Unless you were lucky enough to completely check out this summer, you are most certainly aware of the unprecedented changes that are going on in China. There are three things you need to know about how these developments impact the promotional marketing world.

First, just in case you missed it, here’s a quick rundown of the current situation in China:

  • Chinese Stock Market Correction: stock market dropped roughly 30% in just a few weeks, wiping out over $2 trillion (!) in value for primarily Chinese investors
  • Chinese Government Intervention: despite global criticism, Chinese authorities repeatedly tried to stop the decline, with significant efforts to artificially prop up markets
  • Chinese Currency Devaluation: authorities eventually devalued the Yuan over 4% last week, significantly altering the competitive export landscape

stockmarket2
(Source: CNN Money)

LET’S TAKE A LOOK AT THE THREE THINGS YOU NEED TO KNOW ABOUT THE SITUATION IN CHINA

1. Softer Yuan = Stronger Dollar = Cheaper Chinese Products

The Chinese currency devaluation last week was the biggest devaluation in decades. The Chinese Yuan has been closely tied to the U.S. dollar lately. As the value of the U.S. dollar rose last year, the Chinese Yuan stayed largely in step with it, despite the Chinese economy slowing down and the U.S. economy steadily recovering. Over time it created an increasingly inflated Yuan and a correction became inevitable. With the devaluation of the Yuan, Chinese products will get cheaper to U.S. companies and consumers.

valueofyuan

2. Stronger Dollar = Dampened U.S. Exports

Although cheaper Chinese product probably sounds great, the Chinese devaluation effectively makes China’s exports less expensive, which puts pressure on the U.S. dollar to rise. The threat to the U.S. is that a stronger dollar could dampen American exports and potentially disrupt our somewhat fragile economic recovery.

So while a stronger dollar certainly provides a welcome boost to overseas vacation budgets, the threat of declining U.S. exports is more concerning―especially considering the impact it may have on marketing spend in general, and promotional budgets in particular.

3. Troubles in China = Symptoms of Bigger Problems

While certainly not something we should ignore, the challenge that China’s devaluation poses to the American economy is just one part of a much bigger global problem: weak global economies. Both established economies like Europe and Japan, and more recent growth economies like China and Brazil, are all seeing governments taking increasingly aggressive steps to boost their slow growth.

One of the reasons the dollar has risen so much in the last year is the massive stimulus programs in Europe and Japan aimed at energizing their sluggish economies. By printing money to stimulate their own economies, Europe and Japan have also made their currencies weaker, boosting their exports and putting more competitive pressure on U.S. exporters.

All this points to a much bigger and scarier global problem: decreasing consumer demand globally, and a competitive race to the bottom as more countries compete for the same consumers in the same export markets.

ChinaMarketCollapse
(Source: CNN Money)

SO IN SUMMARY, HOW DOES THIS IMPACT PROMOTIONAL MARKETING?

  • Chinese products get cheaper: great for most U.S. suppliers/manufacturers and overseas opportunities
  • Dollar gets stronger: U.S. exports are impacted negatively and if it continues, could impact organizational growth and thus investment in marketing, specifically with regard to promotional budgets
  • Global economy gets weaker: if the global economy continues to slow down, the modest growth in the U.S. cannot carry the world market on its own and could lead to far bigger economical issues

SO WHAT CAN WE DO ABOUT IT?

The good news is that we’re already doing it. Only with an unwavering focus on delivering value to our customers, both by improving the impact of promotions, and reducing the cost of executing those promotions organization-wide, can we transform from being a cost center to a profit-generator for our customers. There are no recession-proof strategies, but being a profit-generator for your customer is about as close as you can get.