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Rein: Companies Need a China-First Strategy
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Founder & Managing Director, China Market Research Group
Last week I met with board members of one of the world's largest fast moving consumer goods (FMCG) companies to discuss their China and emerging markets strategy. The firm’s sales in BRIC nations (Brazil, Russia, India and China) had grown 25 percent annually during the financial crisis, while remaining flat in America and Europe. China would account for 30 percent of overall sales within five years. To signal China’s importance, the board and senior management met in Shanghai for the first time.
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Rubberball | Mike Kemp | Getty Images |
Selling into China is critical now for even the world’s largest companies. Apple’s [AAPL Loading... ()] China sales for example are estimated to rise to $12 billion this year, four-times last year’s sales, making China the second-largest market for the company globally.
Yum Brands [YUM Loading... ()] generates over 40 percent of its revenue from China, while Nike [NKE Loading... ()] enjoys its biggest profit margins in China, earning $700 million on around $2 billion of sales. Starbucks [SBUX Loading... ()] plans to triple its China outlets from 470 to 1500 by 2015. Starbucks CEO Howard Schultz predicts it will become the coffee retailer's largest international market.
During my meeting with the board of the FMCG company, I suggested they rotate top managerial talent to China to better understand the Chinese consumer and market. Starwood [HOT Loading... ()] chief executive officer Frits Van Paasschen did something similar when he and several top executives relocated to China for a month this summer.
Shaun Rein
Founder of the
China Market
Research Group
Increasingly, brand managers need to design products and marketing campaigns with China in mind from the beginning rather than simply transplanting or even adapting products from western markets. Hotel chain Intercontinental Hotel Group [IHG Loading... ()], for instance, is launching a new brand designed with the Chinese consumer at the core by having smaller bars and more private rooms because Chinese businessmen prefer to conduct business in back rooms than in semi-public environments.
Companies need to stop thinking of China as an afterthought and make it an integral part of their corporate planning and product development just as they do with America and Europe. If they don’t, they risk losing out to aggressive, well-capitalized and increasingly innovative Chinese brands.
Such a change in mindset can have a big impact on business. Case in point: Apple. The company turned around its operations in China this year after a lack luster launch of the iPhone two years ago. It introduced the iPhone 4 soon after its release in the U.S., rather than waiting for years as they did previously.
With several hundred million Smartphone users who change their phones on average every nine to twelve months, rather than every two to three years like in America, Apple has a big opportunity in China.
During my meeting with the FMCG company, I also suggested the board stop calling China an emerging market. I argued that it doesn’t make sense to call a country that drives growth and will soon equal America in terms of sales “emerging”. That moniker gives it second-class status when it comes to strategic planning. Companies need to evolve to handle a new business paradigm in which former emerging markets become aggressive growth markets that could soon match major western ones. All divisions need to understand the disruptive nature of this shift and prepare for it.
Shaun Rein is the founder and managing director of the China Market Research Group (www.cmrconsulting.com.cn) a strategic market intelligence firm, and is based in Shanghai.
He is the author of the upcoming book “The End of Cheap China: Economic and Cultural Trends that will Disrupt the World” published by John Wiley & Sons in the U.S. He does not own shares in any company mentioned. Follow him on Twitter at @shaunrein.
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