Foreign firms cash in on China consumers
By Jonathan Barlow (China Daily HK Edition)
Updated: 2004-07-09 08:36

Many foreign consumer-goods companies in the Chinese mainland may have suffered losses after their initial forays but seven in 10 are now making profits, according to a survey.

The survey, conducted by KPMG and market research firm Taylor Nelson Sofres, questioned 136 foreign consumer-goods companies either already operating in China, about to operate there or who source from there; and found that 70 per cent are making profits or breaking even.

Among them, 23 per cent are making significant profits while a further 47 per cent claimed either to be profitable or at least claimed to be breaking even. Only 7 per cent were not optimistic about making any profits.

Of those companies already operating in China, 93 per cent are optimistic about their businesses' five-year prospects in the country, said Nick Debnam, chairman of KPMG's Consumer Market's Practice. Over one-third believe their businesses will grow at a rate of at least 30 per cent next year, while 64 per cent forecast growth in excess of 10 per cent.

"This view from companies on the ground tells you everything you need to know about this booming consumer marketplace," Debnam said.

The survey found that successful companies do not view the mainland as a single market. Therefore, "marketing budget and strategies need to be different", he said .

There are 39 cities in the mainland with a population greater than 2 million whereas there are just six in Europe and only four in the US . So if a multinational brand was in a leading position in one city, it might have no bearing on other parts of the country owing to the sheer scope of the market. For instance, the best-selling beer brands in four of the mainland's biggest cities were different in each city, said Debnam.

Over the past five years, consumer spending has increased by an average of 57 per cent in the richer eastern provinces of the country, which now stands at between 10,000 yuan (US$1,205) and 20,000 yuan (US$2,410) per capita a year.

But despite this dramatic increase, the survey also noted that when asked what had been their biggest mistake, some companies said that they had misjudged the potential of the mainland market. "The single most popular response - just under a quarter of all responses - was that the potential of the China market had been over-estimated," said Debnam.

Other challenges faced by the firms related to intellectual property issues and flexible strategies required to cope. Clark's shoes countered the problem of piracy by launching new designs more quickly, thereby keeping ahead of the counterfeiters, which take some months before they could produce the "latest" range.

The survey also noted that mergers & acquisitions was the preferred method of 53 per cent of firms wishing to enter the market and 38 per cent of those wishing to expand their operations.