The End of Cheap China: Economic and Cultural Trends That Will Disrupt the World Read Online Free PDF

and well capitalized, and are spending increasing amounts of money on research and development. They are recruiting armies of engineering graduates from top universities around the world to bolster R&D. To compete, foreign brands must continue to innovate to maintain a technological advantage, cut costs by tightening production processes, or launch or acquire secondary brands to compete directly.
Chinese Love Chinese Brands, Too
    Overall, Chinese trust foreign brands more than domestic ones not to cut corners in the production process. This is especially true in the luxury sector, where foreign brands are viewed as having more refinement and appealing brand heritages .
    Don’t think Chinese brands will never beat foreign ones on anything but price, however. Given the choice, Chinese consumers tend to prefer local brands if they feel they are as good as the foreign competition. Buying Chinese brands appeals to rising nationalism, and Chinese believe domestic brands can better capture local flavors and scents .
    Mengniu Dairy and Haier are examples of companies that even wealthy Chinese consumers will often choose over foreign brands like Danone and Siemens. Mengniu charges more for their high-end yogurt products than Danone and most other foreign brands to emphasize high-quality ingredients. They use flavors that cater specifically to Chinese. When I interviewed dairy-section heads of supermarket chains, the majority told me that wealthy consumers prefer high-end domestic brands over foreign brands made in China, because they think a truly good Chinese brand will have better quality control than a foreign one .
    Likewise, many wealthy Chinese prefer to buy Haier air conditioners and refrigerators, instead of German, Japanese, and Korean brands like Siemens and Samsung, out of nationalism and the perception that premium Chinese brands are globally best in class .
    Key Action Item
    Western brands should not assume Chinese will always prefer foreign brands over domestic ones, and that consumers always view foreign brands as more premium. Chinese will often prefer domestic brands, like Haier’s consumer appliances, over foreign ones if they feel they are world-class brands. When competing in select consumer-market product categories, as Danone Yogurt is doing versus Mengniu, foreign brands might need to position themselves as cheaper alternatives if a domestic Chinese brand is viewed as having a premium position.
Chinese Are Often Short Sighted Because Rules Can Change Quickly
    It is often very difficult for Chinese businesses to plan long term—not because executives are short sighted, but because rules and regulations change so quickly. For instance, many street-level Chinese stores are ramshackle and do not have nice fittings. The reason? Shop owners do not want to waste money because they fear real estate redevelopment will force them to move. Brands that create a comfortable ambiance move to high-priced malls or recently developed zones. Once urban planning gets more settled, Chinese brands will spend more on nicer shopping environments. In the meantime, smart ones save their money .
    For instance, right now most Chinese buyers of luxury products like to do their shopping abroad. Recent initiatives to make Hainan Island a duty-free zone and to reduce tariffs on imported goods could change the luxury retail landscape overnight .
    Key Action Item
    Company executives need to keep abreast of potential new regulations that could severely impact their businesses. If they do not, they could suddenly find that they have invested in the wrong sectors and locations.
Real Estate Is Intentionally Ramshackle
    Many Westerners say Chinese real estate companies exhibit poor urban planning. A common complaint by visiting Westerners is that malls are not built attractively, or that parking lots are constructed in prime building locations, like on a riverside, while shopping complexes and restaurant zones are built across the street without