Companies like Yum Brands may be starting to feel the impact of slower China growth in their earnings, but massive opportunities still exist there.
So, what's the key to successfully breaking into the China market?
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Pedestrians walk past a Pizza Hut restaurant in Beijing.
In a recent panel I moderated on China's Internet and wireless sectors, a major company that is expanding into Asia stressed utilizing local talent, understanding the business culture before entering the region and partnering with businesses already established in China. In my discussions with law firms that specifically work with companies looking to establish a presence in China, the latter seems to be one of the most important elements that lead to success. Understanding the Chinese market can best be done by working with a company that has already interacted with the Chinese consumer.
Just look at eBay's failure to establish a presence in China as an example that what works in one geographic region may not necessarily work in another.
Sector focus is increasingly important. The wireless sector in China continues to grow at stratospheric levels. As high-speed wireless moves into China, companies are springing up to capture these opportunities. The growth rates are staggering. One executive of a private company that is focused on the efficient delivery of wireless data to cell phones coupled with advertising strategies to mobile users, said they've experienced a growth rate of more than 100 percent. This is not a surprise given the increase in China¹s wireless adoption rate. Apple's recently announced massive earnings growth was, in large part, attributed to sales in the China market.
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It's interesting to note that this theme is not an export play out of China (in other words, a low-cost manufacturing theme), but instead focused on internal consumption by the Chinese. In my discussions with China business leaders, this theme is highlighted repeatedly. True, China's GDP growth rate has tumbled to 7 percent and the central government is doing their best to maintain that rate. But internal consumption is expanding particularly as the standard of living rises for Chinese citizens.
As China continues to grow in size, health care and the efficient delivery of low-cost medical services will also be a growth opportunity. In fact, the central government has made initial steps towards providing health clinic opportunities for those needing services that are not part of the elite income group.
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Economic business development zones (such as in Hangzhou) seek to provide opportunities for companies looking to establish a presence in China and greater Asia. The local governments in each of these regions are attempting to spread the message that China is seeking foreign capital and investment in China businesses.
China is a long-term play. I expect the immediate future to be continually bumpy as China consolidates recent economic gains. The clear focus is more on ideology and control as of late, which is different than 10 years ago, when the region was all about economic growth. But if one has the patience to be selective and focus on growth areas by sector, the opportunity in China is still huge. As usual time horizon matters. Short term, underweight China. Long term, don't ignore the power of rising Chinese income levels. Long term, the opportunities are still present.
Commentary by Michael A. Yoshikami, the CEO and founder of Destination Wealth Management in Walnut Creek, California.
Disclosure: Michael Yoshikami doesn't own any of the stocks mentioned above. But DWM buys Apple for clients.