Of course, companies also invest in China to sell to the potential 1.3bn domestic customers. Here the story is more mixed. On one hand, these companies will also continue to invest heavily because China is perceived as the last growth market. But they are often in a loss position. The Chinese market is hyper-competitive and no one wants to quit first. This results in price-cutting, promotions and other give-aways that can force prices below costs.
As one angry manager told me: “I don’t know how these guys do it. The price in China is less than half the world price.” Pepsi-Cola recently admitted that it had lost money during the 20 years it has been in China, because of low margins in the soft drinks sector and heavy spending on advertising and promotion.
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