Or China 5 (see China 1, China 2, China 3” and China 4).
How is it possible that now many enterprises think they are justified in demanding a profit out of the turnover in the range of 15, 20, 30 or even more per cent?
The explanation is amazingly simple. High profits are a consequence of globalization.
Let us, for instance, take China …
It was very easy for German enterprises to make huge profits on the Chinese home market. They found a new and almost exploding market with a huge potential for catching up. New products were very much in demand. The competitors (today also called “market participants”) did not harm each other. Due to the enormous growth, the cake was big enough for everyone to get a slice. Even if the local management made many (or even almost nothing but) mistakes, the profit remained really great.
But it was not only the home market in China that was responsible for the high profits. Another factor was that the products manufactured in China and sold on the world market (outside China) also rendered extremely high profits. To be sure, these latter were mainly due to the income and cost difference between the “rich industrial nations” and the “poor manufacturing country”. But where is the businessman who cares?
The profit generated in China cannot be transferred back to the mother concern. Consequently, the lowest possible transfer also caused huge profits for the mother. The turnover profit of concerns in the sectors mainly producing in China exploded. And all of a sudden, turnover profits around 4 % were totally out of fashion. Instead, you had to let yourself be measured against 25 %.
And what will a concern do if some of his sectors have a profit rate of 25 %, while others only remain in the one-digit area?
Those profits that basically originated in a special situation turn into the business standard, the departments with the huge profits is extended, while the less profitable sectors are abandoned. Even if the creation of value in expensive Germany never left any room for higher profits.
But here, too, times change. The travelling circus of the Western nations moved on from one into the next low-income country. It often left devastated scenery behind. In the end, it arrived in China. China is probably the last huge paradise for profit hunters. But even there, you can see the first signs of the golden area of high profits reaching its end.
It will be exciting – and perhaps even the mega concerns will again have to be content with profits similar to those we had in the 1960ies and 1970ies.
But, after all, those were not bad times at all, were they?
RMD
(Translated by EG)
P.S.
Here are two more notes at an aside:
There are more countries than just ours with a huge prosperity gap. A harbour labourer in Africa often does not get much more than one Euro for a day’s work. In Bulgaria, many women working in factories still earn no more than 150 Euros per month. And the Java programmer in Minsk is also happy if he has a three-digit sum of Euros at the end of his month. This is where all the dream profits originate.
And looking at the price of one can of beer in a Chinese super market, I wonder why Inbev and Co have a margin of only 30 %.
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