When Chinese Money is Worth Less What Does Your Business Do?

Everyone has seen the news that China has devalued its currency. This means the Yuan Renminbi is weaker. When you exchange currency, you can now buy more Yuan for each dollar spent. If China is really the world’s second largest economy, than the Renminbi (People’s Currency) effects world markets.

After all, if Chinese money is weaker, that means that US products sold into China become more expensive. Take the example of Mandarin Oranges for sale in China, but imported from the USA. An 8 kg box costs between $20 and $30. With the weaker Chinese currency, this could cost 25 percent more this year. Thus, the imported oranges are more expensive and the Chinese will buy less of them from the USA, critics say.

On the flip side, items we buy from China will cost less. Importers of (e.g.) Chinese toys will pay less. If the US importers keep the price constant, then the importers will benefit and make more money. So why is everyone complaining?

If your firm is selling a price-based commodity to Chinese buyers (rice, soy, oil, hogs, corn, cotton, etc.) your sales may suffer because your price is too high.

But if you are selling iPhones or BMW’s, the higher price may not matter. Higher prices may even work as an advantage, because the products are more expensive and hence more prestigious.

What advantages do BMW and Apple enjoy that cotton growers and soy farmers don’t?

It comes down to branding and positioning. The successful firms plow back profits into building and protecting a brand. They have made it clear that an iPhone costs more, but is worth it. A BMW costs much more than almost anything Chevrolet makes and their argument is that “price doesn’t matter.”

U.S. firms can often be lazy when it comes to branding overseas. My work in this area points to many firms that relinquish overseas branding to local “partners.” If U.S. firms remember their marketing muscle, they can expand overseas and not be as sensitive to price fluctuations. If we can remember that Starbucks is a lifestyle (not a coffee) we can export that concept (as Starbucks does well).

For those businesses that deal in commodities, there has to be a way to differentiate other than price. Last week I asked a firm (who wishes to deal abroad) if they had bank accounts set up in overseas markets. When they explained that they wanted to be paid in US dollars via wire, one has to wonder if they really intend to service the markets. Better service would be a differentiator.

This firm picked China as a target market. I asked these questions of this firm:

Did they have anyone on staff that speaks Chinese?
Are they interested in going to China regularly?

Do they have relationships in China?

Can they help the Chinese with their own businesses?

Do the Chinese clients need help where the U.S. firm is better connected?

Did they read anything about the region?

Do they eat Chinese food?

All of these points can be differentiators.

All of these questions point to ways in which the Americans can enhance customer intimacy.