China Wholesale Secrets

By Michael Masterson

Arriving in Beijing, we are amazed. First, by the cleanliness of the airport. And then by the efficiency of the passport and immigration personnel. Stepping into the arrival zone, K and I are greeted by two valets from our hotel who welcome us in English, take our bags, and escort us to a waiting van. The driver gives us bottles of water and cold towels to refresh ourselves. We sit back and learn something about China:

• Its population, at 1.3 billion, has more than doubled since 1950.

• There are 100 cities in China with populations of 1 million or more.

• Its land mass is the third-largest in the world (after Russia and Canada).

Looking out the van window, we remark on the good condition of the road and how pretty everything is. Potted flowers line the median. Along the roadsides, poplar trees. “Why doesn’t anyone talk about how clean this city is?” we want to know. We imagine how disappointed a Beijing tourist in New York or Miami might be.

Our hotel is large and modern and, again, immaculate. The service - we are not surprised to discover - is superb, from the doormen who rush to grab our bags, to the greeters who welcome us as we step through the revolving doors, to the smiling receptionists, solicitous concierges, capable operators, et al. Everyone is courteous, smart, and efficient. Nothing is ignored or neglected.

Only in Asia can you enjoy service this good. It’s undoubtedly a result of the unusual combination of a highly cultivated - yet largely poor - population. It will be interesting to see if, as China becomes wealthier, its service declines.

We take a walk in the afternoon and are once again amazed - this time by the size and modernity of the city. This is not at all what we expected: dirt roads … drab, Communist-era buildings … gloomy people … etc. We had heard stories about how big and impressive Shanghai is, with its towering buildings of steel and glass - but we had heard nothing much about Beijing.

These days, there are four million cars circulating through Beijing, our guide tells us. Just five years ago, there were only a few hundred thousand. Everywhere we look, new buildings are going up and every good-sized parcel of land is being prepared for some future construction. In preparation for the 2008 Olympics, all the beautiful wooden palaces and pagodas are being restored. And bustling workers are everywhere - repairing roofs, trimming hedges, relining sewers, fixing streetlights, repainting woodwork, and sweeping the pavement.

You can’t help but have the thought everyone seems to have when they come to China: This country is booming.

To me, it feels like good news. The bigger and stronger their economy gets, the more opportunity there will be for everyone, including Americans. But many people have a very different reaction to China’s growth - including two of my most-valued colleagues, BP and EP.

“We’d better get on the ball,” BP told me. “At this rate, they’ll be way ahead of us in no time. They are already making everything we buy. And now, with all this building, they are going to be using up all the oil and gas.”

“China’s growth has hit us in the construction industry,” EP, a real estate developer in South Florida, said. “They are buying up all the cement and steel they can get their hands on, and it’s sent our costs skyrocketing.”

Only six percent of China’s population is middle-class, our guide tells us. Still, that’s 90 million people. If that population triples in the next 10 years (which is probably a conservative estimate), that means the country’s consumer economy in 2015 will be as big as the U.S. economy is today.

Why would that be a threat to us? It means more stuff we can sell them - assuming, of course, that we have something useful to sell in 2015.

I go back to thinking about how I think about business. When I hear that one of my competitors is having a booming year, I am happy. That seems like an opportunity for my business to boom next year or the year thereafter. The more business the competition does, I figure, the more they will spend on marketing. And the more they spend on marketing, the greater the number of people we will have in our mutual marketplace.

If the marketplace gets bigger, so, too, does my opportunity. If my competitor is currently doing a better job than I am in developing that market, good for him. I’m confident enough in my own abilities to believe that, sooner or later (probably sooner), I’ll figure out why he’s doing so well and use that understanding to create products, projects, and promotions that will fuel my growth.

It may be that the essential difference between liking and fearing China’s growth rests in a different view of the nature of the market. If, on the one hand, you think of the market you are in as a fixed thing - a pie of a certain fixed size - then the size of your competitor’s slice directly affects the size of your own. If, on the other hand, you believe that the market is infinitively expandable - that the size of the pie can get larger ad infinitum - then you would welcome any and all growth, because it would mean more opportunity for you.

I suppose there are fixed markets in the business world in which it might make sense to run a business with a mine-versus-yours mentality. But most of the industries I’ve been in - from bars and restaurants to publishing to real estate - expanded and contracted over the years depending on how much marketing was being directed at them.

I consider it to be an advantage to see the world of opportunity as I do, because it allows you to put all your energy and enthusiasm into marketing and product development. When you view the business world as a fixed-pie, you end up spending too much of your time spying on and worrying about the competition.