Retail market in China tricky for newcomers
Despite the global economic downturn, China's retail spending has continued to perform well. The Economist reported in May that retail sales in China are growing by about 18 per cent a year and have now reached US$1 trillion a year.
This large and fast-growing market is an extremely tempting target for foreign companies wishing to expand their retail base, including Thai businesses.
However, for any entrant to this market there are challenges to meet and so I would like to share some advice after observing the experience of foreign businesses in the country.
Don't sacrifice quality. It's almost impossible to compete with the Chinese on price, so don't try.
I have always advocated to Thai businesses that they should compete on quality because of the more affluent lifestyle and growing purchasing power of the middle class.
It's true that most consumers don't receive much of a pension unless they work for the state, and that older shoppers in particular are very keen on savings and cost-cutting.
But the future is the rapidly-growing middle class, which is very focused on quality - much more so than previous generations. Once they are satisfied with the quality, pricing is secondary.
Review your business processes. Things that work in your home country may not necessarily succeed in China.
For example, presenting fresh fish on ice in a supermarket may be popular abroad, but in China many shoppers prefer fish fresh out of a tank which they can prepare at home.
These types of insights may completely change your product approach, and supply chain.
Get online. With the online marketplace booming, you might save costs by shifting
your business wholly or
partially online.
There are many specific characteristics of the Chinese online culture - for example local people can't use Facebook and the most popular search engine is Baidu - so you will need to engage a local web partner.
Closely manage your supply chains. Many businesses in China face difficulties due to warehousing and shipping inefficiencies. Try to position your business, or "home bases", close to international shipping to cut wastage and excessive transport costs.
Importing goods from countries without free-trade agreements will add considerably to your costs due to import duties and value-added taxes.
It may be a good idea to look for a local supplier as a substitute for imports, or consider using Thailand as a hub to enjoy the tariff-free imports from Asean.
Understand the culture. While this particular lesson may seem obvious, I see many businesses fail, or underachieve, because they were not in touch with social trends.
When toy maker Mattel launched Barbie dolls, they did not fully appreciate the opportunities in the lucrative young adult market.
Why young adults? Many had missed out on having a Barbie and similar products when they were young, and were reliving their childhood in their 20s and 30s through their own children.
My final advice is to consider the wider market and look beyond the east coast centres such as Beijing, Shenzhen or Shanghai.
The most rapid retail growth is in regional centres out west, such as Chongqing, Chengdu and Wuhan, where there is often less competition and an window to be the first to penetrate the market.
