“China is a must-play place for any global company,” according to a PWC senior vice president based in Beijing. He explains that this doesn’t mean the company must be producing and selling in China, but it probably needs to be doing at least one of these. “It also means that inevitably you will be competing with Chinese companies, or with others who are leveraging China better than you are,” he adds. “If you don’t have a China strategy, you’re missing the biggest single business opportunity today.”

The Revenue Expanding Opportunities

China, with a population of 1.3 billion, offers an immense supply of low-wage workers and a huge internal market opportunity. China is coveted both as a huge consumer market and a superb location to manufacture and source products.

As a source of potential customers for everything from soft drinks to shampoo to personal computers to telecom equipment, China is huge. It is the world’s largest market for refrigerators and mobile telephones, third largest for electronics, fourth largest for chemicals and fifth largest for automobiles.

In a recent study from IDC, it was estimated that China telecommunication market reached US$ 63.2 billion up 13.7% compared to 2004. It is projected that the market will continue to grow at 10.6% per annum in the next five years, reaching about US$ 100 billion in 2009. The following figures reflect this huge market; China has around 200 million fixed lined subscribers, 300 million mobile subscribers, total optical fiber length of 3.6 million kilometers and 300,000 mobile base stations.

It is well known that China offers tremendous advantages in labor costs. A Chinese factory worker earns less than $1 an hour, compared with $15 to $30 an hour in the United States or Europe. Despite recent media attention given to China's manufacturing “labor shortage”, cheap labor in China is unlikely to disappear any time soon. As a matter of the fact that China still has 800 million people living in rural areas, nearly three times the entire population of the United States. The migration of China’s rural labor force to manufacturing jobs will mitigate any steep rise in low-skilled wages in this decade.

Indeed companies not just enjoy lower labor cost, but higher returns on capital as well. The opportunities of creating this new kind of capital productivity are based on the three fundamental facts. First of all, assets often cost less to buy and maintain in China than in highly developed countries. Secondly, companies can often use fewer and smaller assets in China than they would need in highly developed countries. And finally, the working model in China helps to maximize the capital productivity as well where most workers works on Saturday and willing to work overtime with a payoff much less than highly developed countries.

These results in benefits including not only financial benefits, such as higher returns on the investment, lower investment hurdles, lower fixed costs and breakeven points, but also strategic and operating benefits, including lower minimum scale, greater flexibility and simplified risk management.

To get hold of all these opportunities and overcome all the obstacles and challenges, eventually, the most critical question companies have to ask themselves is knowing whom to partner with in China. You need someone not just to give consulting advice but also to do the execution as well.

“What do we actually want to accomplish in China? Is our goal to source materials, components or finished products? Are we producing for Chinese consumption or U.S. and European consumption? How must we change the product so that it is better suited for marketing in China? Do we have to forego robotics and adopt old-style people oriented manufacturing processes? How can we protect and manage risk associated with our intellectual right? How to build up customer relationship in China? Where is the market entry point of our product in China?...

We know there are more questions coming up in your mind….Please contact us to find out more about how REMEC HIMARK can help your company.