When should you enter China’s domestic market? (NOW! You might already be too late…)

Natooke

Here’s what’s going on in China in one quick list of 11 items:

1. New guy in charge.
2. Export manufacturing cycle ending (they already make everything).
3. Need to develop stronger middle class.
4. Production costs increasing.
5. RMB steadily revaluing.
6. Service industry growing fast.
7. Consumers increasingly more savvy.
8. Local brands are weak.
9. Government hungry to add jobs and keep growth steady.
10. Economy still too small to support new graduates at stable, 2% GDP growth.
11. Major policy changes required (and being implemented) to attempt item 3.

Deng Xiaoping once said (I paraphrase heavily here): Poverty is not socialism, to be rich is glorious, some people will get rich first.

The rest of the country has been waiting, increasingly impatiently, to get rich second. China’s next phase of development needs to happen between now and 2024 to continue growing as fast as possible, which will keep the populous satisfied. It will need to focus on a new growth cycle.

In the 80s China worked on bringing farmers and the rural class out of abject poverty. They succeeded to a large scale. In the 90s and the past decade the country focused on FDI, and bringing technology and industry in. In the next decade they will start the painful, complicated process of staying away from the middle income trap. If they are successful, we will see a stable rise in middle-class incomes along with an increasingly higher-value RMB. Suddenly, foreign brands will be available to a higher percentage of people, and anyone who has either established brand recognition or is able to create a great marketing campaign will be able to take advantage of a rapidly growing market.

Developing markets are a lot like blue-ocean strategy opportunities. If you can get a brand in the door and make it popular, you’ll be able to enjoy a quickly-increasing market size. In China, all the conditions are primed. Especially as the interior continues to develop and play catch-up with the coastal cities. To a certain extent, this is what the US has been waiting for. For decades we’ve been buying things imported from China. In the next decade, we may finally be able to start exporting products to China, or to an increasing extent begin manufacturing them there for domestic sale in addition to shipping them back across the Pacific. There are plenty of investors here waiting for the chance to promote US brands in China, and that number too will grow.

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