How to compete against China?

17 05 2006

Here in Leon, Guanajuato where shoes and leather are the primary industry, everyone is freaking out about China as a competitor.

What’s happening?

Fact: To date China has taken national and international customers from Mexican factories due to lower costs

Fact: China currently has lower costs and are content to live with lower margins in many industries

Fact: The trend is expected to increase over the next years

So what is the response from the Mexican businesses?

Fact: Some have closed, or decided to not compete and their sales are diminishing every year

Fact: Some have stopped producing in Mexico, and are now purchasing and importing from China

Fact: Very few have invested money in design and marketing in order to compete on a different level (fashion and time vs. cost)

Fact: The majority are all wringing their hands and waiting for a solution to be offered (by government or industry associations), or can’t get beyond the diagnosis (unable to think of a cure)

Now what?

I don’t pretend to offer up solutions to this complicated question, but I will offer some ideas in order to develop new ways to think about solutions.

How can you apply these ideas to your marketing and sales arguments and product value?

  1. Smoldering social problems in China will affect wages, labor laws, communication, travel, government intervention and foreign investment. Will these problems come to a crisis level soon…. or not? What happens in the worst-case scenario…. the best-case scenario?
  2. Rapidly increasing costs of energy, electricity, wages, and logistics in China. At what point do they level the playing field with your product costs?
  3. Logistics from China to the USA takes a long time (inventories, cash flow, risk, opportunity cost). How long could it take from your factory to your customer? Is this a possible advantage for you?
  4. Travel. To go to China from the USA takes a significant chunk of time. I can go (and so can your customers) to virtually any major city in Mexico and return the same day. Does this make it easier to solve problems…what is this worth to your customer?
  5. Protection of intellectual property of interest to your industry? Forget China. Similar system of laws important to the negotiation / contract system? It’s much easier to do business with people, companies and governments that share similar laws and respect for the law.
  6. The economic boom in China is amazing, but is it sustainable? Is there an economy in the world that has or will be able to sustain double-digit growth over 5-7-10 years? What happens to this growth, does it slow down or suddenly crash? How will either scenario affect your industry and customers?

It’s easy to confuse wishful thinking with scenario planning, but take the time to develop plans for these scenarios, apply the arguments, listen and watch your customers and offer them reasons to buy from you and solutions that reach beyond costs.

Let me know what ideas are working for you.


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