MGT321 UNR The Future Growth Of China’s Economy Will China maintain its strong economic growth in the years to come? Some suggest it will until 2050. What

MGT321 UNR The Future Growth Of China’s Economy Will China maintain its strong economic growth in the years to come? Some suggest it will until 2050. What do you think?If China will go from 17 million to 200 million middle- and upper-income people by the early 2020s, would the scenario presented by Best Buy not be applicable anymore? Would newly rich Chinese customers engage in this purchasing in the 2020s?With Alibaba’s ownership of the very popular Tmall and Taobao online shopping systems (similar to eBay and Amazon) and its spread across the world, will a Western-based online shopping culture ultimately infiltrate China?Assignment Regulation:
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Citing of references is also necessary.Word limit is given as minimum 1500. Will China Continue to Be a Growth Marketplace?
China is expected to have some 200 million people in the middle-and upper-income categories by the
early 2020s. This is a tenfold increase in people with significant purchasing power in China in the last
decade, from only about 17 million people in these income brackets as recently as in 2010. China’s
purchasing power for virtually all products and services has strong potential, and foreign companies now
strategically try to take advantage of these market opportunities.
What have we learned culturally that can help companies establish themselves in China’s marketplace?
What went wrong early on? The experience of well-known companies such as Best Buy and eBay can
serve as a learning experience for others. From a retail perspective, the motivation for many foreign
companies to enter China some years ago – beyond those companies that have been in China for decades
to achieve low-cost production-was the triple growth of the Chinse economy that was seen from 2000 to
With this growth, China overlook Japan to become the second-largest economy in the world behind only
the United States, and its large population makes for an enormous target market. Investment from foreign
companies was the largest driver of China’s growth. Many companies also increased their exports to
China. The United States, for example, saw its companies increase exports to China by 542 percent from
2000 to 2011 (from about $16.2 billion to $103.9 billion), while total exports to the rest of the world by
U.S. companies increased by only 80 percent in the same time period. Exporting to China has become
somewhat stagnant in the last few years, now representing about $113 billion.
Interestingly, domestic consumption as a share of the Chinese economy has declined from 46 percent to
33 percent. This consumption decline-coupled with slower growth globally-has raised questions about
China’s momentum. Tight now, around 85 percent of mainstream Chinese consumers are living in the top
100 wealthiest cities. By the early 2020s, these advanced and developing cities will have relatively few
customers who are lower than the middle-and upper-income brackets by Chinese standards. The
expectation is that these consumers will be able to afford a range of developed nations’ products and
services, such as flat-screen televisions and overseas travel, making the Chinese customer much more of a
target for a wide variety of consumption.
But can the unprecedented Chinese growth really continue, and would it come from increased
consumption? The resounding answer is yes, according to McKinsey & Company. McKinsey found that
barring another major economic shock similar to what we saw in 2008, China’s gross domestic product
(GDP) will continue to grow, albeit not at the historic levels seen between 2000 and 2010, when it grew
about 10.4 percent annually. The growth in the 2020s is expected to be about 5.5 percent per year (until
2030), which is still far above the expected growth for the United States (2.8 percent annually), Japan (1.2
percent annually), and Germany (1.7 percent annually). And the key is that consumption will now be the
driving force behind the growth in China instead of foreign investment. The consumption forecast opens
up opportunities for foreign companies to engage with Chinese consumers who are expected to have more
purchasing power and discretionary spending.
But culturally translating market success from one country or even large number of countries to the
Chinese marketplace is not necessarily as straightforward as it may seem. Often, a combination of
naivete, arrogance, and cultural misunderstanding have led many well-know companies to fail in China.
Lack of an understanding of issues such as local demands, buying habits, consumption values, and
Chinese customers’ personal beliefs led to struggles for companies that had been very successful
elsewhere in the world. And as global as China is becoming, cultural differences still get magnified in the
Chinese marketplace. Let’s take a look at Best Buy and eBay as two examples.
Best Buy, the mega-store mainly focused on consumer electronics, was founded in 1966 as an audio
specialty store. Best Buy entered China in 2006 by acquiring a majority interest in China’s fourth-largest
appliance retailer, Jiangsu Five Star Appliance, for $180 million. But culture shock hit Best Buy’s, best
described by Shaun Rein, the founder of China Market Research Group. First, the Chinese will not pay
for overly expensive products unless they are a brand like Apple. Second, there is too much piracy in the
Chinese market, and this reduces demand for electronics products at competitive market prices. Third,
like many Europeans, the Chinese do not want to shop at huge mega-stores. So, these three seemingly
easy-to-understand cultural issued created difficulties for Best Buy.
eBay, the popular e-business site focused on consumer-to-consumer purchases, was founded in 1995. The
company was one of the true success stories that lived through the dot-com bubble in the 1990s. It is now
a multibillion-dollar business with operations in more than 30 countries. But China’s unique culture
created problems for eBay. Contrary to the widespread cultural issues that faced Best Buy. One company
in particular (Alibaba) and one feature more specifically (built-in instant messaging) shaped a lot of the
problems that eBay ran into in China. Some 200 million shoppers are using Alibaba’s Tmall and Taobao
platforms to buy products, and the company accounts for almost 80 percent of online transaction value in
Uniquely, Taobao’s built-in instant messaging system has been cited as a main reason for its edge over
eBay in China. Basically, customers wanted to be able to identify a sellers’ online status and
communicate with them directly and easily-a function not seamlessly incorporated into eBay’s China
system. Clearly, built-in instant text messaging is a solvable obstacle in doing business in China. It sounds
easy now that we know about it, but it may not always be the case when we take into account all the little
things that are important in a market. How can a foreign company entering China ensure that it tackles the
most important “little” things that end up being huge barriers to success?

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