The China PerspectiveIndustrial production and retail sales of consumer goods in China achieved a steady growth, andconsumer prices continue to rise. After China joined the WTO in 2001, China’s GDP (gross domesticproduct) growth rate increased steadily, from 7.5% in 2001 to 9.4% in 2007; The (GDP) growth rate fellto 10.1% in 2008 and fell to 7.9% in 2009 due to financial crisis. Chinas GDP grew 10.3% in 2010. Theworld demand to trade with China has also increased.Table: China GDP growth rate chart from December 2008 to December 2010 Household Consumption (100million Yuan) rate:1Yuan=6.7Peso Item 2006 2007 2008 2009 Total 82103.5 95609.8 110594.5 121129.9 Rural Household 21261.3 24122 27495 28833.6 Food 8735.7 9998.7 11581.7 11732 Clothing 1206.2 1392.6 1534.3 1667.29 Residence 3867.7 4415.8 5102.2 4916.7 Household Facilities, Articles and 908.5 1073.5 1260.4 1468.65 Services
Health Care and Personal Articles 1405.7 1571.6 1880.9 2355.8Transportation and 2072.7 2364 2609.2 2889.3CommunicationsRecreation, Education and Culture 2190.3 2200.3 2278.5 2442.5Articles Financial Service 303.1 405.5 505.4 474.9 Insurance Service 103.8 156.7 186.7 283.5 Others 467.6 543.4 555.6 603.1 Urban Household 60842.2 71487.8 83099.5 92296.3 Food 17725.2 21239.4 25568.6 27152.2 Clothing 5136.4 6100.1 6998.1 7785.8 Residence 10760.3 12306.1 14565.3 16165.7 Household Facilities, Articles 2839.3 3523.1 4152.4 4770.8and Services Health Care and Personal 5262.1 6156.5 7580.9 8867.4Articles Transportation and 6533.9 7946.6 8505.9 10335.6Communications Recreation, Education and 6852.3 7781.2 8152.9 9046.9Culture Articles Financial Service 1397.2 1711.2 2132.9 1995.8 Insurance Service 988.9 1344.5 1528.8 1582 Others 3346.6 3379 3913.9 4594
Basic Statistics on Peoples Living Conditions Item 1990 2000 2008 2009 Life Quality Households EngelsCoefficient (%) Urban 54.2 39.4 37.88906 36.51614 Rural 58.8 49.1 43.67 40.97Significant Rise of Food PricesIn 2011 the typical rural Chinese worker makes about USD 5,000 a year and spends half of that on food.The cost of Chinese staples, such as garlic, peppercorns, potatoes (80%) and ginger (300%) prices, hadsignificantly increased in 2010. Government estimates reported overall food inflation reached a two-year high in November.The risk that faces China is that spiraling food prices could lead to instability, which China will avoid atall costs – and the party is taking inflation seriously. At the Communist Party of China’s Annual EconomicConference, President Hu Jintao said that the government’s goal in 2011 would be to “combat inflationwithout jeopardizing growth.” State media headlines read “China to Shift to Prudent Monetary Policy,”indicating that Beijing is quietly moving away from its previous “moderately loose” stance. To combatinflation, the People’s Bank of China increased the required reserve ratio (RRR) for the fifth time in 2010,equivalent to keeping 350 billion yuan out of the economy.Encouraging Domestic ConsumptionThe Chinese people are saving up to 50% of their income. If inflation is a priority for the Chinesegovernment, getting China’s 1.3 billion consumers to spend some of their impressive savings is prioritynumber two. As China enters a new phase of economic development, the government is taking steps totransform the current growth model, which is largely driven by exports and inventory investment, toone that is more sustainable.Driving domestic consumption is the government’s primary focus. In December 2010 at the CentralEconomic Work Conference chaired by President Hu, China’s top leaders vowed to increase efforts toget people to spend more.
Beijing, as an example, chose to start with cars and appliances as they tend to be big-ticket purchases.Targeting rural consumers, the government gives out 13% subsidies on about 200 kinds of householdappliances of designated brands. For urban-dwellers, tax breaks for smaller-engine cars and green carshas been the hook.Critics warn that one-time incentives cannot help China achieve long-term growth in consumerspending. Instead of focusing narrowly on cars and appliances, China needs to find more ways to courtits 1.3 billion residents.UrbanizationBy 2016, China’s urban population will reach 700 million and for the first time in Chinas history surpassthe number of rural residents. Meanwhile, the migrant workforce is expected to hit 350 million by 2050,larger than the entire U.S. population today. Such a vast migrant labor force and the policies anddirectives issued by the government to manage this group will remain pertinent. The country’sguidelines for the 12th Five Year Plan specifically said that China will enhance its enforcement of laborlaws and improve working conditions, while bringing a healthy mechanism supported by labor unionsand enterprises into full play.Educational EnvironmentChina is experiencing a rise in education according to data from the Ministry of Education. Between1999 and 2008, the annual enrollment of undergraduate students has increased by more than 500%.Looking back to 1977, when China first re-opened its annual nationwide university entranceexaminations after a ten-year suspension, university enrollment stood at 420,000. Thirty years later in2008, the number was 5.99 million. Correspondingly the acceptance rate went from 4.8% to 58% at amuch higher speed than China’s GDP growth rate.As China’s domestic education boom continues, quite ironically, more and more Chinese students areopt to study overseas. The United States remains the top destination: according to data from theInstitute of International Education, in 2008-9 more than 26,000 Chinese students were studying in theUnited States, up from about 8,000 eight years earlier. Today’s children of middle-class Chinese familiesare free to choose among Ivy League schools, regional colleges, state schools or even communitycolleges overseas. Unlike their parents’ generation, studying abroad is no longer linked to elitism; it isnow an extension of economic consumption.(Quincy, can we find out if you have data on the number of Chinese nationals are studying in thePhilippines)China’s education booms will continue in both ways. On the one hand, the government will continue tospend more on education. On the other hand, wealthy Chinese families will continue to send theirchildren abroad because, despite all the insecurities and fears that come with economic privilege inChina, an international education is an investment that cannot be lost. There is still a significant numberof “sea turtles” or Western educated Chinese nationals who return to China.
Food Preference and TraditionsMedicinal Value of FoodFor Chinese cooking, nutrition is the first concern. A theory of the "harmonization of foods" can betraced back to the Shang dynastys (16th to 11th century B.C) scholar Yi Yin. He relates the five flavors ofsweet, sour, bitter, piquant, and salty to the nutritional needs of the five major organ systems of thebody (the heart, liver, spleen, lungs, and kidneys), and he stresses their role in maintaining good physicalhealth. In fact, many of the plants used in Chinese cooking such as scallions, fresh ginger root, garlic,dried lily buds, and tree fungus have properties of preventing and alleviating various illnesses.This explains why the Chinese have a traditional belief that food and medicine share the same origin andthat food has a medicinal value. This view explains why the Chinese people are at the forefront of non-traditional medicine.Food PreferenceThe food style of a culture is certainly first of all determined by its abundance in the specific area. It isnot surprising that Chinese food is above all characterized by an assemblage of plants and animals thatgrew prosperously in the Chinese land for a long time.Some staples are as follows: Starch - millet, rice, kao-liang, wheat, maize, buckwheat, yam, sweet potato. Legumes - soybean, broad bean, peanut, mung bean. Vegetables - malva, amaranth, cabbage, mustard green, turnip, radish, mushroom. Fruits - peach, apricot, plum, apple, jujube date, pear, crab apple, mountain haw, longan, litchi, orange. Meats - pork, dog, beef, mutton, venison, chicken, duck, goose, pheasant, many fishes. Spices - red pepper, ginger, garlic, spring onion, cinnamon.Mangoes are not significantly indigenous to China as shown by this list.One important point about the distinctive assemblage of ingredients is its change through history.Concerning food, the Chinese are not nationalistic to the point of resisting imports. In fact, foreignfoodstuffs have been readily adopted since the dawn of history. Wheat and sheep and goats werepossibly introduced from western Asia in prehistoric times, many fruits and vegetables came in fromcentral Asia during the Han and the Tang periods, and peanuts and sweet potatoes from coastal tradersduring the Ming period. These all became integral ingredients of Chinese food. At the same time, milkand dairy products, to this date, have not taken a prominent place in Chinese cuisine.
Curious, inventive, adventurousThe Chinese are curious, inventive and adventurous. This is perhaps based on the same cultural valuesthat make them so interesting in gambling. A consequence of this trial and error mentality for productinnovation is that the route between conception and prototype is often considerably shorter in Chinathan in Europe.Novel products are often tested by throwing them on the market and see how consumers react.Combined with other traits of Chinese culture, like playfulness, curiosity, etc., makes that more peculiarproducts are launched in China than in any other market in the world.Peter Peverelli Euroasia Consult cites some examples showing the various ways in which Chinese culturecan lead to novel foods. There:Food Type Manufacturer Market PositionPineapple crisp pie Qiqi Healthy Food Co., Ltd. This product is positioned as a (Xiamen, Fujian) low fat pineapple flavoured healthy snack. Its main ingredients are: starch, maltoseMale female fruit juice Xinyuan Shunxing Science A special fruit juice beverage for Trading Co., Ltd. (Beijing) male and female consumers. The manufacturer does not provide details as to the difference between the two varieties.Biscuits & jam Guanghe Food Co., Ltd. A pack of biscuits includes a (Shandong) small pack of jam. The biscuits should be eaten dipped in the jam.These examples are Western in nature and but considered “new” in the market. The male / femaledrinks can be classified as beverages variants for specific purposes such as sports drinks, energy drinks,leisure drinks etc.Food has Social PurposesAnother important China food culture is that they eat together. Chinese food is meant for sharing. Inrestaurants, diners don’t order for themselves. It is traditional to order for everyone and shared withgusto. Family meals are much the same. This can be attributed to their strong and extended family tiesand clannishness as well.
Consumer BehaviorThe Chinese have low level of involvement when purchases are for private consumption but this isobserved otherwise when buying products for their social or symbolic value. The Chinese greatly valuesocial harmony and smoothness of relationships. The social significance of products are highly importantbe it to express status, gratitude, approval or even disapproval.Consumers are loyal, not really brand conscious and are not really used to cross product comparisonsexcept for the urban consumers who have a wide recognition of foreign brand names. On a nationallevel, consumers prefer to buy domestically manufactured products rather than comparable foreignmade goods. But consumers in big cities are less likely to favor domestically produced products than ona national level.Typical Chinese consumers do not want to be among the first to try a new product especially if it isexpensive and unrecognized in terms of brand.Online shopping could drive the next wave of China’s consumption growth. China has a population of450 million internet users and one third of them already shop online regularly. They shop for productslike clothes, car batteries, furniture, airplane tickets, meat and diamond rings. It is a practice to compareprices on Tabao.com. Tabao.Com is China’s answer to EBay and launched in 2003. The site generatesannual sales close to USD 60 billion today and has 75% of the online retail market share in China. Itsrapid growth is part of the China trend in thinking of the Internet as a giant shopping mall, just like thetraditional “brick and mortar” stores in China.A growing portion of Chinese online shoppers live in second- and third-tier cities. For the same reason,brands such as Lenovo, Adidas, Uniqlo and Kappa have set up virtual stores on Taobao.com, with theobjective of gaining access to consumers in lower-tier cities. Lenovo claims its virtual store onTaobao.com generates 10 million yuan a day during peak months in the summer. Looking at 2011 andbeyond, the boom of e-commerce will continue. Goldman Sachs predicts that the annual sales couldgrow 275% over the next five years, and reach an estimated USD 300 billion in 2015.
Business PracticesIts important to realize that how important the business practices works in doing business in China. Thefollowing words will present the key points of Chinese business practices. 1. Make friends first, do business later. China is a people-based rather than a law-based culture. People in China build trust by “profiling” one another. They observe one another’s behavior over time before they’ll do big business. The Chinese are perfectly willing to sign contracts; but only after people have achieved a reasonable level of comfort and understanding. They want to learn more about you. Therefore, initial meetings are rarely expected to produce results. Chinese salespeople routinely wine and dine prospects before they sit down to talk business. Let people feel that they are "connected" with you before you close a deal with them. 2. Businesses need help from the government. In China, you have to have relations with the government because lots of approvals needed usually, family affiliations within the Communist Party is the most important factor for success. 3. Arrange one-on-one meetings The Chinese political system is a one-party system. People have learned not to challenge their political leaders. This is why Chinese people tend not to express what they have in mind in public. But when they’re with you on a “one-on-one” situation without other people around, they’re direct and straightforward. If you want to know the truth—and how you can compete in the China market—learn to pull people aside and talk with them privately. 4. Let people save face, especially in public. Chinese aren’t accustomed to revealing much about themselves, especially in public seminars. If someone is vague about a particular issue, or unwilling or unable to give a straight answer, don’t force the issue. Avoid forcing people to tell the truth in public against their will. 5. Superstitions often play a part in business and decision making Fortunetellers are consulted today by supervisors making hiring choices; and by store owners picking names of their business, the most auspicious time to open, and the best floor plan and orientation of the rooms. According to one survey, the majority of business people believe in the god of fortune
The Snack Food industryRecent years, Chinese consumer’s consumption style changed. In 2009, although the Chinese snack foodmarket capacity has reached 400 billion yuan, per capita consumption is only 23.6kg, so from this we cansee in China, there is a huge snack food consumption market. With the improvement of consumptioncapacity of the customer, snack food industry will increase 20% every year and total demand up tothousands billion yuan. At the same time, with the development of the economic, Chinesesconsumption level from low to high , specially demand for the import snack food, which has hugepotential space. Source from China National Food Industry Association（CNFIA）Among snack food industry , there are mostly eight parts in China, they are dried fruit, meat-egg-fish,cereal-puffed food, fried-nuts, potato-chips, non-fried nuts, grain, freed-cereal. And dried fruit has mostpotential space in the future because it is easy to process and more natural, also, it is the green food(food contains no toxic or harmful elements for human health). Dried Fruit Fired- Meat- cereal egg-fish Snack Cereal- Grain puffed Food food Non- Fried- fried nuts nuts Potato- chip
12 Anhui 54.2 37.9 35.8 30.3 13 Jijin 49.2 21.1 11.1 3.9 14 Heilongjiang 44.2 26.3 31.4 37 15 Sichuan 44 37.2 12.3 1.5Source: Ministry of Commerce of the People’s Republic of China Department of Foreign TradeTarget MarketAccording to Orit Gadiesh in his article “The Battle for China’s Good-Enough Market” in the Harvard BusinessReview, the Chinese consumer market has been roughly structured into two main segments, either low-end local brands or imported premium brands. The large low-end segment has served the masses withlow quality, low price and undifferentiated products while the global brands, either imported or locallyproduced, have targeted the small but profitable premium market. Most international companiesentering China are lured by the quick growth and relatively high disposable incomes in areas such as thePearl River Delta in the south or the Yangtze River Delta around Shanghai (Chen &Vishwanath,2005).In Magni &Atsmon article “A Better Approach to China’s Market”, there are another ten areas aroundChina have a projected growth over 10% per annum and recommend marketers to consider setting upsales forces, distribution channels and supply-chain mechanisms in these areas. In the past few years, anew market segment has appeared which Gadiesh et al. (2007 p.81) describes as the ‘good-enough’market and this segment is the fastest growing in China.Among the 15 provinces, Beijing, Shanghai, Guangdong and Fujian would be an ideal target marketbecause of its convenient traffic and flexible trade style. Especially in Fujian and Guangdong wherepeople share the same snack eating habits with Filipinos. Even domestic dried mango sells very well inthese areas. Shipping by sea will not pose a problem because there are ports in Shanghai, Guangdong,Fujian and even Beijing. There is also a famous port in Tianjin near Beijing.
Entry StrategyPrior to Chinas accession to the WTO, the government had maintained tight control over import-exporttrade. Foreign companies generally were not permitted to import goods for sale in the mainland. In2003, with the merger of the State Economic and Trade Commission and the Ministry of Foreign Tradeand Economic Cooperation (MOFTEC) into the Ministry of Commerce (MOFCOM), domestic and foreigntrade began to come under unified management. In 2004, China fully liberalized foreign trade. At theend of 2004, foreign commercial enterprises were allowed to be established, making it possible forforeign companies to import goods for sale in ChinaChinese cultural values on the other hand are largely formed and created from interpersonalrelationships and social orientations. They tend to rely heavily on personal (Guanxi) in business dealings.“Guanxi” means connections or relationships and is essential in the initial stages of entering the Chinesemarket.It is imperative to find a trusted partner or agent and set up a joint venture. The partner should knowthe appropriate channels of distribution for the product.These professionals would also assist the company to navigate through local regulations and furtherunderstand the market.
Market PositionA healthy snack that can be shared.Cite the healthy attributes of dried mangoes like dietary fiber and vitamin C. Relate how this cancontribute to one’s health. Though it has no cholesterol, the Chinese market may not find any value inthis attribute because of their cholesterol rich foods like duck and pork.It can be specially packed as gifts or “pasalubongs” for Chinese tourists and students from thePhilippines.Packaging should not be solo sized as the product is meant to be shared with others.Marketing MixProduct – Dried mangoes of course…Price - How do we make sure we lower the price?PromotionPromotion in China is a tricky business because of cultural differences and understanding of the market.Promoting a product, in a country as big as China, would require huge investments to accomplish brandrecall. A modest budget requires guerilla marketing techniques for the product to gain valuable marketexposure.On-line Marketing 1. Invest in a trade portal like Alibaba.Com 2. Search engine marketing using Baidu Phoenix 3. Join Chinese social networking sites like douban.com, 360quan.com, kaixin.com. Explore other sites like 51.com and renren.com. 4. Press releases in authoritative portal websites like sina.com, sohu.com, 163.com is a great way for branding. It will be convincing and it is about company image. 5. Microblog. Create account on sina and promote the account. Supplementary, create accounts on second-tier microblog websites like sohu microblog, 163 microblog. Sina is leading the game, but other microblog sites will catch up. The one Fanfou you mentioned has been closed already. 6. Join leading consumer review sites like koubei.com and dianping.com. 7. Q&A sites like baidu zhidao, tianya wenba, sina iask has large user base, they also enjoy high ranking in search engine. 8. Video sharing site like tudou.com, youku.com, 6.com, video.sina.com, etc. 9. Post ads in on-line recruitment services. According to the Chinese online recruitment company 51job Inc., online recruitment services revenues for the fourth quarter of 2010 were CNY156.0
million, representing a 60.4% increase from CNY97.3 million for the same quarter of the prior year. The increase was primarily due to a greater number of unique employers using the companys online recruitment services as well as higher average revenue per unique employer.Gain Product Exposure by Effectively Tapping Chinese Tourism Market in the PhilippinesTie up with the China National Tourism Administration (CNTA) to promote and give away samples toChinese tourists who would like to visit the Philippines. By doing this, the product could hopefully creepwith its way to their families and gain necessary product exposure. Department of Tourism figures showthat tourist arrivals from China grew 18.54 percent from the period January to April 2011. TheDepartment of Tourism (DoT) offices in China and top tour operators in the Philippines alone expectedclose to 3,500 Chinese tourists in the Philippines for the Spring Festival week, with arrivals expectedwithin the first week of February 2011.Do the same approach to students who are here in the Philippines for their education.PlaceThe product should find its way to the retailers and consumers through agents.ReferencesChina in 2011 What to Expect in the Year of the RabbitJamie Moller, Managing DirectorGlobal Public Affairs Practice at Ogilvy PR WorldwideFood in Chinese CultureAdapted from K.C. Chang, Food in Chinese Culture: Anthropological and Historical Perspectives, New Haven, CT:Yale University Press, 1977.Trends in Chinese Food InnovationPeter Peverelli, Eurasia ConsultThe Failure of AMWAY Corp’s Marketing Strategy in Chinahttp://aesplus.net/The-failure-of-AMWAY-Corp-s.htmlThe Battle for China’s Good-Enough MarketOrit Gadiesh, et al.,Harvard Business Review, September 2007Expanding in ChinaAnn Chen and Vijay VishwanathHarvard Business Review 2005A Better Approach to China’s MarketsMagni, M. and Atsmon, YHarvard Business Review 2010
Honk Kong Trade Development Council websitehttp://www.hktdc.comhttp://www.stats.gov.cnhttp://wms.mofcom.gov.cn/http://cache.baidu.com