China has become an enormous force in the world economy one to ignore at your own peril. Not only is it a nation of 1.3 billion people, but its GDP leapfrogged past that of Japan in the second quarter of this year and has unseated Japan as the world’s second largest economy.
Needless to say, this has changed the way U.S. companies are dealing with China.
“Now, companies are looking at not just buying lower-cost Chinese-made products but also both selling U.S.-made products in China and making products in China for sale within that country because it is a huge and dynamic market and becoming more open to outsiders,” says Alfred Ho, an International Correspondent Banking Manager with FirstMerit Bank.
Smart Business spoke with Ho about why businesses need to start thinking about China and what they should do.
Why do businesses need to develop a plan for China?
You simply cannot ignore a country of 1.3 billion people with a GDP that is outperforming the U.S. Their people are becoming wealthier and have disposable income. As recently as 25 years ago, there was much poverty in China. People could not afford to buy anything. That has completely changed. Their young people want things just like our teenage children. They buy the best cell phones; they change them every six months. They’re at the tip-top of fashion. With such consumption power, companies would be foolish not to look at China as a major market. When there is demand and affordability, companies want to be there. It’s no different than Europe having a strong demand for U.S. products; U.S. companies have been doing business there for many, many years. But the scale in China is mind-boggling.
How can a company determine if it should do business with China?
All types of companies, large or small, should have a plan for doing business with China. It’s not just the domain of multinational companies anymore. The ‘Second Wave’ was composed of second- or third-tier, middle market companies that have had to follow their large customers who were already operating in China. Some of them had no choice but to go to China or do business with China as a matter of keeping their larger clients in the fold. But times have changed yet again. More companies are realizing that China is not just a manufacturing center. There are all kinds of opportunities in China. Instead of just doing business with Western corporations in China, U.S. companies are focusing more of their strategies on domestic Chinese opportunities.
Because of the enormous wealth China and its people have accumulated nationally and individually, the country has become very important in the world economy as a manufacturing base and a place to do business. They want our products, believe it or not. They love Western-brand products, and they can afford them.
Some companies in the U.S. are investing in plants and equipment to be closer to the market they are doing business with. These companies may start with a trading or representative office and eventually evolve to build a factory in China to be closer to their market.