The article, Some Apparel Makers Now See China as a Customer written by Mei Fong and Rachel Dodes and printed in June 23, 2006 features how American Cloth companies are trying to expand their market base by taking China as a market.
Previously, China has been a destination country for foreign direct investment; where North American companies have used the cheap labour and good business regulatory environment found in China to outsource some of their business functions, particularly production. You will find various factories in China that produce American products. These factories have been producing goods that are for export only. Hence, the American companies took back what had been produced and transported it for sales in other markets out of China.
The advantage of this kind of outsourcing was that of reduced production costs. Labour in America is way expensive compared to labour in China. You will find that the Chinese workers are being paid a third of what a worker doing the same job in the States would be paid. Moreover, the working hours in the Asia-Pacific regions are much more, meaning that in a day more garments will be produced in China than in the USA for a very cheap price. In addition, China being a destination country would provide goods for the Afican, Asian and other markets that are close by, thus reducing the transportation costs that would have been accrued if the same were done in the States.
The companies being involved in this business include H&M, Lee jeans, Phat Farm and Baby Phat lines, InditexSA, Jones Apparel Group Inc, Levi Strauss & Co, and Liz Claiborne Inc., among others.
The strategy adopted by these companies was that of setting up high end prices that were suppose to give cachets to their brands in the eyes of their customers in China. You would find that Lee jeans are being sold for 80 dollars up from 60 dollars, the average retail price in the US. As much as the clothes were sold at prices that denoted them as goods of ostentation, these clothes were not in the higher notch of apparel in the US. It was said that they are midtier in the US.
At this age of globalization, it is obvious that the Chinese were fully aware of what the Americans were doing to them. A company like Levi Strauss has their sales done over the internet and it would therefore be very possible for a person to know that the shelf prices in China are way over the top. Levi Strauss was selling their jeans for 60 dollars up in China.
Another factor was that the per capita income in China is way less than that of the Americans. While an average Chinese would earn 6, 800 dollars, an American would earn 41, 800 dollars. It is therefore quite inappropraite for setting such a market price in China. The returns of the citizens would not suffice.
It is therefore correct to draw up a conclusion and state that the American companies did not do as much research as they should have done before exploring the Chinese market. If they did do their research, then it was probably biased. The downside that comes with a lack of market research or an unprofessional one is exactly what these American companies experienced in China. It was found that the cloth sizes for the Americans vary from that of the Chinese. Their hip sizes are often not the same. Despite this, the American companies went ahead to sell their clothes to the Chinese. In addition, Mr Paul Charron of Liz Claiborne Inc. failed to declare victory in the Chinese market upon his resignation. He still had reservations about the market, stating that there were a lot of opportunities to get tipped at in China.
Having stated what has happened in China upto 2006, the following recommendations would be appropriate to take up. The American companies should rethink their strategies before going any further or even continuing with their business in China. As Mr. Charron pointed out at his resignation, the country has lots of opportunities to take up.
It is clear that to open up a store in China is quite inexpensive. As much as it would be problematic do have both a licence of export only and for production for the Chinese market, companies do not necessarily have to form joint ventures with Chinese companies in order to sell their goods in the market.
In addition, the pricing strategy should be reviewed in order to accommodate the Chinese. Every other marketer knows that the “customer is king” strategy will get you a larger market share. By exploring just how much the people in China are able to give for the goods they willing to purchase, a reasonable price can be set for the Chinese market. Besides, the goods have been manufactured in the same country and therefore transportation costs have been largely minimised.
The results of adequate market research can be even overwhelming. By understanding what kind of market one is going to deal with, then appropriate goals can be set for that market. One is also able to know what will give their company a competitive edge over the other companies that have already set up their businesses or are about to get into the business.