China: Making of a Consumer Nation and Opportunities for Turkish Businesses

2006 was another milestone in China’s unstoppable economic journey to becoming a global powerhouse. China’s economic growth and industrial output had an effect on almost all the economies of the world. In 2006, China celebrated the 5th year of its accession to the World Trade Organization (“WTO”) and the start of its eleventh “National 5-Year” program. China, at the same time, had surpassed the United States in export volume during the 2nd half of 2006. Although the United States was able to finish 2006 as the world’s second-largest exporter after Germany, China is projected to overtake the U.S. in 2007 and Germany in 2008 to be the world’s largest exporter. In order to address global trade imbalances, China is taking measures to import more goods and is placing greater emphasis on developing a consumer-demand driven economy that Turkish companies can take advantage of.

China’s industrial output will continue to sustain a strong growth in the upcoming decade and China will continue to be a reliable supplier offering a wide range of goods at lower costs. But China, given its vast market and rapidly developing consumer nation, has more to offer to world’s other economies than only being a supplier. The potential of the Chinese market has attracted the attention of many foreign investors for more than two decades. More than 482 of the world’s largest 500 corporations are present in this market whether it is for production, outsourcing or just for trade.

Up until now, the majority of Turkish companies have been focusing more on importing goods from China and marketing these products at the Turkish domestic market, enjoying high profit margins. The Chinese government currently spends a substantial amount of its GDP to keep its currency, the Yuan, undervalued in order to help boost its exports. In the long term, as the Yuan appreciates in value, the cost of these Chinese goods will increase accordingly. It will no more be as easy and feasible as it was to find a Chinese manufacturer and make huge profits selling their merchandise in the domestic market unless the imported good is an innovative product. This is a major reason for Turkish companies with long-term plans to focus their efforts more on selling to China instead of accepting it only as a supplier.

The appreciation of the Yuan along with many other factors will increase the buying power of the Chinese middle and upper class and will help Turkish exporters enjoy marketing their products and services to a larger market with a relatively increased buying power. Turkey, as is the case with many other world economies, is experiencing a huge trade deficit with China, which reflects negatively on its economy. The Turkish government, in order to protect its domestic manufacturers, is adopting trade-protective measures such as tariff escalation and filing anti-dumping investigations at WTO against China. Turkish customs rules and regulations are also not supportive in making the import surveillance procedures transparent and fair against goods made in China. For Turkish companies that want to guarantee long-term sustainable profits, it will be a wiser choice to focus their efforts on selling their products to China instead of sourcing from it.

During the last two decades, many foreign brands lost no time entering the Chinese market and jumpstarting their attempts to build brand recognition, which they believe is paramount to success in order to survive in China’s growing consumer market. Chinese consumers in larger cities started to have better knowledge of brands and they are now more discriminating in exercising their right to choose than ever before. China is a big country with wide disparity between the upper and lower class and strong regional, cultural and linguistic differences. Each company has to choose its target consumer or region carefully and should not think of the country as a market of 1.3 billion people. Although it could be argued that the market is about to get saturated, there is still room in many sectors for Turkish brands to enter the market with high quality products and start building their brand names in order to achieve a consistent demand in the years to come.

Turkish brands that have already entered and succeeded in the United States market offering high-quality products have a good chance in securing their presence in China by modifying their marketing plans according to China’s needs. Turkish American companies already have a strong basis in conducting global business and following trends in a wide range of markets. Most of these companies already have a global team that can follow-up on daily issues, solved their Quality Assurance “QA” problems and offer innovative and creatively designed products in global standards. These assets and resources can be restructured in adapting to answer the needs of Chinese market. Chinese markets have had exposure to American-style brands and way of conducting business for over two decades. China is a promising and less saturated market for Turkish American companies that want to improve their global presence.

China is projected to have a medium to upper class of 300 million people with enough purchasing power in international standards. Although China is a more preferred market to build brands in comparison to many Western countries due to its immaturity and great potential, it presents many unique barriers to entry.

• · “I believe that a well-planned and pro-active intellectual property and trademark registration is crucial to any China business plan,” said Cindy, a trademark attorney at LL, a top Intellectual Property service provider and law firm that has offices in over 6 cities in mainland China. “Because the trademark registration process takes 1 to 2 years depending on whether there are any disputes on the chosen trademark, any company planning to enter the Chinese market should register its trademarks both in Latin letters and Chinese characters as soon as they know this is likely to happen.”
• It is possible for Turkish companies to run preliminary availability searches to find out the registered trademarks in China. However, the pending applications may not always be accessed over the internet and a law firm can be useful in providing help with searching pending applications. According to LL, average costs including consultation and government fees are approximately $450 for the registration unless there are any disputes on the trademark and $90 for the preliminary search. However, these registrations are only valid in mainland China and the trademarks need to be registered in Hong Kong, Taiwan and Macau separately in order to provide full-scale protection.
• Registration of the trademarks at Chinese customs is a second step for those companies that are really looking out to protect their trademarked goods from being imported and exported out of China. This is a process that usually takes less than 4 months after the trademark is already approved by the Chinese government and it costs around $300 including lawyer fees and registration and filing expenses.
• · Understanding the Chinese culture and unique way of doing business is another crucial element in long-term relations since it affects the way Chinese companies make decisions. Many little details like numbers used on a price quote or dates of meetings can affect a Chinese businessperson’s decisions.
• · Constant trips to China are also critical in developing business relationships with Chinese companies. Today, by running an internet search, anyone can find out the contact information of almost every supplier of a product. But all these suppliers look similar with a boosted number of employees listed and manipulated financial data of exports published on global B2B websites. Also, there can never be a substitution to doing business face-to-face with Chinese businesspeople and building trust while sitting across from them at the time of a contract signing.
• · Although the Chinese government has taken strict measures to fight corruption in the last decade, it is still a problem that is more often faced in smaller to medium sized companies. Turkish companies willing to do business in China will benefit a lot if they have offices in China that can follow-up on the customs process, shipping and QA problems. Quality of the shipped goods may not always be up to expected standards and these issues better be resolved while the products are still in China. Past trading records if accessible and on-site visits are essential to conducting an effective evaluation of a company’s credit worthiness. Private companies are by far the riskiest type of companies with an annual growth rate of 36% and lack of corporate governance. Establishing long-term relations is crucial in doing business in China and this can only be done by starting with the right company.
• · Depending on whom they work with, for Turkish importers with no presence in China, language can arise as a barrier but this can be overcome by hiring more sinology major graduates from local universities. Chinese companies appreciate using Chinese language at business meetings and transactions.

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