Differences in Consumer and Business Markets

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Table of Contents

Examination of Consumer Markets
Outsourcing and its Effect on China
The U.S. Consumer Market Today
Recommendation
Examination of Business Markets
Conclusion
Reference List

Examination of Consumer Markets

When examining either the U.S. or Chinese markets at the present it is important to first take note of the impact the global outsourcing industry has had on both economies.

Outsourcing is a way in which companies reduce operational expenses by transferring a particular division or aspect of the company to an international location that has cheaper labor, lower production and utility costs as well as having local government units that promote business through the use of special economic zones that have far lower or next to no taxation (seen in Qingdao region of China and the Subic bay area within the Philippines) (Brown, 2010).

This is possible due to the way in which globalization has interconnected markets in such a way that methods of communication, financing and transportation have made transferring businesses and products from one global location to another faster, easier and above all affordable for companies.

Outsourcing and its Effect on China

It was due to this that a distinct trend in production outsourcing began in the U.S. during the late 1980s and accelerated during the late 1990s wherein more companies began outsourcing their manufacturing facilities to locations such as India and China

(Brown, 2010). This is an important factor to take note of since as outsourcing within China grew so did the country’s economic, industrial and business infrastructure resulting in the creation of a communist nation with a capitalist based industrial economy (Brown, 2010).

With certain factors such as technology processes and transfers occurring this enabled local Chinese entrepreneurs to adapt these technologies into their own businesses resulting in a subsequent boom in China’s manufacturing infrastructure enabling China to manufacture products that it otherwise would not have been able to before.

It was due to this that a new Chinese upper class was formed out of the resulting economic progress that has continued until the present. Based on current statistical data from the Chinese Ministry of Statistics it is estimated that China is home to 35 million newly rich Chinese that possess what can be described as a veritable “hunger” for western clothing, products, food and accessories.

Based on this information numerous international brands ranging from luxury goods to car makers considered the present Chinese market as a future primary market for their products and services. This is not surprising considering the sheer scale of import consumption within China as the newly rich continue to fuel China’s economy.

The U.S. Consumer Market Today

In comparison the U.S. consumer market today has not only stagnated but is apparently in recession as consumer spending is at an all time low while reliance on government aide programs is at an all time high (Consumers Not Buying, Manufacturing Slowing, 2011).

The origin of the current problem can be connected to the U.S. housing crisis wherein banks lent consumers more money than they could afford to pay back with various investment companies repackaging the bad debt into what appeared to be viable investments yet when consumers failed to pay their mortgages this created a financial domino effect which up till this day has affected the U.S. economy (Consumers Not Buying, Manufacturing Slowing, 2011).

The effects of this can be seen in how companies within the U.S. have scaled back their operations, how up to eight million Americans at the present are unemployed with other factors creating a strangle hold on the economy resulting in consumer spending being reigned back in favor of caution during such difficult financial times which has further deteriorated the local economy since consumer spending is the primary driver of a healthy economy.

Recommendation

It is based on this examination of both economies that it can clearly be seen that the company would be better off catering to the Chinese market and scaling back operations within U.S. markets until such a time that the situation in the U.S. would improve.

The inherent problem with trying to sell products within a local economy suffering from such a degree of negative consumer spending is that it becomes harder to make up the cost of doing operations per product sold. Factors such as delivery, storage, store operational costs, employee salaries, local taxes as well as miscellaneous other costs have to be taken into consideration when selling a product.

If too few people are buying this results in the company absorbing the cost of maintaining operations which over a prolonged period of time will be detrimental for the company’s continued survival. It is based on this that it is recommended that in the foreseeable future it would be advisable for the company to shift gears and start a slow reduction in U.S. based operations and increase operations and sales within China.

Examination of Business Markets

China’s Family Culture in Business Dealings

When examining the local business markets of both the U.S. and China there are several interesting differences between the two which the company should take into consideration before venturing into the local business market within China (Chow & Shan, 2007).

First and foremost what must be understood is that within China societal culture blends with business culture in such a way that a large percentage of business to business marketing and selling is done along family lines. This is due to the fact that the Chinese place a great deal of importance on maintaining familial ties as compared to the U.S. wherein such aspects don’t factor as much when it comes into business dealings.

While such a system does create a certain form of stability and trust within business to business dealings the fact remains that this creates a relatively hostile environment for foreign businesses attempting to enter into business markets within China (Chow & Shan, 2007).

While it may be true that there are numerous successful business dealings within the country between foreign and local companies the fact remains that this doesn’t reflect the rest of the business dealings within the country itself. Not only that there is an unsettling trend within the country regarding technology transfers that should be taken in consideration before even considering business marketing.

China’s “Bandit” Culture

Seven years ago various Japanese and European companies such as Kawasaki Heavy Industries, Siemens, Alstrom and Bombardier pioneered the creation of China’s high speed rail system in the belief that they would gain access to a lucrative multibillion dollar market.

Instead the various business partnerships they had with local Chinese companies resulted in shared technology being utilized to establish new high speed train companies that rivaled not only the foreign train companies within China’s domestic market but within international markets as well (Kwok-Bun, Luk, V & Xun Wang, 2005).

In fact any foreign company that establishes a production base within China has to deal with what is known as “shanzhai” or “bandit culture” in that their manufacturing processes will most likely be stolen, replicated and utilized in order to produce the same product at a far lower cost than the original (Dietz, Lin & Yang, 2005).

It must also be noted that most banks within China are controlled by the state and as such due to China’s current domestic policy of supporting entrepreneurship should the business seem viable the individuals who have obtained the means of utilizing the stolen technology can in effect bank roll the start of their own companies with the full support of the government.

This creates an incredibly problematic situation for any company even thinking of attempting to enter into business markets within China.

It must also be noted that intellectual property rights are often not as strictly enforced within China as compared to other locations such as the U.S. and Europe and as such even though the technology has been stolen it is unlikely that the perpetrators will even be prosecuted (Dietz, Lin & Yang, 2005).

The business to business market in the U.S. on the other hand has a plethora of different rules and regulations specifically preventing the theft of intellectual property rights. Not only that, business to business dealings are done mostly under the process of which business is able to provide the best product or service at the most affordable cost and as such is more conducive towards effective business partnerships.

Conclusion

Based on what has been presented in this paper it can be seen that there are two distinct approaches the company should utilize in its business dealings with either the Chinese or U.S. markets.

First and foremost it can be seen that the consumer market in China presents itself as the best avenue for sales and as such the company should increase its market penetration within the Chinese consumer market while gradually reducing its current market share within the U.S. until the economic situation improves.

On the other hand it can be seen that the business marketing situation in China is fraught with a variety of problematic conditions and as such it is recommended that the company focus on business marketing within the U.S. and consumer marketing within China so as to get the best possible mix of both local and international sales.

Reference List

Brown, A. S. (2010). MANUFACTURING AT THE CROSSROADS. Mechanical Engineering, 132(6), 30. Retrieved from EBSCOhost.

Chow, I., & Shan S., L. (2007). Business Strategy, Organizational Culture, and Performance Outcomes in China’s Technology Industry. Human Resource Planning, 30(2), 47-55. Retrieved from EBSCOhost.

Consumers Not Buying, Manufacturing Slowing. (2011). Journal of Commerce (15307557), 12(29), 6. Retrieved from EBSCOhost.

Dietz, M. C., Lin, S., & Yang, L. (2005). Protecting intellectual property in China. McKinsey Quarterly, (3), 6-8. Retrieved from EBSCOhost.

Kwok-Bun, C., Luk, V., & Xun Wang, G. (2005). Conflict and Innovation in International Joint Ventures: Toward a New Sinified Corporate Culture or ‘Alternative Globalization’ in China. Asia Pacific Business Review, 11(4), 461-482.

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