Chapter 1350 - The importance of the market
Chapter 1350 – The importance of the market
“Oh, I have a question lingering in my mind. Why are you so confident those companies will not withdraw their investment and will pay the compensation?” Committee Member Bao asked.
Feng Yu briefly explained. “The market. The easiest way to determine if a company is profitable or not is based on their sales.”
“Other factors like the cost, etc., are important. But a company’s profitability is still based on the products’ sales. Products can come in physical and non-physical forms. For example, cars and design concepts. All these must be sold to get profits.”
“Not only we must consider the products’ sales, but we must also factor in the profit ratio. For example, Wind and Rain Mobile’s 399 RMB mobile phone. The sales volume of this model is extremely high. The one-month sales volume is higher than another model’s annual sales volume. But the profit ratio is very low.”
“Price, quality, brand awareness, sales channels, etc., will determine a product’s sales volume. Pricing has the least impact on the sales volume, and quality, brand awareness, and sales channels are more important. Quality comes last among these factors.”
“We keep talking about market economy, and this shows the importance of the market. A market is a market place and companies focus on something called market share. The market share is the proportion of a product sales in a market against similar products in the market.”
“We discover the companies with higher market share have high profits. So when they become the market leader, brand awareness and profits will increase significantly. This will help the company to better market their products and increase their products’ quality, forming a cycle.”
“It is still the product’s sales that determine the market share. But markets have limits. For example, suppose you send 500,000 bicycles to a city with a 300,000 population. In that case, you can’t sell all of them even if prices are lowered below cost. Very few people will buy two bicycles. Some families own cars, and some prefer to travel in public transportation. There will also be some people who don’t know how to ride bikes.”
“Then what will happen to the unsold bicycles? First, you need to develop new markets. For example, neighboring cities or nearby districts. A developed brand will face saturated markets and need to open up new markets to maintain and increase their sales.”
“Many people’s impression of Africa is poor, but Mercedes Benz, Volvo, and many top automobile companies are opening up the African market. That’s because it is a blank market. They can receive high profits once Africa’s economy developed in the future.”
“When mobile phones entered the Chinese market, China’s economy is not doing well. We have few wealthy people at that time, but people started noticing mobile phones through them. When the rest of the people becomes wealthier, they also start to buy mobile phones.”
Feng Yu heard of a joke in his previous life. A Coal Tycoon had come to Beijing and bought a Jaguar sportscar. Then, a few days later, he bought a Mercedes Benz. Why? Because no one has heard of Jaguar and people felt successful businessmen should drive Mercedes Benz. This is the power of branding.
“Motorola and Ericsson had owned Chinese mobile phone market and made high profits. They are doing very well at that time. After that, our Wind and Rain Mobile and Aiwa Mobile appeared, and their sales started dropping. Now, Ericsson is forced to work with Sony to maintain their mobile phone business.”
“Let’s talk about those Japanese companies who were forced to exit the Chinese market. Why are they trying to re-enter again? That’s because we have a vast market, and has better conditions than Africa. Our economy is developing at an alarming rate, and our people’s purchasing power is increasing. Our market potential is growing every day. For example, we sold more mobile phones in a month compared to the total annual sales a few years back.”
“When we own the biggest market share, we can get the most benefits when the market mature. A bigger market share can increase our income, but we can also create intangible assets like brand value. A listed company with a high market share, share prices will shoot up even when they don’t have high profits. That’s because investors believe the company will make high profits after they control the market.”
“After Japan’s economy crash more than a decade ago, they started to develop our Chinese market. During that period, our relationship with Japan had improved. They are willing to invest and help us upgrade our technologies. In return, we allowed them to import their products.”
“During that period, our electrical appliances, machinery, are mostly from Japan. Many people even think Japanese products are the best. If it wasn’t for our domestic companies developed in the later years and snatched back the market share, our markets will be filled with Japanese brands. This will affect our country’s development, and the longer it drags, the bigger the impact.”
“They are after our market and are using us to improve their economy. Other countries saw this and noticed our markets’ potential. Entering the Chinese market might not guarantee profits. Still, not entering means they can never make profits from this vast market.”
“No companies will give up a high potential market like us. Look at our population and our economic growth.”
“That’s why those companies will never give up the Chinese market and don’t dare to withdraw their investments. Which company is willing to give up this market? Even if their company changed from fully-owned to a joint venture, they would still get access to the sales channel, and they can bring in other products.”
“We can be firm during our negotiations with overseas companies in the future because we own one of the biggest markets in the world!”
Committee Member Bao’s eyes brighten up after hearing from Feng Yu. He had decided in his heart.