller companies follow this example and ‘move the mountain stone by stone’ as you say. China requires time, commitment and a long-term perspective.
September 20th, 2008 at 3:18 am
Before I even read the rest of the article, what is a “milliard” ?
September 21st, 2008 at 9:51 am
Hi George, it should read billion (common mistake for the Dutch to make - they call a billion a milliard and what you call trillion, they call a billion).
September 24th, 2008 at 4:38 am
Hi George,
Thanks for catching this. Stupid mistake.
Ron
September 24th, 2008 at 4:59 am
You must have a strategy for the long term, there is no doubt. Another important aspect is to ensure that you have the right partner going into Asia. The partner should be a local Chinese who can help to navigate you through the difficult times in setting up a business and be able to help get you to market quickly. This is tough to find but is worth the effort and in the end is less effort than what you would go through with starting on your own without assistance. Partners like these are hard to find but are worth their weight in gold.
September 29th, 2008 at 2:48 am
Talking more of numbers, what is the real population of China? Perhaps double the official estimate? That’s better news for businesses, and even the people in the country have a surprising amount of disposable income, usually because their kids are earning money for them in the cities.