If something makes money in China, everyone jumps in. I learned this from our dinner speaker last night, the famous James McGregor, author of One Billion Customers. Our speaker used the steel industry as an example. Steel was in high demand, with limited supply; the manufacturer could charge outrageous prices. An ostrich would have missed this trend. So, many steel mills opened and created overcapacity. Even before this current downturn in the economy, the overcapacity existed. So, the provincial government said, "Don't build any more steel mills." The Chinese entrepreneur responded by saying, okay. Then, he called his new factory something else. But, it still is a steel mill.
In China, the art of dealing with perception is truly an art, not just a skill. To the world, you want people to think that you are hungry, will cut any price, so don't start the vicious cycle of price reductions. As I thought about the law of supply and demand, it struck me that you want your business to make lots of money and at the same time, you don't want any one to know this. It reminded me of the richest kids in my high school class. They would wear the most torn jeans with t-shirts and non-branded sneakers. Well, okay, all sneakers have a brand. They would wear the non-cool ones that cost a fraction of the Nike and Adidas shoes. It never pays to flaunt your wealth. As we shopped in the market place, the prices are so cheap, you ask yourself, how could this vendor possibly make any money for these shirts or purses?
The answer is volume. No one will advertise the true sales figures. So, today's China lesson is that the law of supply and demand rules, but can be disguised. I wonder how many of you have ever downplayed a situation just to make sure no one took away your golden goose. It's happening today as many of the people I meet who are doing well during this recession but, refuse to talk about it. They don't want the world to know.