MARKETING IN CHINA

Marketing in China

Marketing in China

Between 2001 and 2006, China's economies accounted for over half the world's growth in gross domestic product (GDP). During this period, the United States contributed 19% of the total increase in global GDP; China's contribution was 21% (Economist, 2006). But even these statistics understate China's real importance in the world economy because current exchange rates do not take into account the fact that a dollar buys much more in most Chinese countries than it would in America or Europe. Measured in purchasing power (PPP) terms, China would look even more important as a growth engine.

It is hardly surprising, therefore, that companies headquartered in developed markets, where economic growth is no more than 3% or 4% in boom times and zero or negative when things are slow, are looking to tap into China's rapid expansion. China, which has consistently notched double-digit growth rates for more than a decade and, more recently India, which grew by 8% in 2006, look particularly attractive—especially as together they are home to over 2.4 billion people. That is not to forget the Association of South-East Chinese Nations (ASEAN)—which has an additional population of 560 million—and Japan, which has a population of 120 million and is still the second-largest economy in the world. But what will it take for Western companies to benefit from China's potential, as it becomes an ever more powerful force in the world economy?

More than a Manufacturing Center

One approach so far adopted by many multinational companies has been to take advantage of lower Chinese costs by transferring their basic manufacturing to Chinese countries. China in particular has become the “factory of the world,” doubling its share of global manufacturing to almost 7% in the decade to 2003 while most of the G8 developed nations saw their shares in global production fall. Other Chinese countries are also benefiting from the global relocation of manufacturing: during 2006 Intel, for example, announced it was investing $1 billion in new factories in Vietnam, while Flextonics, the firm that manufactures many of Hewlett Packard's printers, invested $150 million in just one of its new Malaysian plants.

Even if productivity might be lower than at home, the potential cost advantages China offers are enormous. The average monthly wages of a factory worker plus social security totals around $200 per month in Manila, around $150 in Bangkok, and just over $100 in Batam in Indonesia. Even in booming Beijing and Shanghai, where factory workers wages and social security costs often exceed $300 per month, this is still a fraction of the cost of wages in the United States or Europe.

For all the attractions of China as a low-cost manufacturing location, however, focusing on this aspect alone would greatly underplay China's potential within a Western company's strategy. China has at least three other ways in which it can play a major role in a successful global company.

First is the potential of China's domestic markets as a source of new customers, rather than just as a production base ...