A Big Fat, Wealthy Chinese Market, But You Must Produce Locally
November 15, 2012 - SCMR Editorial
I have noticed a remarkable shift in companies’ China strategies over the past 2-3 years. No, it is not re-shoring or rethinking the decision to locate manufacturing there. In fact, most of the companies are expanding operations in China. Why? Because China is by far, the largest target market on the planet for just about everything.
China already has the largest middle class of any nation on earth; about 350 million. Within 10 years, the predictions say that number will balloon to over 800 million. As China industrializes, more people are lifted out of poverty and demanding what we all demand when we have disposable income: cars, electronics, houses, re-modeled kitchens. Industry demands infrastructure, component parts and automation. This makes China the most attractive market for companies selling just about every kind of product.
But to sell industrial products to industries or to any Chinese government agency or state-owned enterprise (SOE), products are required to be produced locally or have local content. This means that sellers will have to manufacture inside of China, not just ship there. This local-content requirement is not much different than the “Buy America Act” requiring US Government agencies to buy American goods when possible.
While it may be popular for Americans and Europeans to talk about re-shoring, in reality, most companies are building even more manufacturing capability in China to take advantage of the burgeoning market and to comply with the “Buy Chinese” policies. World Class companies look at China as a big, fat target market.
Western companies will continue expansion plans in China but keep a low profile while doing so. After all, building manufacturing capability in China isn’t a very popular idea in America these days.
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