Most China business strategists who wrote their original business plan more than a few months ago probably factored in a hefty GDP growth rate in the 10-12% range. Now that we’re looking at significantly lower consumer spending both abroad and within China we have to adjust to new realities. Depending on your industry and target market, we may be in for a long period of slow or no growth in China.

Recessions can last for years. Success isn’t about rocket-fueled growth now – it’s about out-lasting your competitors and staying alive. You just want to be among those still standing when consumption starts to pick up again.

This may be a great time consider tweaking your China business model. Here are a few ideas that may help:

1. Refine your market target. The days of throwing stuff at a wall to see what sticks are over. Know more about your target market than their ages and income. You have to work harder to get people to spend in a recession, and that means understanding their idea of value.

2. Control the overhead. Manpower and rent are hard to lower later. It’s hard to fire in China so don’t be too quick with that help wanted ad. Everything in China looks cheap until you add it all up — especially salary and associated HR costs.

3. Outsource smart. Consider starting with market research. Hiring experts for highly targeted tasks could end up being a great investment – especially if it helps you control your headcount and sell more.

4. Trim expansion plans. This will be a tough one for some bosses who envisioned growing their Shanghai business into a global powerhouse. Can it still happen? Yeah – but probably not for a while unless you have already budgeted and financed a concrete expansion plan. If you thought you could finance your growth from current profits and plug gaps with quick bank financing, you may want to reconsider.

5. Take another look at the REAL Chinese middle class. That means people earning 4-10,000 rmb per month in most of China. Make sure you have localized and researched. If your business model is geared towards the “Benz Chinese”, you had better understand that this is a very small, over-sold group. There are, in fact, large numbers of real middle-class Chinese earning less than 10,000 rmb per month, but their purchasing behavior is very different from the beautiful people you see on the Bund.

To quote Paul Denlinger at China Vortex, ‘the dumb money in China has already been made’. If you are trying to sell inside China and your target market is expats with money to burn, then you have to reconsider.

There will be fewer expats as large firms localize and MNCs downsize.

The expats here are tighter with money – and a good deal more skeptical and cautious then they once were.

There will be more competition from all quarters for the shrinking expat dollar. China is relatively more expensive than it used to be as recession knocks the wind out of US and Euro prices for things like real estate, investments, travel –and just about anything that can be bought online.

A leaner, more modest operation that targets a highly focused market segment makes sense in any recessionary environment — particularly for expat managers and owners doing business in China.

This entry was posted on Tuesday, October 21st, 2008 at 2:44 pm and is filed under Managing in China, Bear wrestling. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.