“Made in China” Cheap Products or Market Strategy?

 

By TREVZSAAGA ID 215007576

I remember when I was growing up as a young boy in the 70s and 80s that for every product I bought, it had a label that was either Made in the US 20% or Made in Taiwan 80%. Fast-forward to three and half decades later and every product I buy is labelled made in China (100%). How did this happen?

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The Rise of China’s Manufacturing Industry
BY MAKING things and selling them to foreigners, China has transformed itself—and the world economy with it. In 1990 it produced less than 3% of global manufacturing output by value; its share now is nearly a quarter. China now produces about 80% of the world’s air-conditioners, 70% of its mobile phones and 60% of its shoes. Its share of global clothing exports has actually risen, from 42.6% in 2011 to 43.1% in 2013. The white heat of China’s ascent has forged supply chains that reach deep into South-East Asia. This “Factory Asia” now makes almost half the world’s goods. What does this mean?

It means China is able to flood the world markets with seemingly cheap products with prices at the fraction of its competitors.

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Chinese made products on display outside Chinese owned shop in Samoa

QUESTION: How Does China Keep its Prices Down?
ANSWER:
First, it is clinging on to low-cost manufacturing, even as it goes upmarket to exploit higher-value activities. It is also making more of the things that go into its goods. The World Bank has found that the share of imported components in China’s total exports has fallen from a peak of 60% in the mid-1990s to around 35% today. This is partly because China boasts clusters of efficient suppliers that others will struggle to replicate. It has excellent, and improving, infrastructure: it plans to build ten airports a year until 2020, and its firms are using automation to raise productivity, offsetting some of the effect of higher wages.

China’s second strength is Factory Asia itself. As wages rise, some low-cost activity is indeed leaving the country. Much of this is passing to large low-income populations in South-East Asia. Moreover cheap labor is abundant in China with about a billion people living at the poverty level thus at any one time an estimated 100 Million people are unemployed or underemployed.

Thirdly there other factors such as low costs for compliance to health and safety and environment regulations, Value Added Tax Refund from government for materials of products produced for export, unbalanced traffic imposed on import goods vs export goods, and finally the ever present currency manipulation which simply makes Chinese products 30%-40% cheaper than those of potential competitors.

So coming back to the question of Made in China whether it’s Cheap Products or Market Strategy?

It’s simple really, I believe that they are both part of a very simple but effective marketing strategy using the STP model.

If I remember correctly from my marketing management course, STP means 3 things:

Segmentation: Segment your market.
Cheap products means the segmented market is low income earners with low buying power such as retail and manufacturing workers, minimum wage earners, aged (pensioners), people with disabilities, government benefits and unemployed etc.

Targeting: Target your best customers.
Well what better customers to target than low income earners as we all know that no matter which part of the world you live, the majority of the population is under this bracket and with unemployment rates rising Chinese products has no problem with decreasing markets.

Positioning: Position your offering.
Well we all know there is not much work involved in positioning cheap products and China has found the perfect positioning strategy for its products. It has a national policy encouraging Chinese manufactures to flood overseas markets with cheap products which the developed world calls Dumping.

References:

Mind Tools, 2016, Segmentation, Targeting and Positioning Model Increasing Revenue by “Going Niche”, Mind Tools, retrieved 04 April 2016, .

Savingusmanufacturing, 2011, What is the Secret Behind China’s Cheap Prices, savingusmanufacturing.com, retrieved 04 April 2016, .

The Economist, 2015, Made in China?, The Economist, retrieved 04 April 2016,.

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