Titoma, an end-to-end product development firm in Asia, publishes an article to discuss the key factors companies should consider before they enter Chinese market with their electronic products.
Online PR News – 07-August-2013 – Taipei City – It's no secret that while the US and Europe continue to idle economically, Asia—or China specifically—is booming. China is the world's fastest-growing economy, with growth rates around 10% over the past 30 years. It is also the largest exporter and second largest importer of goods in the world. So it's not surprising that many Western companies want a piece of the "China pie."
But while the prospect of selling products to a prospering China becomes more alluring, Western companies that are already under pressure domestically to squeeze profits—due to rising material prices, competition, and customers that are becoming more price-sensitive—find that these pressures are even more pronounced when selling to Chinese buyers. The challenge: Cutting costs to be able to compete with locally made Asian products.
At the end of the day, companies in China tend to be even more price conscious than their Western counterparts and are not as likely to value quality and time saving features. Why? Quality is normally analogous to a higher price, and time saved tends not to be all too important when labor is inexpensive. Although this may soon change. So even if your product performs 40% better than the Chinese alternative but it costs 60% more then you've lost your value proposition. The only way you’re going to sell it is if your product has a technological advantage over existing local products.
Design for China
From an aesthetic and functional point of view, your current design will need to be optimized. Typically customers won't pay for features they don't value, so redesigning or eliminating nonessential elements altogether becomes a priority—as does identifying the most important features and focusing on them.
In short, know your customers and truly understand their needs. Unlike luxury products which quickly get bought up regardless of cost (an iPhone in China can easily cost up to 3 times more), most electronic products on the other hand have slim profit margins and competition is fierce.
Selling in China Means Making it in China
1. If you want to sell to China then you must manufacture in China. China imposes up to 100 percent taxes on products coming from the West. Naturally, the cost of transporting goods to China is another expense that you’ll eventually have to amortize into your product’s retail price.
2. You need to get your BOM (Bill of Materials) cost as low as you can to produce competitively priced electronics, and the only way to do that is to design your product in Asia and build a supply chain.
3. Finding alternative materials for the housing (the enclosure) should also be considered. Opting for plastic instead of metal, for instance, will significantly reduce your cost. And since plastic is lighter, this means you also benefit from lower transport costs.
4. Chinese companies have a major advantage over their Western counterparts with regard to being able to implement more cost saving changes since labor in China costs considerably less. In the West, companies will not implement all possible changes because the enormous effort would eat into their budget too much and not generate sufficient enough return that would justify the exercise.
Register Your Trademark
If you plan to market your product in Asia, then it would prove wise to register your brand as well as a patent. In the US, trademark registration is based on the first-to-use rule, which means that trademark rights are determined by who does it first. In China, however, trademarks are established by the first-to-file principle, which means that if a US company does business in China but does not file in China, then anyone can do it and ultimately interfere with your marketing, distribution, or even production.
Should you decide to approach OEMs to redesign your product, be careful of technology transfer as you may be inadvertently digging your own grave. OEMs gain a substantial amount of knowledge when working on a project and become privy to your most valuable assets—technology and innovations. They have a tendency to use your project as a stepping stone and incorporate what they did for you into their own products--so you essentially fuel your own competition.
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