There are many good reasons for doing business in China. Let's take a look at two of them.
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Large Market, Large Potential
With a population of over 1.3 billion people, China is the most populous country in the world. Since China began experimenting with capitalism in 1978, China's GDP has grown around 9% a year for three decades. Currently, China's purchasing power is ranked second in the world after the United States.
Don't be fooled by China's low per capital income; remember income distribution in China is highly uneven and that the Chinese tend to save for big ticket items such as cars and electronics. Chinese consumers are getting richer and have more discretionary spending year after year. Moreover, China has a huge appetite for all sorts of western goods, including American fast foods, luxury goods, electronics, financial services, and more.
Although China is already a huge and essential market for many foreign businesses, many choose to simply be there to prepare for future opportunities. Have you considered expanding sales to this market or simply make the investment to be there?
"Made in China" labels are everywhere for a simple reason: it is much cheaper to manufacture most labor intensive goods in China than in the West. Besides cheap labor, many companies find that there are significant cost savings in other areas as well, such as lower utility costs, concentration of suppliers, etc.
China is not only a great source for unskilled labor, but also a great source for cheap, knowledge workers. For example, in 2004, China minted over 600,000 engineering degrees, which is around 3 times more than the United States or India!
If you do decide cut costs by going into China, you must be aware of hidden costs and decide if going to China will be a net benefit. Some costs to consider are:
- Language and cultural barriers
- Political and legal barriers
- Quality control