For the past few decades, there is no end in sight to increasing cost down pressure across full ranges of products from high end telecommunication gadgets although of foreign brands all the way to daily necessity like lighters in China. A visit to “WenZhou” city last century in the 90s where thousand of small factories were churning out 1 to 2 billions of “Cheap and Good” lighters annually with retail price as low as RMB$1 as compared to USD$1 of the Japanese equivalent. A local owner demonstrated this by dismantling the lighter down to its respective components; cost price was 5 to 20 times different and labor was 5% of their Japanese counterparts. “we can wipe out the other guys easily”. Said the grinning and confident owner.
As a results, the rest of the world watched in awe the unprecedented rise of thousand of small to medium size enterprises which begun to compete with prices and taking tight cost control over raw materials, production process, labor, environmental, taxes, and rental and had swiftly beaten their international competitors and created “Made in China” legends flooding the world with dirt cheap products altering the world’s consuming behaviors; Products there were once considered durable became disposable overnight where quality wasn’t up to the standard were accepted; buy and throw away lighters, screw drivers, shoes and so on become the new norms as the price we paid for these “Made in China” tools was a tiny fractions of what it used to be.
“Never compete with someone who has nothing to lose.” ― Baltasar Gracián
Gaining market share in world economy has been a Chinese obsession for 30 over years ever since it opened her door to the world for business. It is the chief item of current and previous administrator and remains the focus of Chinese economy modernization, the 30% hard bottom line was used by all Chinese consumer electrical appliance manufacturer like TV and refrigerators to remain competitive in the global market; Chinese product had to be 30% or more cheaper that their European and Japanese competitors but current situations demanded a review on whether should the same modus operandi remain relevant going forward.
My favorite things in life don’t cost any money. It’s really clear that the most precious resource we all have is time.—Steve Jobs
After all, the China made brand lighters simply weren’t as durable as the Japanese one, it took more than 3 attempts to ignite and sometimes it just malfunction; There was indeed a hidden cost incurred for the RMB$1.0 lighter; the huge cost advantages means a degradation of the component quality as well as user experience. Imitators merely duplicate the manufacturing process with no incentive for productivity improvement and technical upgrade. There also weren’t significant contribution for the past decades on lighter technology by these “Wenzhou” lighter manufacturers.
“The best way to predict your future is to create it”
― Peter F. Drucker
As matter of fact, the rise in material cost and gigantic shifts of demographic portfolio in recent years had reduced the once bustling lighters sweat houses in Wenzhou from 3000s to less than 100 where the profit margins dropped to below 2%, the same phenomena affected other industries in household appliances, zippers, buttons, automobile, textiles and so on of which despite being risen to number 1 in manufacturing capacity the huge cost advantages China had benefited with much lower baseline had all but disappeared. Factories simply couldn’t kept up with the rising inspirations of new Z-generation production operators of whom were raised like a King or Queen in their own one child households, many simply couldn’t bear the the relative low wages and mundane working environment, the massive labor demographic surplus China had enjoyed for decades simply had vanished.
On the other hand, evidence suggested that million of new middle income Chinese may be more predisposed to pursuit of high quality services and products due to their financial autonomy and inspirations for more fulfilling lifestyle. Many welcome the shift in relentless pursuit of low cost to premium products with reasonable quality as it will bolster the nation’s faltering advantages of global factories. Hundred of million of influential Chinese who had ventured out of countries clearing stocks of the foreign well established merchandises like there is no tomorrow from designer bags, luxury watches to Japanese electronic rice cookers many of which was “OEM” back in China but not available through regular retail channels. They had all embraced the new consuming appetites not unlike what other advance countries like European, North American and Japan had experienced before in the past and majority exhibit the following commonalities;
“The Master said, “If your conduct is determined solely by considerations of profit you will arouse great resentment.” ― Confucius
1. Most were obsessed about product differentiation; closets full of summer and winter apparels; both formal and recreational, emphasizing on details, positioning, quality and branding.
2. Many discards crude and misleading advertisements and emphasizing on user experiences; believes on peer’s reviews and words of mouth sharing; despise blindly product endorsement but once conquered become consistent repeat customers and wouldn’t hesitate to share with others.
3. Majority of them would generously open their wallets for higher prices on premium products and services to reward and affirmation of the brands for their designs, quality, fashion and their dedication to pleasant users experiences
4. Actual product cost is less relevant to the retail price tags than to consumer’s value recognition. Eg; Fans who Splurge on a piece of RMB12,000 apple watch had no interest to compare prices and had no interest on the cost prices.
“Quality means doing it right when no one is looking.” ― Henry Ford
Unfortunately, most of the manufacturers had not taken this new phenomena to their own advantages and continue the cut throat pricing competition even into the e-commerce platform where pricing strategy although remains an important part of the overall marketing plots but had lost it “magic” and had no chance to transform “Made in China” to the another new milestones despite ten of thousand of foreign OEM had been enjoying the lower production cost and efficiency the world factories got to offer but most of the fat margins were remitted to the native home (for design and innovation) with merely less than 3 to 4% of profits (for H/W manufacturing) left behind for local infrastructure development and so on.
With few hundred million of newly minted high value Chinese consumers who willing to fork out more for premium products and services giving a helping hand to their favorite brands, rewarding them with higher profit margins anticipating more dedication and R&D for even better consuming experiences in future, its critical timing now for Chinese companies to turn this into their own competitive edges. That’s not just because Beijing is muscling for higher end territory in home grown automobile and local and acquired semiconductor and so on, the anxiety and uneasiness of Chinese appetite for more of their own premium brands are mounting. From high speed rail infrastructure to financial industries to commercial airplanes manufacturer, the peripheries of Greater China are being quickly taking shape reclaiming the glorious days of being the exclusive producers and exporters of highly sought after fine porcelain China, silks and tea just couple of centuries ago and this would also signal the end of an era of Cheap and Good China Lighter.
Our greatest glory is not in never falling, but in rising every time we fall. —Confucius
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