China Skinny recently attended the Asia Pacific Business Outlook conference in Los Angeles. As an agency servicing brands in both China and abroad, we find it valuable to hear perspectives about China from businesses who are both close to the market, and an ocean apart. The conference was full of enlightening details regarding the Mainland China market. Below are five key takeaways from the conference.
The opportunities in China, particularly among China’s middle class, were detailed throughout the conference. China’s economy is growing at 6.5% per year, which is the equivalent of adding Switzerland to its economy each and every year. With this growth, China’s upper middle-income group is projected to expand from 7.1% of the population in 2015 to 19.7% in 2030. This means a new consumer class of more than a hundred million strong, eager for products and services for their new lifestyle.
The increased opportunities presented by China’s growing middle class is attracting its share of suitors; more companies than ever are looking to sell to Chinese consumers. One particularly interesting group is manufacturers who were once simply concerned with production. They are now heavily investing in the China market and developing brands to sell in China. Some examples of recently successful China brands include phone makers Xiaomi and Oppo, cosmetic brand Proya and snack brands Three Squirrels and Bestore. Foreign companies who once relied on their ‘foreignness’ to sell can no longer rest on their laurels as it there is now a battle of the brands between “national consumer champions” and global premium brands.
While foreign products typically do hold a higher status than domestic products this doesn’t mean foreign brands are assured of success. Often domestic players have better distribution, deeper insight to their target market, and are quicker in adapting. A great example of this is the dairy industry where despite the lack of trust in local brands domestic milk is sold for 38% more per litre than imported milk.
The massive opportunities in China might make it easy to think that your brand needs to be there tomorrow. But don’t make the mistake of rushing in and making fatal missteps such as Marks & Spencer’s, Home Depot or even slight blunders such as Nike.
Go slowly, conduct due diligence on specific categories, product size, packaging, price and branding in order to make educated moves. Fully research and get to know your partners to avoid being burned. Get covered legally, protect your IP, and minimise the unpleasant company of trademark squatters. One thing you should do now is to register your IP even if you aren’t thinking about entering China just yet. A middle term to-do list should include investing in research and trips to fully understand the market. This brings us to point three.
Taking time to know the China market means deeply understanding your target market. Too often we talk about selling to China in vague terms. Instead of ambiguous thoughts of who the target market is, you need to discover who they are, what they like, and where and how they shop. Maybe more so than anywhere, the customer journey in China is unique. Don’t just sell to the ‘China market’ but rather a carefully crafted segment. Dig deep to understand the people in the country, and they will be drawn to dig deep about you and your brand.
Drilling down to understand your target consumer, different segments, and their unique requirements will save you time and energy in the long run. Additionally, make sure you’re doing business in the right part of China. With dozens of Chinese cities’ GDP topping GDP topping ¥1 trillion ($145 billion) there are many opportunities outside of Tier one, two or even three cities. Get to know where these are and what the unique characteristics of each place are and how this affects citizens (and their buying habits) in the area.
When discussing who the Chinese consumer is, millennials were brought up again and again. Nearly as big as the entire population of the U.S., this group cannot be ignored. It’s not only the size of the group but also their expendable income, desire to shop, and international mindset. This group of Chinese consumers is unique even within itself with those born in the 80’s and 90’s exhibiting different characteristics, with notable variances geographically. This group is extremely aware that Chinese products may not perfect, but they are also extremely proud of China. They are more independent and identify with brands that understand them and cater to their needs and desires.
Lastly, in today’s world one cannot go to a conference about doing business abroad without mention of the U.S. president and his administration. There are a lot of uncertainties and unknowns with the Trump administration. The key direction is not yet set, and there is much left to be determined. While calamity is a possibility there is also a chance that business opportunities may increase at a rate never seen before. While negative sentiment among Chinese consumers is understandable, the full effect of the Trump show is yet to be seen and there are reasons for optimism. Stayed tuned.
Whilst U.S. brands exporting to China have their own sets of challenges, many of the opportunities are within grasp for brands with the right approaches.