Complete Manufacturing & Distribution Blog

Improve Profitability in China: Innovation

May 23, 2017

innovation in china profitability

The days of being able to take a mature product from Europe or America, bring it to China, and develop a business are long gone. Business expectations from 30 years ago are outdated.  Thirty years ago Volkswagen famously took the Scirocco production line from Germany, moved it to Shanghai, and began selling the Santana brand.  As an early mover in the China market, VW sold millions of vehicles and made the company massively profitable in the process.  That China no longer exists today.


East for East

Today’s consumers in China are more demanding than ever.  It doesn’t matter if you’re talking about consumer products or industrial products.  Across the board, China wants products that are engineered and tailored specifically meeting their needs – and not designed for someone else in a different market and that has been forced upon them. 

As a result, innovation and a refreshing product range, in China for China, is more critical than ever, to not just capture and keep a market, but to be able to grow profitably.  Selling an old product will result in decreasing sales and negative profits.

Cost of Capital is Cheap

The good news for innovation enthusiasts is that the cost of capital is cheaper than ever.  The costs of developing a new technology or modifying a current technology to meet new requirements in China pale in comparison to the opportunity costs of lost sales.

According to Harvard Business Review, “Improving margins by 1% would increase an average company’s value by only 6%. By contrast, increasing the long-term growth rate by 1% would drive up value by 27%—four and a half times as much bang for the buck invested.” (1)

Engage consumers for margin-rich features

These investments open up the opportunity to sell in a higher price bracket.  They commit to a high refresh rate on products.  China’s highly-vocal consumers love new features that they had a say in, and will reward brands with loyalty and business if they felt sincerely engaged. It’s not hard to get feedback in the always-on world of WeChat.  You just have to ask. 

Leading brands are active listeners. When we think about it, this practice applies in China…and everywhere.

(1)  https://org/2017/03/strategy-in-the-age-of-superabundant-capital

 

Want to hear four more ways to pump up profitability in China?  Get the infographic…

5 ways to inc

 

 

Topics: Operations