Chinese brands lead online

15 June 2011

BEIJING: Foreign brands are lagging behind their domestic rivals in leveraging ecommerce in China, a new study has found.

Industry body the American Chamber of Commerce in Shanghai and consultancy Booz & Co surveyed 135 firms regarding six key trends.

JoAnne S Bessler, a partner at Booz & Co, summed up the findings, saying: "While both multinationals and Chinese companies are competing intensively in China, they are taking different approaches and strategies to secure their market position."

Some 60.3% of overseas participants have sought to exploit online retail, compared to 93.5% of Chinese firms.

Equally, 23% of local players now generate over a tenth of sales from this route, falling to 8.8% for foreign competitors.

Nearly 50% of the sample expected ecommerce to shape the habits of shoppers under 20 years old, hitting 90% for 20-40 year olds.

Another segment likely to be impacted is lower-income groups earning 10,000 yuan a month or less - typically fickle towards brands and "less willing to pay more for the same quality."

Elsewhere, the fact growing numbers of Chinese consumers can travel abroad means "external exposure" to varying lifestyles is rising, reinforced by the rapid uptake of digital media.

Affluent 31-40 year olds in Tier 1 cities, with incomes above 25,000 yuan a month, mainly fit such a profile, and prefer high-end goods carrying a global cachet.

In all, 70% of multinationals agreed this could boost brand loyalty, but just 7% were "fully prepared" to fulfil their needs, 52% have made insufficient progress, and 41% are at the "very limited" or "no preparation" stage.

A 14% share of Chinese organisations adopted the most optimistic view here, 50% assumed the middle position, and 36% are proving slow to adapt.

Overall, 64% of the Western panel thought they would be best-placed to serve this audience, although 58% of their Chinese counterparts put forward the opposing opinion.

The greater mobility of China's population, driven by improving infrastructure, should also encourage people from smaller markets, like third-tier cities, to commute into larger urban centres.

Only 12% of overseas enterprises felt similarly equipped to tackle this matter, 54% had already implemented certain positive schemes, and 34% are adrift at present.

By contrast, 81% of Chinese businesses have completed "some preparation" here, and 13% are essentially starting from scratch.

Western firms particularly believed they trailed Chinese consumer goods specialists when it came to reaching the diverse retail outlets throughout the country, often requiring third-party and wholesale distribution models.

Meanwhile, 77% of international respondents were partly or fully ready to meet the emerging preference for health and wellness products, exactly the same rating as their Chinese equivalents.

A further 78% of Chinese organisations now had appropriate strategies to suit evolving family structures and a desire for an enhanced work-life balance.

Scores stood at 57% and 60% respectively in these two fields for multinationals.

"The MNCs need to be able to better compete with the flexibility and agility of the local Chinese companies," said Kenneth Newell, president, PepsiCo Greater China Beverages.

"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."

Currently, 60% of Chinese manufacturers plan to open more R&D centres in the country, as was the case for a 26% minority of Western challengers.

This may be because many members of the latter cohort either have existing units, or due to concerns about intellectual property protection, the study said.

Data sourced from American Chamber of Commerce; additional content by Warc staff