“A billion people in China wake up everyday trying to make everything they use cheaper and more convenient” thus prices fall all over the world, according to Jack Perkowski.

Jack Perkowski: We always talk about China; but you have to think about China too in two pieces.

One is the 900 million people or so. China in an overall basis has an average per capita income now of about $3,000. There’re about 900 million people that are living at about $500 a year.

And then, there are 400 million who were somewhere around a little over $8,000 per year. So obviously, those 400 million have benefited the most from these last 30 years of economic reform. And because of those two markets, because of those two big income segments, which you have in China are two markets.

So you’ve got a higher cost, higher technology market, higher price, which is these 400 million market. Then you’ve got a low price, low technology market. It’s very interesting because what that means is that this local market keeps getting bigger because the China economy keeps getting bigger.

And what’s happening is in every industry, you’ve got more competitors in China than you do in any other part of the world. So, for example, going back to my piston ring company 5 years ago and we’re one of the leading piston ring companies in China, but 5 years ago, there were a 150 piston ring companies in China. Most people would say those industries are going to consolidate. Today, there are 400. They’re about half a dozen global companies in the piston ring company. And every product you take, there are half a dozen global companies today in the business and there are 400, 500, 1000 in China. And what’s this is doing, this is making China a huge breeding ground for future competition. The reason why this market, this local market is bigger is you get 900 million people that [can’t] afford those higher price, higher technology products, but they would like access to them.

So one example I use is that the 400 million people that are making $8,000 a year can afford the Notebook Computer you have, but they prefer not to pay which you paid for it because when they look at 100 RMB, they see the equivalent of 100 US.

The 900 million people understand the power of the Internet and they would like that Notebook Computer but they can’t afford it. So a billion and three people in China wake up everyday trying to make everything they use cheaper. So this basically brings tremendous price pressure downward on all products.

So I think what’s going to happen is with so much energy in China, concentrate on trying to find a way to make everything that we use cheaper, more affordable, more convenient, easier to use that which you’re going to have is you’re going to have innovation and new products. And as those products gain scale in China, of course, they’ll get very big. And then once they go the global markets, they go out with a price tag that’s much lower than what a company in a traditional market have, so that’s kind of the model that I see that is going to literally one industry after another change them.

Recorded on: September 22, 2008