"More than 80 percent of U.S. companies in China are here to serve the China market. The emerging Chinese consumer is a key factor driving that trend," said Brenda Foster, president of AmCham Shanghai.
The most influential consumer market trends explored in the report include, 1) the increasing use of the Internet and mobile communications among Chinese consumers which is having a dramatic impact on how they learn and shop, 2) a change in consumer expectations driven by an increase in external exposure through travel and wider access to media, and 3) the enhanced mobility of the Chinese consumer which is largely being facilitated by an improved domestic transport system. This has led to changes in how, when, where and why products and services are consumed.
"The race is on to win in China's emerging consumer market," stated JoAnne S. Bessler (Joni), partner at Booz & Company. "While both Multinationals and Chinese companies are competing intensively in China, they are taking different approaches and strategies to secure their market position."
Regarding the number one trend impacting the China consumer market, access to Information Technology – essentially, shopping on the Internet and cell phones, as well as social media and gaming - the consensus among company respondents is that Western MNCs should be in a position to most effectively respond given their experience in other markets. However, survey results show that Chinese companies have exhibited a much higher adoption of ecommerce – 93 percent of Chinese companies have plans to, or have already established ecommerce sales and marketing channels compared to approximately 60 percent of MNCs who have adopted ecommerce in China.
Where companies fall short
While Chinese companies are slightly more confident than their Western counterparts regarding their preparedness to respond to these trends, the study indicates that companies, both MNCs and Chinese, are not fully prepared to address these emerging trends.
However, when asked about barriers impacting their ability to address these trends, MNCs and Chinese companies offer starkly different responses. Almost three-quarters of MNCs believe that human resources, or their ability to hire and retain talented people, is their single biggest barrier. These companies report challenges in finding professionals who both understand the market and are able to communicate with, convince and be entrusted by Western senior executives.
In contrast, only 13 percent of Chinese companies see human resources as an impediment while 74 percent see "organization, structure and process" as the key bottle neck to growth. This may stem from a need to expand operations at a national or even more likely, at the international level. They feel they are not yet organized to scale-up.
Regardless of the difference in trends perceived as important and the reported level of preparedness, companies, both Western and Chinese, take a similar approach to the critical actions needed to address Chinese consumer market trends. These include developing new products and services, adapting the brand strategy, conducting market research, and adapting the marketing communication strategy.
Critical challenges
At the launch event, JoAnne S. Bessler and Adam Xu, principal, from Booz & Company reviewed some of the challenges that both Chinese companies and MNCs should be wary of.
Bessler highlighted a key concern for MNCs. "Chinese companies are expanding R&D activities at a rapid pace and MNCs should expect to face more formidable Chinese competition in the not too distant future. These stronger rivals will be competing not only on price but also on innovative features and offerings."
Said Kenneth Newell, president of PepsiCo Greater China Beverages, "There really is a 'need for speed' if multinationals are to successfully compete in China. The MNCs need to be able to better compete with the flexibility and agility of the local Chinese companies. Multinationals in China need to pay heed to the faster pick-up of the key trends highlighted in this report by the local Chinese companies. They must drive change that will facilitate driving greater empowerment to enable faster and bolder local decision-making." Newell continued, "China is a big enough market for companies to seize the opportunity to also invest in local innovation that is targeted at the Chinese consumer. If you don't, you'll get left behind."
Xu shared advice for Chinese companies as well. "As incomes rise and the Chinese consumer becomes more demanding, Chinese companies will have to become more adept at competing in the higher end markets in China where emphasis is on quality, brand and service."
"Ms. Wu" and "Mr. Li" – profiles of the Chinese consumer
Survey results provided valuable insight into the Chinese consumer and two profiles were presented at the June 13 launch event. "Ms. Wu" and "Mr. Li" offer snapshots of the consumers that companies will have to win over to succeed in the increasingly competitive China consumer market.
Ms. Wu is a 22-year old single woman, recently graduated from college who has decided to join a Hong Kong listed internet company. Born in Chengdu, she studied in Beijing but decided to work in Shenzhen. She is highly mobile and Internet savvy relying on the Internet to shop and learn about what she wants to buy. Ms. Wu has significant disposable income and is more than willing to spend it on herself.
Mr. Li is a 38-year old mid-level manager of a Fortune 500 company. He lives in Shanghai, with his wife and his 8-year old daughter. Mr. Li is consuming more than his parents did, especially when making purchases to raise his little girl. While he lives in a Tier-1 city, his demanding job requires him to travel throughout China, Asia and North America, resulting in exposure to not only new products and services, but social trends, ideas and cultures.
Despite their age difference, the survey results indicate that consumers like Mr. Li and Ms. Wu share some important characteristics, namely the "four mores": they consume more than their parents did, they demand more quality in the products and services they consume, they exhibit more brand loyalty and they want more information before they make a purchase.
The study, jointly conducted by AmCham Shanghai and Booz & Company, surveyed a total of 135 companies in April and May 2011. The companies were presented with six trends impacting the Chinese consumer and in a series of 22 questions were asked to rank each of them by importance, its impact on consumers, the company's preparedness in responding to it.
Of the companies surveyed, 70 percent were Western multinational, 15 percent were private Chinese companies, 10 percent were state-owned enterprises, with the rest based in Hong Kong, Taiwan and other Asian regions. Broken down by industry, 38 percent were consumer goods companies, 33 percent were industrial outfits catering to the consumer market such as auto companies, 9 percent were material companies, 8 percent were healthcare-related and 12 percent were in other categories.
