China retail strategy, the forgotten part

The globe remains enamoured by the China wholesale trade and completely forgot about their retailing part. Driven by the logic, retailing leads to wholesale and not the other way about, Chinese companies follow a fine-tuned business strategy of space domination. Here are the snippets:

Preamble

While the West plays chess, China plays Wei Chi a board game that entails territorial capture, possession and finally to domination by crowding out competitors. While West is keen on winning, China is bent on expanding space even if that means temporary losses. This grand business strategy is executed by way of business tactics that are interwoven to get the ultimate success.

The Nitty-Gritty

1. As explained, space war is the first and foremost. Retail trade begins its operation in the form of kiosk or mini-store to be expanded to a medium-sized one later on. The central idea is to occupy prominent place in a city and thereafter build more and more stores in order to crowd out existing or potential competitors.

2. Chinese business is ready to pay a premium rental to the owners of the space more than what the existing local store tenants pay for. Local parties who have rented out stores previously is under immense pressure to meet up with the higher bid, often losing the bargain at the end.

3. Product war then begins in earnest. Chinese entrepreneurs often resort to discounting price of premium products. Here there is a catch though! The price quote is not only slightly lower than that of the local stores but is in deep discount to the price quoted in the mainland China. What happens is two birds are killed by one stone. The local clientele as well as Chinese tourists from the mainland begin to patronize China stores increasingly.

4. On the other hand run-of-the mill products are sold very much discount to the local store owners’ prices. Hence local guys who cannot face price cutting either opt to close business or sign-up for partnership with the predators where the end of the stick usually points towards them.

5. Where local competitors are doggedly stay put, amid the marauding completion, they would watch with grief that their market share is dwindling at a drastic scale. One option for them is to alter the product line. For example, selling children’s wear to adult wear. For the time being they are out of danger. But the Chinese competitor who focussed earlier on the children wear only will now exhibit both children wear as well as adult wear at their shelves that too discount to the market price.

6. Yet another business tactics is to attract the seasoned employees form the local store owners. Pure poaching stuff! Yet it is not illegal, may be somewhat immoral. Chinese businessmen would grant incoming employees better pay, allowances and performance bonus and such other incentives to ensure their loyalty.

7. Most of these local store owners by their own volition would move out of the location to faraway due to loss of clientele and/or diminishing profit margin bite off their financials. There could be a silver lining too. The generous Chinese business owner might be prompted to give the local store owner a golden handshake perhaps!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

 

Reviewing five features of German industrial excellence, past and present

When German economic miracle hit Europe in the second half of the 20^th century there were five features: namely innovation, quality, precise engineering, efficient performance and wide acceptance. Here is the review of these in today’s context:

Innovation

Undoubtedly, Germany was the forerunner in printing press in publication, diesel engine in motor vehicles & rolling stock and the globally known Idar-Oberstein in gemstone research as well as cutting & faceting. Pharma remained a keen interest with innovations such as Aspirin as base drug and X- Ray techno. Today, sadly, except shoes such as Adidas & Puma, German innovation is now taking a back seat.

Quality 

Once, the quality of German products was ever-present in the hard stuff of manufacturing. Automotives, machinery, mechanical tools and pharma products that too using chemical engineering of highest order took pride of place. At the intervening days Germany was indeed a path finder in consumer electronics and data processing. Today Germany concentrates on easy stuff like food & beverage sports & apparel where both quality and innovation take back seat.

Precise Engineering

 Earlier precise engineering was part & parcel of advanced technology born out of linkage between academia & industry. All these were in the hard side area such as automotives, aerospace and in medical technology. Today market competition dictates that Germany moves out of capital intensive industry towards soft side industries such as computer software and nano technology.

Efficient Performance

Then it was efficiency plus–plus with pronounced emphasis on export-led growth, strong high-quality manufacturing base supported by high skilled employees and a dedicated work culture. This led to Germany being the power-house of European economics. Today, the introduction of Euro as the common currency dampened the enthusiasm of both industrialists and workforce to turn out products of high-quality but products at affordable price, meaning lesser quality, to be marketed throughout European Union at one price.

Wide Acceptance

In the post WWII scenario, German products both industrial and otherwise commanded wide acceptance in the European market. With the dawn of 21^st Century this type of hero worship of German products started to disappear slowly & steadily. There are several reasons: Under-investment in the industrial- manufacturing line is chief amongst them, followed by demographic changes of larger immigrant community who did not share the same level of enthusiasm as the native Germans. Much more potent was the hitherto hailed techno-leadership of Germany has left the hands of the Germans and meandered towards Chinese and to lesser degree to Americans.

Panacea

Navigating business strategy amid geoeconomics is the only solution as I see.

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

 

Why Germany needs another Ludwig Erhard?

Ludwig Erhard served in the German Army as an artillery man in a brief spell in WWI. After he was seriously wounded in 1918, he was discharged from military service. He then mastered the subject of economics and at the end of WWII got a new job as to steer German economic recovery. Today Germany needs another Ludwig Erhard!

Undoubtedly, Germany is in bad state today in terms her economic stability, low growth, high energy cost, sluggish demand for her exports that have collectively pushed the country into economic stagnation. From the coveted position of “Engine of growth in Europe” Germany is now a lesser mortal. So let us turn to the era of Ludwig Erhard and pursue what he did for this Prussian Land.

Post war Germany faced similar situation where a truck load of Reichsmark had to be exchanged for a pound of loaf. Chancellor Konrad Adenauer picked Ludwig to handle the economic portfolio in his cabinet. At that time Germany did not have any gold reserves, bankable foreign currency or for that matter any industrial production. Ludwig understood that no amount of foreign aid can recoup the lost production capacity. No chance of debt notes be issued by the treasury as there was no appetite for German bonds.

Ludwig quickly found a way out. He would issue a new currency called Deutsche Mark, just a pro note, to replace existing Reichsmark which was later rendered invalid in 1948. The holders of these Reichsmark can exchange these for the new Deutsche Mark notes in every banks. The new Deutsche Mark was not backed by gold reserves but by the guarantee of the State that it be accepted and valuable. A strong support by the treasury was the only backing the new Deutsche Mark had and nothing of intrinsic value for this legal tender.

That brought out the miracle. Germans started to put their shoulders to the wheel. Production started, shops were filled with goods. Demand was rising, labour is recruited and wages started to flow into the hands of workforce. Within two years Germany achieved the level production that existed before the start of WWII. Exports led growth began on the horizon afterwards. By the end of 1958 Germany once again became the leading economic workhorse in Europe even beating the British Isles.

As a keen proponent of the concept known as “Social Market Economy”, Ludwig established a business strategy that embodies twin aspects: Germans shall have trust on the state and belief in the new currency. On the other side of the bargain the state would ensure economic stability and at the same time ensuring the welfare of the people.

People were encouraged to increase production, enhance efficiency, and bring out quality outputs so that German products are valued domestically and abroad. The geoeconomics pressure over exports, more exports and better exports was the cornerstone resulting in the economic miracle of the 20^th Century.

Today Germany needs a re-incarnation of Ludwig Erhard to pilot the ship of German economy amidst the geoeconomics storm she is faced with. A re-think of the business strategy is also a sine-quo-non.

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist