B2B International
B2B International

February 20, 2008

As market researchers, a large part of our work involves scoping the economic conditions of nations for our clients. This is often done to investigate the market entry opportunities that might exist in a country, and whether those conditions (and others) favour further business development or are likely to repel against it.

It’s with that backdrop that headlines such as "China’s Inflation Hits 11-Year High of 7.1%" appear alarming. Who, you might ask, would wish to start-up or expand into a country so obviously struggling with such macro-economic pressures? From the investor’s point of view, knee jerk connotations of increased costs and lower margins abound – How do we cope with the wage spirals and price expectations caused by inflation? Manufacturers may think “This’ll make our exports seem expensiveâ€?, and so on.

Often, however, it’s worth looking at things in a little more detail, and viewing the situation in a fuller context: In the case of Chinese inflation levels, these have been exaggerated greatly by the unprecedented recent cold snap that’s enveloped the country – with food supplies dwindling as a result.

Moreover, Swine disease has also decimated porcine livestock for the past two years. For a country that eats as much pork as China, a 58.8% year-on-year increase in prices for this kind of meat inevitably has a knock-on effect.

That’s before considering the fact that food products make up about a third of China’s “basket of goodsâ€? (used in consumer price index calculations). This, added to short term supply issues, like the above, only further distorts the headline figures. In fact, non-food inflation rose by a whole 0.1% in January, to a not-so-whopping 1.5%.

Leaving aside these macro-economic considerations – while figures like GDP and inflation are generally good indicators of where a country is heading, they usually cloud a whole raft of opportunities that nonetheless exist. Tapping into these sorts of “hiddenâ€? insights, therefore, can be of immense value. And it’s what we’re pretty good at doing.

Even if the Chinese inflation situation were a crisis (which it probably isn’t), JFK couldn’t have put it any better:

The Chinese use two brush strokes to write the word "crisis". One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger – but recognise the opportunity.

p.s. We wouldn’t be telling the whole story if we didn’t also point out that, morphologically speaking, the above quote isn’t entirely true – That doesn’t stop the sentiment being well-placed, though…