---
title: "The Wolf Is Really Coming: Every Industry in China Will Face a Shakeout Next Year"
description: "As the world's second-largest economy with a population of 1.4 billion, China's economic transformation will have profound impacts on global economic patterns. Rising labor costs are turning China's advantage into a disadvantage, forcing labor-intensive manufacturing to move to lower-income countries, while traditional marketing and business models are becoming obsolete, pushing enterprises to transform or face extinction."
author: "赵筱赟"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2014-11-29"
language: "en"
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# The Wolf Is Really Coming: Every Industry in China Will Face a Shakeout Next Year

> As the world's second-largest economy with a population of 1.4 billion, China's economic transformation will have profound impacts on global economic patterns. Rising labor costs are turning China's advantage into a disadvantage, forcing labor-intensive manufacturing to move to lower-income countries, while traditional marketing and business models are becoming obsolete, pushing enterprises to transform or face extinction.

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As the world's second-largest economy with a population of 1.4 billion, China's economy is undoubtedly a 'large country economy.' In economic terms, changes in a 'large country economy' will have significant impacts on other economies worldwide. This has been clearly reflected over the past decade or more.

At that time, there was a saying: 'Whatever China buys becomes expensive; whatever China sells becomes cheap.' This is a true portrayal of a 'large country economy.'

**Now, China's economy is facing a transition period. After the transition, what China buys and sells, and the industries it imports and exports, will inevitably change. These changes will have profound impacts on the global economic landscape.**

**Labor Cost Advantage Turns into Disadvantage**

With further increases in labor costs, the outward migration of labor-intensive manufacturing from China is inevitable. Some developing countries and regions with suitable conditions (such as ASEAN and India) are likely to take over China's industrial transfer, becoming the next 'world factory' and driving their local economies into an upward cycle lasting a decade or more.

Currently, China has entered the ranks of upper-middle-income countries, with its global income ranking significantly improved compared to twenty years ago. In 1990, only 20 economies in the world were poorer than China (measured by GDP per capita); by last year, that number had exceeded 110. This means that now more than 110 economies have a labor cost advantage over China.

**If China's economy continues to maintain an average annual real growth rate of over 7%, its GDP per capita is estimated to exceed $8,000 within 2 years and $10,000 within 5 years. By then, China's labor cost advantage will turn into a clear disadvantage.**

The disadvantage in labor costs will largely offset China's advantages in infrastructure, labor quality, industrial chain and supply chain support, and domestic market potential. Under these circumstances, the transfer of labor-intensive manufacturing from China to lower-income developing countries becomes a natural progression. This can be seen in the changes in global production base layouts of some multinational companies in recent years.

**The Momentum of Traditional Marketing Is Gone**

In the past, entering the Chengdu market for a brand was simple: do some promotion in large department stores, secure a few mainstream business districts, and set up points everywhere. Basically, the business would be 70-80% mature.

Now it's different because cities are developing, consumers are moving out, and the fundamental reason is urban expansion. The original first ring road is now the city center, the third ring has become the second ring, and residential clusters have become consumption clusters and business districts for manufacturers.

Take Shanghai as an example: there are currently over 200 business districts of various sizes, and most have reached a certain scale. In the future, limited large business districts will become unlimited small ones, even fragmented into micro business districts.

No matter the industry, traditional marketing can no longer find its 'momentum,' mainly reflected in the capital market. **If your business model is still the old routine—production, processing, product, distribution, advertising—this set has long become the standard practice for traditional enterprises, especially large ones, which can do it with their eyes closed. Everyone suddenly feels fatigued and finds it hard to get excited. No matter what success training is provided, it's difficult to inspire the team's fighting spirit. This is the biggest problem, and it's a sign of the dead end for traditional industries.**

**Transform or Die; Fear of Transforming to Death**

Transformation is indeed a matter of life and death for enterprises. Especially for large enterprises with annual sales exceeding 1 billion yuan, they rely on traditional channels and teams, making transformation no easy task. Can they transform? It's difficult. Nokia's corporate culture, management standards, and patent innovations were world-class, but why did it disappear? The answer is simple: Nokia was eliminated along with the era that made it successful.

For enterprises, there are two types of transformation. **The first is forced transformation, when problems accumulate to the point of being unsolvable, forcing the enterprise to change. This kind of transformation is costly and painful, but without surgery, death is certain. The second is anticipatory transformation, where the enterprise leader has exceptional strategic insight.** Such entrepreneurs are rare. For example, when IBM sold its PC business to Lenovo, it was just before PCs became less valuable, allowing IBM to sell at a high price and complete its transformation successfully. But such entrepreneurs are extremely rare worldwide.

People often are reluctant to give up past successes and glories; nostalgia is human nature, but business cannot be nostalgic. Li Ka-shing warned his son never to fall in love with any industry or business. Often, when emotions come into play, that's the beginning of failure.

**Executives Are Getting Older**

The average age of traditional Chinese business owners is over 40, and executives are over 35. These people have rich experience in traditional marketing, but the accompanying problem is their lack of proficiency in the internet. The biggest obstacle to corporate reform lies with these two groups; the bottom-level employees are young and have no issues.

Executives over 40 working in traditional enterprises may face the risk of unemployment in the next three years, and it's a high probability. **An enterprise or a person often fails for the same reasons they succeeded.** Who can bear the risk of replacing a batch of executives with young people? Consulting firms cannot, and the enterprises themselves are trembling. So, this is the contradiction and pain of enterprise transformation.

For newly emerging internet companies, they have no historical baggage and can travel light, but traditional enterprises cannot. They carry hundreds of channel distributors nationwide on their shoulders. What to do? This is the most painful part.

**Mistaking the Internet as Just Another Sales Channel**

Many traditional enterprise executives talk about the internet, and a large portion of them treat it as just a channel.

For example, Bull Socket, which I once served, grew from 300 million to over 3 billion in 4 years, following the traditional distribution route. Is it safe? Not at all. Although our creative 'safe socket' concept worked well in the traditional market, today's era has made Bull dangerous.

For instance, if Lei Jun discovered the high profit of small sockets and created a more beautifully designed one, selling at factory price as retail price, Bull's distribution channels would be in chaos. This means the internet is a sales channel, but internet thinking is a new business model.

As Jack Ma said, **traditional enterprises often first cannot see the internet model, then look down on it, and finally find it too late.** Many traditional enterprises are doing exactly this, and the future is indeed very perilous.

**Products Are Increasingly Hard to Sell**

Three Squirrels snack food is selling very well, with anime-style packaging and sales language, full of internet-era innovation. Actually, the nuts inside are no different from those sold on the street. Why are consumers flocking to it? **Because today's young generation buys not just a product, but a spirit or fun.**

Traditional food is increasingly hard to sell, especially many traditional food enterprises with long histories that still engage in cultural packaging. This approach pushes enterprises toward a dead end. China and Chinese enterprises should no longer peddle traditional culture; it can serve as background for brand stories but absolutely not as the primary appeal.

Baijiu is a typical seller of traditional culture. What happened? Baijiu stocks were halved by the market, not because of drinking restrictions, but because the road of selling traditional culture has come to an end. Jiangxiaobai created a fashionable baijiu concept, cutting ties with traditional culture, targeting only young people, and sold hundreds of millions, leaving traditional baijiu companies puzzled.

In the future, the competition will definitely be about creative culture, not traditional culture. Products must be full of human touch, not self-aggrandizement and packaging. Products must become the 'tapeworm' in consumers' stomachs to succeed.

**Strategic Planning Loses Meaning**

Vancl's Chen Nian said, 'I never know what will happen on the internet tomorrow.' He was right. In the internet era, making 3-5 year strategic plans is meaningless and self-deceptive.

Today you see Alibaba is hot, but next year or the year after, it might not be; it could be replaced by WeChat. Tencent once tried an e-commerce similar to Alibaba but failed, yet today WeChat has succeeded.

Therefore, under the rapid changes of the internet, enterprises can only formulate effective 1-year strategies, with tactics changing on a weekly basis, to keep pace with the times. Thus, in the internet era, enterprises will become increasingly tired because everything speeds up, and the comfortable days of the traditional enterprise era are gone forever.

So, I suggest traditional entrepreneurs have two future paths: **The first is to sell the enterprise quickly, like IBM sold its PC business early. Sell now while you can still get a good price; in three years, you won't be able to sell it. Then invest the money in young people and become their shareholder. The second is to take the risk of transformation yourself, learning from Chu Shijian, who started an internet business at 80, of course, provided you have a good product.**

**Can't Understand Business Model Innovation**

Because the internet world is flat, there is no regional market distinction. In the traditional era, you could be a regional brand leader, but on the internet, there's no such opportunity. So, a business model can only support one enterprise. That's why Tencent's imitation of Alibaba failed, and conversely, Alibaba's imitation of WeChat with Laiwang, I don't think it will succeed either.

Whether you can directly face consumers with a new business model is the test for all traditional enterprises in transformation. The future is the era of direct sales, and channels will inevitably die out. **Three direct sales models will prevail: internet direct sales, human network direct sales, and community chain direct sales. Without these three, traditional enterprises have no other way out.**

The era of large distribution will no longer exist because channels existed due to underdeveloped logistics and information in the past. Today, the value of channels is gone. Consumers will not pay for channel costs; they need to buy at factory prices. That's the value of Alibaba.

So, traditional enterprises must think carefully about how your products can directly reach consumers who like you, making them love them and spread the word.

**2015: The Year Testing Bosses**

In 2014, specifically the second half, many traditional Chinese enterprises woke up, started to panic, and began to hesitate because we have no precedents to refer to, only past experiences that no longer work.

**The success of an enterprise is 99% attributed to the boss. The failure of an enterprise is 99% blamed on the boss. 2015 tests the boss. The times will ruthlessly eliminate so-called traditional entrepreneur stars, constantly spawn novel or even strange business models, and grassroots entrepreneurial heroes will rise.**

In the internet era, no industry can stay out of it; all must transform. Whether you want to or not, forced transformation will exert its power, regardless of human will.

Source: BWCHINESE Chinese Website

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