What will your China business look like in 18 months?
We’re getting a little more visibility into the nature of this crisis, and the good news is that we are starting to understand the bad news. China isn’t going to be a safe haven – though it may not be battered as badly as the US and Europe.
But just because China will be less damaged, it doesn’t mean that all you have to do is wait for things to become ‘normal’ again after Chinese New Year. Your business model is going to change over the next few quarters. The only choice you have is about what will drive those changes – you, or the market.
This is one of those times when not deciding is a decision – and a poor one.
Not everyone will be equal
In a recession, not all companies are created equal. Trusted brands tend to outperform commodity sellers. Low cost operations survive while companies with high burn-rates tend to get washed away. Low debt, high cash flow is good – negative cash is bad. Strong teams with good morale stick together – staffs that hate their boss and the company tend to fall apart.
But surviving a global downturn goes beyond hygiene issues. Now is the time to take a long, hard look at your business model and operating procedures and decide how they will change under a number of scenarios. Just in case you’re wondering, the near-term environment will probably see the Chinese economy go sub-7% growth for at least a couple of months in Q1-09. Business demand for goods and services will continue to drop, and consumers are going to lock-down their spending. It’s a buyers market – and you’re a seller.
Who benefits?
When the killing fields are strewn with bodies then scavengers get fat. Don’t fall into the trap of “waiting this thing out”. Plenty of expat managers I know are hunkering down and crossing days off the calendar, waiting for this economic illness to pass. Unfortunately only surgery will cure this set of ailments – and when the global economy starts cutting it uses a very sharp, very wide blade. But it won’t cut all businesses. Big competitors with cash in the bank, low debt and good operating procedures will be expanding and acquiring. As soon as the Western economies hit bottom and show signs of a recovery, look for the big multinationals to start pouring more resources into their China marketing plans, since this will be one of the stronger markets left in the world. You only THINK that you’re in a holding pattern – in fact, you may be losing ground by inches every day.
Cost cutting / Price cutting
Every time you want to cut your costs it means that someone else is lowering their price. (Suppliers are giving you a better price when you buy, but also have to lower prices to attract other buyers to replace you when you don’t buy.) When your customers try to cut costs, they are demanding that YOU lower prices. That means that simply reducing your operating expenses is not going to get you clear of this thing. You need to change the basic way your business operates.
Any good news?
You now have a rare opportunity to adjust your business model – so long as you don’t alienate your market. I know of plenty of expat businesses in China that grew ‘organically’ – which usually means no plan or structure. They stumbled upon a niche and started coasting on the success of one or two offerings. Well, now is a great time to take what you have learned and reinvent your business. Now is the time to do a little market research, talk to your core customers, brainstorm with your top managers, take a walk on a warm beach – do whatever you have to do in order to come up with an answer to 2 simple questions:
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1) Who will our customers/clients be in 18 months?
2) What kind of organization should we become to add the most value to those buyers?
Once you know the answers to those questions, then you can start planning your immediate survival strategy. Until then, you are just running up the down escalator – with no idea where it goes.