The Hindu Business Line : China’s cost perspective

Why is ‘the China price’ so low compared to the price elsewhere? A fundamental explanation is their ‘cost perspective,’ says Jack Perkowski in Managing the Dragon ( www.landmarkonthenet.com ).

“They think about money differently… Chinese managers instinctively and relentlessly search for manufacturing solutions that fit into China’s framework of affordability,” he explains.

“What they consider affordable or appropriately priced is radically different (and less expensive) from what might be acceptable outside of China.”

As example of the price consciousness of local managers, the author writes of how his 38-year-old general manager Wu Yingxue manages money: “When Wu travels to Beijing, instead of taking the 1,160 yuan ($152) economy flight from Nanjing, he’ll take the overnight train from the nearby city of Yangzhou.

The train only costs 429 yuan ($56), and it puts him in Beijing early in the morning, maximising the hours he can work in the day and eliminating the need to spend money for a hotel in Beijing. He also saves himself money on the ground: the Yangzhou train station is minutes away from our factory, while the Nanjing airport is an hour and a half away by car.”

Another example that Perkowski gives is of the perspective towards the highest unit of currency.

“When Americans look at an RMB 100 bill, they divide by 8 and see $12.50. But when Mainland Chinese look at that same bill — however wealthy they are — they see what Americans see when looking at the $100 bill.”

This is why the Chinese can drive a harder bargain, the author observes. “Their bottom line will always be different.”
So with services, too. Take, for instance, the 8-yuan haircut (it could be further lower in rural China), considering that a haircut in China isn’t just a haircut! “The 20-minute cutting of hair is preceded and followed by a 30-minute head and shoulder massage,” describes the author. “I’ve known foreigners who would get a haircut, even when they didn’t need one, just to get the one-hour head and neck massage.”
If we need to buy a $100,000 machine in the US to perform a particular function, more often than not we can buy a machine in China to perform a similar function for RMB 100,000, says Perkowski. “As a Western company doing business in China, it’s easy to import a higher cost perspective into China — thereby destroying the cost competitiveness of your China operations in the process,” he cautions.
“In many ways, price levels in China for daily goods are similar to price levels that existed in the US in the 1950s.” The difference in cost perspective explains “why products that Western companies think will appeal to the mass market in China instead succeed only in a niche market.”
The author, therefore, argues that to be competitive in the China market, it’s essential for the company’s managers to have same cost perspective as its customers and competitors. “This is the most compelling argument for developing and empowering a good local management team,” he adds.
You need to go beyond competitive salaries and benefits, if you want to keep your best people, advises Perkowski. Empower your Chinese managers, expand their responsibilities, give them new opportunities within the company, and provide training so that they can develop their skills, he urges.
“This is what Chinese managers will respond to. If they see new opportunities going to outsiders, feel that their jobs don’t carry real responsibility, don’t believe they’re trusted, or believe that the company has a ‘glass ceiling’ where the top jobs go only to Westerners, no amount of money will keep them.”
Immensely instructive.

D. MURALI
http://BookPeek.blogspot.com

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