Why UK companies must consider the huge potential of the China market
Any company with ambitions to grow must include the China market – because that is where the growth is going to be for the foreseeable future.
The opportunity in the UK and Europe is mediocre at best, with UK GDP growth outlook for next year of 0.6% and Europe 0.5%. (European Commission 10 November 2011)
In contrast, China is trying to manage down its rate of GDP growth from the current more than 9% to a five year target of 7%. Many commentators think that 8% is more realistic. The previous five year plan had a growth target of 7.5% and the actual over the period was 10%!
The current, twelfth five-year plan aims to rebalance the economy from its dependence on low tech exports to an environment of high tech development and the encouragement of domestic demand.
This gives an increasing opportunity for foreign companies to supply the market – both domestic and industrial.
But this fast moving market is not easy. There are major cultural and legal differences to be aware of and adjusted to. And of course the Chinese work ethic is paramount.
A glimpse of the Chinese way of thinking is the comment by Jin Liqun Chairman of the Supervisory Board of the China Investment Corporation ( arguably one of the most powerful financial men in the world) referring to China and the West - “ We work and you enjoy” .
He also commented at a recent conference in Germany, referring to the European economy: – People need to work a bit harder and longer. And they should be more innovative. We work like crazy. (Ouch!)
It is into this stimulating environment that foreign companies of the right calibre can find growth opportunities and succeed.
The Chinese have a great sense of urgency in all walks of life and they have the capacity to surprise the West with their pace of change.
This is illustrated by the docking of the Shenzhou-8 with the Tiangong-1 orbiting module on the 3rd November 2011.
Professor Michael Sheehan, of Swansea University, an expert on space issues, has commented:
“The Chinese have momentum in their programme; they're closing the gap while the US is treading water," said Professor Michael Sheehan, an expert in space politics at Swansea University. "Ten years ago, China didn't have any reconnaissance satellites and it was 25 years behind the US. Now they have ones that are as good as the American satellites. It's been an incredible build-up in the last decade” They put 20 commercial satellite into orbit in 2010.
This is despite being forced to develop their own technology by an American embargo on the exchange of space know how imposed over ten years ago.
On a more down to earth arena, the internet usage and the penetration of mobile phone is racing ahead. China, at 485 million, has the highest number of internet users in the world. (The United States has 245 million and the UK 51 million). They have some 277 million mobile web users and after a late start they have some 47 million 3G mobile users, with the commercial opportunity for advertising that it presents.
Social media is all pervasive. RenRen – the Chinese equivalent of Facebook, and the social networking site ranked first in a brand image survey by CBN is moving into the B2C space. Sina Weibo, the Chinese equivalent of Twitter, with some 250 million users and claimed to be adding 10 million users per month, is reported to be due to launch in the United States soon. DangDang, an online book store claims to have more titles than Amazon. Microblogging is taking off as a commercial medium. Christine Lagard, the MD of the IMF joined Sina on 6th November and within a day she had 28,000 fans.
The Chinese middle class, with its acquisitive and competitive life style, is growing fast. The “sub-uber-luxury” market is a huge opportunity. The Brookings Institution estimates that consumer driven domestic consumption will account for up to 50% of GDP by 2015.
As an example of this, Starbucks, whose coffees are, if anything, more expensive in China than they are in the West, is forging ahead and planning to have 1500 stores by 2015. Interestingly they report that their outlets are more profitable than in the United States.
The key message is that the Chinese market is moving fast in all directions, both business and consumer. It’s a difficult market and all the right steps need to be taken:
Good market research to understand the market, the key players and the opportunities. IPR protection is an issue in China – but it needn’t be a problem if addressed properly.
All the marketing materials must reflect the Chinese design culture – which often is quite alien to Western eyes. Web site must be Chinese designed and not just translations of Western ones. They must be fast loading to attract a high ranking on the major search engine, Baidu, which has almost 80% of the market.
The Chinese buy on brand, so investment in brand development and reinforcement is important to foster brand loyalty – not just in the consumer sphere but also the business environment.
Above all, business in China is based on relationships. A good solid relationship is the foundation for business success. This is put succinctly by Grace Ueng, (a graduate of MIT and Harvard Business School and CEO of Savvy Marketing Group) “A personal relationship is more effective than a contract, which may or may not be enforceable”. To build up good relationships takes time, but it is an essential prerequisite of sound business. And don’t forget the government at whatever is the appropriate level – national, provincial or municipal - they must be on your side if you are going to succeed.
So, from the space age to Starbucks, the Chinese economy is racing ahead. Some sectors are easier to penetrate than others of course, but any company with a good product and a great desire to grow should not ignore the opportunities in China.
John Pickup
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