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Ignore China's Low End Market At Your Peril. Oh, And Don't Forget The High End Either.

By Dan Harris and Steve Dickinson

The other day I did a post, entitled, "China Business. Which Comes First The Wealth Or The Low End?" on a discussion I had with Jack Perkowski regarding China's low end products market, how huge it is, and how foreign companies should not simply concede it to local companies. At the end of my post, I asked whether China's playing field (I mostly focused on the tax/legal field) precludes foreign companies from succeeding on the low end and whether that market even makes sense for foreign companies. In a post entitled, "Competing in China's Local Market," Jack weighs in with some excellent responses. His main point, with which I completely agree, is that whether you are going to compete in China's low end market or not, you had better know about that market and how it might impact your product. Jack's thesis (I am basing this as much on our meeting as on his blog post) is that eventually, most of the Chinese companies that are now strictly low end will be bumping up against or even entering your high end market and you had better be ready for that:

Whether a company chooses to try and compete with Chinese companies in the country?s low-end market or not, it should clearly understand that this market exists, and it should have a clear view as to how its future development may threaten the profitability and future potential of its existing business in the high end. Make no mistake about it: it will have a major impact.

Jack also makes the point that even in the low end market, the winners are not necessarily the absolute cheapest producers. Affordability is at least as important as price:

Although cost is an important factor in China?s local market, there is ample room for foreign companies to compete successfully and differentiate their products from the local competition in terms of quality, technology and service?as long as the prices of their products are affordable. Even in the highly cost-conscious local market in China, many customers prefer to buy better quality products that are affordable, and will shun shoddy products, although they may be cheaper.

On the flip side, my friend Shaun Rein (who likes me so much he came to Seattle the very same week I was in Shanghai, where he is based), is quoted in a Forbes Magazine article on how foreign companies need to increase their focus on selling to China's increasingly wealthy and free spending 30 and under crowd. I agree with both Shaun and Jack and I do not see their views as conflicting. What do you think?

Full post as published by China Law Blog on April 17, 2009 (boomark / email).