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The Future of China

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OMD set out to understand the rapid
transformations changing the country and its
people through our new study: The Future of China.
We spoke to more than 2,500 people and
uncovered profound insights into their hopes,
fears, and dreams.

Published in: Marketing

The Future of China

  1. 1. THE PEOPLE’S REPUBLIC OF CHANGE
  2. 2. FOREWORD China’s story of metamorphosis has captured the imagination of the world. In past 15 years, an ascendant China has seen their middle class explode, poverty rates decline considerably, technology flourish and their local brands move from laggards to leaders. China’s narrative is now changing. Its story is no longer just about boom years, but rather a maturing society whose successes are breeding new tensions: income inequality, a slowing economy, an aging population, and pollution. OMD set out to understand the rapid transformations changing the country and its people through our new study: The Future of China. We spoke to more than 2,500 people and uncovered profound insights into their hopes, fears, and dreams. While change has altered every part of life in China, perhaps the most tectonic shift has been the speed of digitalization. With 564 million Internet users and 420 million Mobile Internet users, China has swiftly tumbled into the digital age. E-Commerce already accounts for one-quarter of discretionary spending; for those born after 1990, it is 39%. Chinese consumers not only embrace innovation, they demand it. Local brands have risen to the challenge by iterating products, consistently releasing new functionality for sites and services and continuously refining their offerings. However, these breakneck changes have revealed new anxieties. Health, work, housing prices: all these contribute to the sense that Chinese people are consistently catching up with their peers. For many, contentment is still tied to material possessions and traditional goals, making happiness an elusive goal. There are signs this is changing. A growing number of Chinese young people are breaking with tradition and thinking differently about happiness, wealth and success, all while grappling with what it means to be “Chinese.” For them, the car, the house, the career, no longer define their identities. The future is unpredictable. A phantom. A wisp of an idea. However, with The Future of China, we have a strong sense of where things will head. China has gone through two decades of brisk transformation and the next ten years looks to be just as transformative. Of course, the people of China have already proven they are not only resilient to change but embrace it with open arms despite their anxiety. Jeanette Phang, Director, Business Intellegence
  3. 3. IN-DEPTH HOME INTERVIEWS We conducted 16 face-to-face home interviews across 4 city tiers and 4 generations to get a deep understanding of consumers’ outlook for the future. CITIES COVERED Shanghai, Wuhan, Quanzhou, Yichuan QUANTITATIVE SURVEY Working with IFOP, our quantitative research included surveys of 2,500 consumers in 8 cities (Tier 1-4) from all age groups, millennials to greys. CITIES COVERED Beijing, Shanghai, Wuhan, Shenyang, Quanzhou, Guiyang, Luzhai, Yichuan 06 ANXIETY SOCIETY Despite quality-of-life improvements, Chinese people remain deeply anxious about basic day-to-day issues. 10 THE HAPPINESS PARADOX As goal posts shift, happiness is becoming an unattainable goal for many Chinese people. 16 INHERITING SUCCESS Success in China is still influenced by who you are rather than what you do. But younger generations are challenging this idea. 22 THE NEXT PRESTIGE What’s the new currency for status and prestige in China? It’s not cars, big house or luxury bags. Welcome to the new age of luxury experiences. 28 CITIZEN E-COMMERCE E-commerce is a key part of everyday life in China, and is changing how consumers buy, what they buy, and how businesses are run. 32 MADE IN CHINA 2.0 No longer satisfied with being copy cats, local Chinese companies are innovating at a breakneck rate, creating a new threat to MNCs. 38 VOICES ACROSS THE GENERATIONS Meet real Chinese consumers from post 60’s to post 90’s. CONTENT
  4. 4. ANXIETY SOCIETY This unease goes hand in hand with the changes that China has undergone in the past decade. In short: the more change experienced, the more stressed. Constant adaptation to new normals and new regulations have left people with little sense of security. There is also a pervasive fear of falling behind inside a swiftly changing environment. % PEOPLE WHO BELIEVE THERE HAS BEEN A LOT OF CHANGE AND HOW STRESSED THEY FEEL Walk on any street in China and you are likely to experience this: cars honking, impatient drivers changing lines every 10 seconds, pedestrians walking into traffic, electric bikes nearly hitting people, and countless quarrels over the smallest issues. Experience this, and you get a sense of the tension and anxiety pervading China. No surprise that of the Chinese consumers we interviewed, 45% feel stressed — an inevitable emotional byproduct of China’s rapid growth. Stress scale from 0-10, 0 being not stressed at all and 10 extremely stressed Source: Future of China CHANGE STRESS 50 — 60 — 70 — 80 — — 5 — 6 — 7 — 8 Tier 1 Tier 2 Tier 3 Tier 4 TOP CONCERNS Source: Future of China What drives stress in China is still the fulfilment day-to-day life worries: health, work pressure, and housing prices dominate the minds of people across all tiers. Living costs and pollution are also significant concerns. Though China’s GDP has more than tripled in the past ten years, social resource scarcity has not been resolved but exacerbated. People compete intensively for limited hospital beds, school seats, jobs and even seats on public transport.
  5. 5. Of those surveyed, health is the number one concern — 50% worried about pollution, and 55% were concerned about food safety. More and more Chinese people are proactively taking action to protect their wellbeing. By the end of 2015, the air purifier market was expected to reach RMB 75 billion; time spent on health and fitness apps doubled in the first six months of 20151 . 20% of Tier 1 respondents prefer buying organic products, and 43% of Chinese consumers check manufacturing dates before purchasing products. 1. http://technode.com/2014/12/09/internet-companies-air-purifier/ , http://www.slideshare.net/ssuserf0a14c/trend-review-of-chinas- mobile-internet-industry-in-2015 CONCERN VS ACTION TAKEN TO LESSEN THE EFFECT OF POLLUTION CONCERNED ABOUT POLLUTION TAKE ACTION AGAINST POLLUTION TIER 1 58% 77% 45% 75% TIER 2 TIER 3 23% 56% 36% 76% TIER 4 These behaviors are especially common in top tier cities where consumers have higher levels of education and disposable income. In fact, people in Tier 1 are 1.7 times more likely to take action against pollution than the rest of China. With health being at the forefront of concerns for China the next year will see an explosion in innovation in the health sector: whether it is technology to control pollution, solutions to manage individual health or products to help save for medical inevitabilities. Everyone wants a salve for his or her worries. Brands and companies that can assuage fears will solidify their positions in our anxiety driven world.
  6. 6. THE HAPPINESS PARADOX While middle-aged Chinese people still remember the Great Chinese Famine of the early-1960s, their daughters and sons are more accustomed to excess than deficiency. Despite drastic changes in living standards, there hasn’t been a corresponding drastic increase in happiness. It is clear that in China, contentment is still very much linked to the attainment of physical and traditional goals. The Future of China found that good personal and family health is the number one factor influencing happiness (78%), followed by career success (40%) and money (40%). 40%CAREER SUCCESS 40%MONEY 78%GOOD HEALTH 40%CAREER SUCCESS 40%MONEY 78%GOOD HEALTH 40%CAREER SUCCESS 40%MONEY 78%GOOD HEALTH
  7. 7. SOURCES OF HAPPINESS Source: Future of China 1.IMF 2.Happiness: A History, Darrin M. McMahon For most people, the factors that govern their happiness are readily achievable. With GDP growing by 140 times in the past 10-15 years, life expectancy increasing by 3.2 years, single child policies lifted, why then is happiness such a struggle1 ? GDP LIFE EXPECTANCY IN THE PAST 10-15 YEARS 140 TIMES 3.2 YEARS In modern China, tensions exist between traditional signals of contentment and actual factors of happiness. There is an assumption that happiness is a calculus of pleasure: deduct pain, multiply joy and you’ll be happy. Psychologists have shown that better jobs, more money, and bigger homes only bring momentary happiness2 . The crux of the issue for future generations of China is balancing the attainment of practical happiness that are socially acceptable with the pursuit of fewer material things. Changqing Wang, Male, 22, Quanzhou “I don’t think I am someone who pursues material things. I want to have my own child, and have a happy family. That’s enough. Also enough money to spend, that’s OK. I am not going to keep up with the Joneses. Based on what is happening now, I just need 100,000 to 200,000 a year. I’ll even be able to save. What I mean is, if you are rich then live like a rich man, but if you don’t have money just live according to your means — you won’t die. There is not much difference between having money or not having money, I guess you just live slightly better.” “Happiness in my life means my husband cares about me. At my age, I can say everything is quite good, we have enough money, and you can never earn ‘enough’ anyway. During times when you don’t have enough, just hang on and it will pass. A fulfilled life isn’t bought. You have to rely on your hard work to achieve it.” Weiming Chen, Female, 30, Quanzhou GOOD HEALTH FOR THE FAMILY 78% CAREER SUCCESS 40% MONEY 39% HAVING A CHILD 27% DOING WHAT I LIKE 24% STABLE LIFE 22% WITH PEOPLE WHO I LOVE 18% HAVING MANY FRIENDS 17% GOOD PARENTS 12% ENOUGH SLEEP 6% MENTAL PEACE 5% GOOD LUCK 5% GOOD FIGURE 4% A BEAUTIFUL FACE 2% MEETING MY IDOL 1%
  8. 8. Highlighted items have an Index over 100 HAVING A GOOD FIGURE ENOUGH SLEEP GOOD PARENTS GOOD LUCK MEETING MY IDOL STABLE LIFE MONEY HAVING A CHILD GOOD HEALTH FOR THE FAMILY SUCCESS OF MY CAREER HAVING MANY FRIENDS DOING WHAT I LIKE A BEAUTIFUL FACE WITH PEOPLE WHO I LOVE MENTAL PEACE 5 3 4 3 5 5 6 8 16 15 8 9 5 5 5 5 1 0 0 1 18 19 22 27 37 36 40 43 13 28 35 31 76 76 77 81 44 46 41 32 25 15 16 13 33 24 20 20 3 2 1 2 17 20 18 18 4 4 5 8 SOURCES OF HAPPINESS BY GENERATION (%) For younger generations — especially those born after China’s explosive growth and reinvention — there is a shift away from the traditional focus on money, health, and children. Moreover, while career and money remain relevant goals, self-worth for those born after 1990 is more independent of finances and professional status compared to older generations. As the post-90s generation fully embraces non- materialism, China’s happiness index is likely to improve. As this generation become the leaders, workers and consumers of China’s future, the country’s overall goals may continue to evolve beyond consumerism. If material things and traditional signals no longer dictate happiness, then brands that have pushed aspirational, product-led strategies will struggle to be relevant. Brands will need to work at fostering emotional links beyond product features, create opportunities for people build better connections with their core social groups and provide consumers a sense of brand ownership. Source: Future of China
  9. 9. 28% LUCK HARD WORK 66% 27% INTEGRITY 47% FAMILY BACKGROUND 24% IQ 41% EDUCATION BACKGROUND 17% EQ 49% MONEY 26% EXPERIENCE 42% CONNECTIONS/GUANXI 19% MINDSET The old Chinese saying goes like this: the Dragon gives birth to a Dragon, and the Phoenix gives birth to a Phoenix. People of China have always believed that one’s success is largely determined by who he or she is. In modern China, this adage still seems to stand. Our study revealed that even though hard work (66%) was the number one reason for success, right behind it was: money (49%), family background (46%), and connections (42%). Clearly in China, who you are still matters. WHAT CONTRIBUTES TO SUCCESS INHERITING SUCCESS Source: Future of China China is still a society where people are deeply interconnected, and a network of mutually beneficial relationships are essential for personal and business success. In a fiercely competitive society such as China, lacking a helping hand from your societal connections means success is much harder to attain. These relationships are difficult to acquire if you do not already have them. This cycle is self- perpetuating: to build a network, you need resources that others want. Challenging to achieve when you do not have money, the right family background and education from a top tier school — all of which need the right guanxi.
  10. 10. MONEY EDUCATION BACKGROUND HARD WORK FAMILY BACKGROUND CONNECTIONS / GUANXI IQ EQ LUCK MINDSET INTEGRITY EXPERIENCE TIER 1 93 131 95 93 110 129 164 143 147 105 91 TIER 2 135 110 99 117 85 84 84 73 63 68 80 TIER 3 87 77 104 95 102 91 70 88 91 113 115 Source: Future of China FACTORS OF SUCCESS BY CITY TIER (INDEX) “Success to me is having certain social status and social capital. It’s more about being recognized by people around you rather than having a certain amount of money. For myself, I hope that I can successfully run a company and have the respect of other people.” Lifeng Yang, Male, 32, Wuhan However, findings from our study suggest that this reliance on social capital is changing. In Tier 1 cities, for example, where traditional bonds of society are less intimate, success requires more than guanxi — education, IQ, EQ, luck, your mindset, and integrity all play a part. In Tier 1 to be truly outstanding, you have to outperform your peers in almost all social and personal aspects. Perhaps, also, why people in Tier 1 are so stressed. Generational expectations also impact perceptions of success. Chinese born in the 1960s and 1970s are more likely to tie success to the ‘who you are’ factors of money and connections, as well as the ‘what you do’ elements of integrity and experience. Those born in the 1980s and 1990s, however, are less likely to have faith in family backgrounds and connections. They possess more of a ‘can do’ attitude and assign greater importance to personal achievements — IQ, EQ, education, the right mindset. Highlighted items have an Index over 100
  11. 11. MONEY EDUCATION BACKGROUND HARD WORK FAMILY BACKGROUND CONNECTIONS / GUANXI IQ EQ LUCK MINDSET INTEGRITY EXPERIENCE POST 90’S 90 115 105 95 94 102 122 95 109 91 98 POST 80’S 98 91 101 95 100 102 105 103 99 98 96 POST 70’S 104 93 99 108 103 111 94 102 102 96 103 POST 60’S 108 100 95 102 103 87 80 101 91 113 103 Source: Future of China FACTORS OF SUCCESS BY GENERATION (INDEX) It would be premature to say that ‘who you are’ no longer impacts success in China. More realistically, it is not be all and end of success. Moreover, in the China of tomorrow, it may matter even less. The younger generation is more likely to be self- reliant and less connected to the wider community, contributing to a greater sense of meritocracy. Brands’ communications must embrace this new view of success, showcasing the personal merits and hard work as signifiers of success. “I think guanxi is utilitarian but essential. It means that I will offer you something beneficial and you will give something back in return, like a favor exchange. Building connections with people are important to your standing in society. Having one more friend is always good for you.” Ke Xu, Female, 21, Wuhan Highlighted items have an Index over 100
  12. 12. THE NEXT PRESTIGE The status of a Chinese person is still predominantly determined by what he owns. Not surprisingly, The Future of China discovered luxury cars (66%), and big houses (66%) remain the ultimate status symbols. These items are so societally important that across China without either a car or home, a man can struggle to find a wife. The thirst for automobiles and property has fueled the continued growth in the luxury auto market and rising real estate prices. Despite the slowing Chinese economy, SUV unit sales in the first half of 2015 surged 48% compared to the same time in 20141 . New home prices in Beijing and Shanghai are up by 6.5% and 10.9% from 20142 . 1.http://autonews.gasgoo.com/commentary/summary-chinese-suv-market-from-january-to-june-o-150720.shtml 2.http://www.reuters.com/article/2015/11/18/china-economy-realestate-idUSENNFB30ST20151118#0dV4mRsYFHmxYySv.97 41%LUXURY PRODUCTS 66%LUXURY HOUSE 66%LUXURY CAR 41%LUXURY PRODUCTS 66%LUXURY HOUSE 66%LUXURY CAR 41%LUXURY PRODUCTS 66%LUXURY HOUSE 66%LUXURY CAR
  13. 13. ATTITUDES TOWARDS PEOPLE WHO OWN LUXURY GOODS BY TIER The market in China for luxury brands remains so sizeable that when the Chinese stock market tumbles, so does the global sales of brands such as LVMH and Burberry. Despite the government crackdown on corruption and excessive spending the majority of Chinese consumers continue to express positive feelings towards luxury goods. While 27% of respondents have negative feelings toward people who use luxury items to show off, 36% say luxury brands are a good look, reinforcing these products as potent signifiers of wealth and prestige. Tier 2 consumers are even more focused on keeping up with the Joneses, with 27% wanting to own luxury goods when they see someone else having them. By contrast, consumers in lower tier cities were much more concerned about practicality; luxury products are often not noticed in these markets. 60 50 40 30 20 10 0 60% % 50 40 30 20 10 0 HE / SHE IS RICH HE / SHE JUST WANTS TO SHOWOFF I WANT SOMETHING SIMILAR IT’S PROBABLY FAKE IT’S STUPID TO BUY SOMETHING THAT EXPENSIVE IT LOOKS GOOD I DON’T NOTICE IT TIER 1 TIER 2 TIER 3 TIER 4 Source: Future of China
  14. 14. The reign of material luxury may soon be at an end. For the many people under 30 we spoke to, physical appearances, digital products, and social attention were far more important signifiers of their social status. For them, wealth and status mean more than materialism. Mirroring the West, the new social currency in China is experiences. Unique experiences already fuel social media — travel videos, parties, selfies, live Source: Future of China OVERALL PERCENTAGE % PEOPLE UNDER 30 INDEX PEOPLE OVER 30 INDEX LUXURY PRODUCT (E.G.BAGS,WATCH, CLOTHING ETC.) 103 9841 LUXURY CARS 99 10066 A BEAUTIFUL/ HANDSOME PARTNER 126 8310 A HUGE HOUSE 96 10366 TRENDY DIGITAL PRODUCT 116 8914 EXPENSIVE JEWELRY 91 10620 SOCIAL ATTENTION 117 8910 OVERALL PERCENTAGE % PEOPLE UNDER 30 INDEX PEOPLE OVER 30 INDEX LUXURY PRODUCT (E.G.BAGS,WATCH, CLOTHING ETC.) 103 9841 LUXURY CARS 99 10066 A BEAUTIFUL/ HANDSOME PARTNER 126 8310 A HUGE HOUSE 96 10366 TRENDY DIGITAL PRODUCT 116 8914 EXPENSIVE JEWELRY 91 10620 SOCIAL ATTENTION 117 8910 TOP STATUS SYMBOLS 1.http://socialbrandwatch.com/6-reasons-why-rich-chinese-should-go-to-burning-man/ broadcasts; people love the social attention these bring. Consequently for the wealthy in China, owning luxury products is no longer enough. Like their Western counterparts, they too want adventures to set themselves apart from their peers. Last year at Burning Man — an alternative culture festival in Nevada, USA — a Chinese billionaire complained that there were too many people there for her to post any unique contend on WeChat1 . Chinese materialism is here to stay, but the idea of ‘prestige’ is evolving. The car, the house? Those still matter. However, for brands to succeed, they need to give consumers unique, ‘show-off’ experiences. Brands need to offer opportunities to build social currency. Status — for the Chinese consumer — remains one of the most compelling reasons to buy in Chinese society. For luxury and aspirational brands, future growth will come from Tier 2 cities, where people have the strongest sense of ‘I also want that’. Meanwhile, to cater to the more sophisticated Tier 1 consumers, brands should offer exclusive holistic luxury experiences to make customers feel truly special. Whether it is learning from experts at the L’Ecole Van Cleef & Arpels on how to sketch designs, identify gemstones, polish gold or set a stone, or traveling to South America to see vicuna and production of highest quality cashmere, luxury experiences are becoming the new status for the wealthy in China. With an evolving perspective of what denotes wealth, brands need to find more ways to make consumers feel ‘rich.’ Companies that keep social currency in mind have a better chance of staying meaningful and relevant.
  15. 15. 27 37 25 30 16 TOTAL T1 T2 T3 T4 POST 90’S POST 80’S POST 70’S POST 60’S 32 24 1539 % OF ONLINE SPENDING OF TOTAL SPENDING - BY GENERATION % OF ONLINE SPENDING OF TOTAL SPENDING - BY TIER The simple fact is that e-commerce platforms have reshaped the way Chinese people shop. Using smartphones, consumers can buy anytime, anywhere. Chinese consumers now have access to more products than ever and are supposedly saving time shopping from their devices rather than in retail outlets. The Future of China found that online shopping in China accounts for 27% of total spending (vs. 10.1% in APAC and 7.3% globally1 ). This number 1.eMarketer Source: Future of China rises to 37% in Tier 1 cities and 39% amongst Post-90’s. Also, savers are finding online bargains: at least 1/3rd of respondents who saved significant amounts of their income spend 50% or more of their money online. Online shopping, though, is not without its flaws. Consumers know that the trade off for convenience and discounts is the possibility of fake goods or mismatched expectations. CITIZEN E-COMMERCE
  16. 16. Yongliang Wu, Male, 35, Shanghai “I usually online shop about twice a week. I will buy shoes and electronic products online. I’ve now started to buy more expensive electronic products online. Online shopping is playing an increasingly important role in my life. Compared to the offline stores, online shopping is cheaper and I don’t have to waste so much time…But online shopping also has its weakness, like fake products or having to return products…The influence of online shopping on our society is really immense, so many offline stores are now closed, our own offline shop is going to close soon. The growth of online shopping has changed my life a lot. For business owners, your pricing has to be transparent, everyone knows the price and you can’t have margins that are too high. Now, my business is reliant on old customers introducing new customers. My customer service has to be better than other people, I am relying on this: that my service is better than others.” “Most of my stuff has been bought online. I purchase things online several times a week. I would say on average, I will buy something online every week. Things like my TV I will go to Suning or the Jindong mall to check it out in real life and then buy it online. Online shopping means I am not limited by my location. For example in Quanzhou, we only have styles that we see, but online I can get clothes from Korea, Hong Kong, and everywhere. I get to buy whatever I want, but the only problem is that I can’t try the clothes. I usually use Taobao, Tmall, Jingdong...I don’t like products that are poor quality, so I like buying on Tmall. Most of my products I buy on Tmall, because Taobao has fake goods…I buy stuff online from my PC or mobile. All my cosmetics are bought online, actually, I used to buy cosmetics online very regularly. But I don’t really use make-up, but I’ll still go online once in a while to buy some. If we talk about skincare and the like, on Taobao there seems to be a lot more fake goods now.” Weiming Chen, Female, 30, Quanzhou Outside of selling products, services are increasingly being processed and bought online. We are only at the nascent stage of O2O service e-commerce. In 2014, investment in O2O related transactions made by Chinese-listed companies totaled US$4.8 billion, including Alibaba’s acquisition of AutoNavi and Tencent’s investment in cab booking APP Didi Taxi1 . Apps like ‘24Tidy’ allow users to make an appointment online for home-delivered laundry service or ‘AnHao’ where users can consult a community doctor about any discomfort or illness, and make an online reservation at a nearby hospital. Already, 46% of us book door-to-door services online, and we expect this number to grow rapidly and expansively in the next year2 . E-commerce is already an important retail channel for brands, allowing them to reach consumers anytime, anywhere. More importantly, it is changing consumers’ thoughts and expectations: they are beginning to think of goods and services in digital terms. Consumers now have greater expectations of quality and convenience when it comes to service. In top-tier cities — where service e-commerce has the highest penetration and time is the most precious — will be driving the e-commerce evolution. An e-commerce strategy is crucial to winning in today’s market, purely being present is far from enough. Brands can help ensure sales by leveraging their media resources and search engine optimization on e-commerce sites. With increasing share of wallet going online, brands need to think of innovative ways of fulfilling consumers’ needs. 1. Credit Suiss: China Internet sector O2O report 2015 2. Mintel China Consumer Trends 2016
  17. 17. In the past decade, China has undergone the transformation from imitator to innovator. They’ve led patent filings globally for the previous three years and are set to outspend the US on R&D for the first time in 20191 . This push for innovation comes from two ends: the government and consumers. The Chinese government has provided incentives to Chinese companies filing patents hoping to find new growth drivers through technology. And Chinese consumers continue to have a relentless appetite for new products, new brands, new communications, new media, new technology. Local Chinese brands are leading this innovation revolution by focusing on business results and emphasis on consumer needs. In one of the world’s biggest and most dynamic consumer markets, local companies are always tweaking and adapting new technology and products to meet the needs of their customers. New business models are continuously being launched and tested based on user feedback. As a result, unique Chinese goods and services are created to solve specific, localized consumer problems. MADE IN CHINA 2.0 1. http://www.theguardian.com/business/economics-blog/2014/nov/12/china-surpass-united-states-r-and-d-spending-role-west
  18. 18. PREFERENCE OF DOMESTIC VS FOREIGN BRANDS 40%I relatively prefer domestic brands, the quality is getting better 25%I always buy domestic brands, the quality is good 20%I relatively prefer foreign brands 9%I always buy foreign brands, the quality is much better 6% I always buy domestic brands, there are no foreign brands available ATTITUDE BY CITY TIER (%) 5 18 48 16 13 T3 3 22 33 32 10 T2 4 18 40 25 13 T1 6 25 40 20 9 TOTAL 10 42 39 8 T4 1 I always buy domestic brands, there are no foreign brands available I always buy domestic brands, the quality is good I relatively prefer foreign brands I always buy foreign brands, the quality is much better I relatively prefer domestic brands, the quality is getting better This focus on meeting customer needs has led to a shift in how consumers perceive local brands. 20% of the people we talked to always chose domestic brands because they believe in the quality of their products. Another 40% prefer local brands and agree that product quality is getting better. This means that the majority of Chinese consumers are not only ready to purchase local but prefer to do so. Preference does shift across different city tiers. In Tier 3 and 4 markets where many foreign brands either lack presence, awareness or distribution, domestic bands have absolute dominance. Interestingly, it is Tier 2 cities that show the highest preference for international brands. As foreign companies expand their marketing and distribution footprint, consumers are exposed to a large number of new brands and are attracted by their novelty. Tier 1 consumers, who experienced this influx of foreign products years ago, are more discerning and no longer blindly buy into the aspirational dream so many international brands seem to sell — we can only expect other cities to follow this trend. Source: Future of China Source: Future of China
  19. 19. PREFERENCE OF DOMESTIC VS FOREIGN BRANDS BY CATEGORY 19% 39% 15% 33% 16% 32% 14% 25% 10% 24% 12% 23% 9% 12% 7% 9% 3% 8% 8% 7% 2% 2% 1% 2% Domestic Foreign GENERIC BABY PRODUCTS AUTOMOBILE PREMIUM SKINCARE TOYS FOR CHILDREN COSMETICS FAST FASHION ENERGY DRINK HOME APPLIANCES MASS SKINCARE BODY WASH DAIRY PRODUCTS QUICK SERVICE RESTAURANT Source: Future of China Preference for local brands transcends almost all product categories. In mass categories like quick service restaurants, body wash, and home appliances, this inclination towards local brands is close to two times stronger than for their foreign counterparts. The age of blindly buying foreign products is over. Today, categories where foreign brands still dominate are limited to the luxury categories like premium skincare. This buy-local trend has caused foreign brands to lose market share in many categories. Core FMCG products like laundry and skincare have seen years of explosive growth begin to subside. Chinese brands are not only winning at home; they are winning globally. Xiaomi, Haier, and Alibaba started their journey as “value” brands, but they’ve moved on. Let’s not forget that Sony and Samsung were once too “challenger brands” with perceived substandard products. To maintain growth under economic, market and consumer pressures, foreign brands must rapidly adapt and evolve their brands and products to suit shifting consumer desires. The struggle for many multinational behemoths, though, will be to implement — like their Chinese counterparts — nimble structures and processes to respond quickly to changes. Korean beauty brands have seen continued success in China due to their obsession with creating new and innovative products. For consumers, the heating up of competition for their RMBs from both domestic and international players can only mean good things — better quality products from local brands and more locally customized creations from foreign brands. Local brands cannot rest on their laurels. A large number of Chinese brands still rely on low pricing as their main selling point, which is not sustainable in the long term. As Chinese consumers become more and more discerning, domestic companies will need to invest in building their brands to compete beyond pricing. Despite gains in innovation and local consumer spending, Chinese brands still struggle to not only differentiate themselves domestically but prove themselves globally. Their short-term focus is to maximize profit by delivering on consumers needs. Many Chinese companies still rely on mimicry of global tech companies for cutting edge innovation. Without long-term investment into technological innovation for innovation’s sake, it may be some time before China produces a cutting-edge product that the world has never seen. http://www.nielsen.com/hk/en/press-room/2015/six_out_of_ten_korean_beauty_brands_shoppers_consider_korean_ products_as_innovative_and_adapted_to_their_skin.html
  20. 20. VOICES ACROSS THE GENERATIONS
  21. 21. ““ ““ 21-year-old Ke Xu lives with her parents in Wuhan. As a 3rd year student in Huazhong University of Science and Technology, she spends most of her spare time going shopping, trying out new restaurants and exercising. She does not particularly enjoy sports, but she plays badminton every Saturday to stay in shape. Ke is not quite sure what the future holds for her. But she thinks about the possibilities: opening a Taobao shop, joining the marketing team of a big company, or being a simultaneous interpreter. Ke’s parents want the best for their daughter, but they are leaving the final choice to her. Her main goal at the moment is to pass the College English Test Band 4. I majored in e-commerce because the Internet is becoming so indispensable to almost every aspect of our lives. I think e-commerce will be where future growth comes from. I hope I will be working in related fields after graduating. I also think English is also very important. Buying imported goods, traveling abroad, surfing the Internet all require one to speak English. If I learn English well, I want to become a simultaneous interpreter. — Ke Xu MORE VOICES I feel that I do not have too much trouble or worries. When I finish my college entrance exam and have fun with friends that I haven’t seen for a long time, I feel truly happy. Also, when I learned that I would have time to play drums after working full-time, I was really happy as well. — Sijia Li (18), Yi Chuan I like to collect figurines from Japanese manga such as One Piece and Fairy Tail. The limited editions are really hard to find. I usually buy them through online auctions or from offline stores in big cities. I also like playing video games with my friends. We sometimes organize team competitions. It’s really fun! — Changqing Wang (20), Quanzhou 90’S ONLINE SPENDING THEIR SAVINGS RATE FOR MARRIAGE THEIR WANTS THEIR WORRIES FINANCIAL GOALS REASONS FOR SAVING FINANCIALS PURSUE ADVANCED STUDIES TO TRAVEL SALARY INCREASE 64% 3.3YEARS TO ACHIEVE IT 15% 39% POST 90’S ♦ Doing what I like ♦ I like to be surrounded by friends ♦ I want to look good ♦ I need career success to prove myself ♦ It’s difficult to manage work-life balance ♦ My job/school is giving me lots of pressure ♦ Living cost is high ♦ Heavy pollution is affecting my health
  22. 22. “ “ “ “ In her early 30’s, Jiayi is married and living with her husband in a two bedroom apartment in Shanghai. She and her husband have clear plan and life goals – a bigger house, a more comfortable life, and a baby. Two years ago after a surgery, Jiayi quit her job and became a fulltime housewife. This was to help her recover and prepare to have a baby. With lots of free time, Jiayi actively participates in a Han costume ( ) club. In spring when cherry blossoms bloom, she and her friends gather in Gucun Park, all dressed up in colorful Chinese traditional costumes. When she’s at home, she is always on WeChat or browsing Internet, which is her primary information source. Technology has helped me to live a better life. Even though I spend most of my time at home, I’m still in close contact with my old friends at work or from school through WeChat. At home, I have wireless vacuum cleaner, blender, yogurt machine, which I can use to improve my life with without much effort. Being a housewife in this day and age means I am not chained to tedious housework everyday. When I don’t feel like cooking, I always order food delivery from a mobile APP. I want to use my free time to think and travel, instead of living the way other people tell me to. — Jiayi Wang MORE VOICES 80’S ONLINE SPENDING THEIR SAVINGS RATE FOR MARRIAGE THEIR WANTS THEIR WORRIES FINANCIAL GOALS REASONS FOR SAVING FINANCIALS PURSUE ADVANCED STUDIES SALARY INCREASE 78% 3.4YEARS TO ACHIEVE IT POST 80’S KID’S EDUCATION BUY A HOUSE 32% 26% Working in a logistics company, I always feel a lot of pressure during weekdays. That’s why when I’m on holiday, I go hiking with my friends in the mountains to be at ease. I’ve been to Tibet. It was an unforgettable trip. You can see the most beautiful scenery without any human touches, like what we used to see when we were children. But Wuhan now is very polluted. We can no longer see the blue sky. — Lifeng Yang (33), Wuhan When I visit friends in small cities, I feel their whole life is planned by people around them. Other people tell you what you should do in your 20’s and 30’s. If you do not follow that, everybody thinks you are a loser. For instance, you should buy a house in order to start your family. This is really sad. — Weiming Chen (32), Quanzhou ♦ I need career success to prove myself ♦ I like to be surrounded by people I love ♦ I would love to have children ♦ I want to look good ♦ I worry about my child’s education ♦ Housing price is too high to afford ♦ I am stressed in my job ♦ I worry about food security
  23. 23. “ “ “ “ Ten years after moving from Huai’an, a small city in Jiangsu, to Shanghai, Yongliang (38) finally feels at home in this mega-city. He is now married and has a 9-year-old boy. Adapting to big changes was difficult for him and most of his post-70 peers. Going through China’s opening up, property prices soaring, technology advancing, Yongliang feels he is always a half a step behind and a bit lost in all these changes. After years of working hard in different jobs, he is now the owner of a shop selling cellphone-related products. At the moment, he is also learning about insurance and trying to get into that business in the next few years. Compared to my hometown, Shanghai offers more opportunities to people. If one is willing to make an effort, he can get what he wants in this big city. With more money in the pocket, you will definitely get more recognition and respect from people. In my spare time, I try to learn more about the overall economy and policy so that I can catch up the tide. I do not need too much money, but having 500-600k in the bank and owning an apartment is necessary in my opinion. I’m still working hard towards that goal. I also urge my son to study hard. I hope he’ll have an easier life than I do. — Yongliang Wu MORE VOICES I send my son to after-school classes because everyone else is doing it. If he does not go, he will fall behind. Now he’s doing pretty well in class. His teacher says if he tries, he can get into a very good middle school. We are also considering the option of sending him abroad for better education. If he does well in school and would like to study abroad, we would certainly support him. — Yan Bi (38), Wuhan My classmates and I had a discussion about what makes us happy. During my last reunion with my classmates, I saw a lot of people driving BMWs or Mercedes Benzes. But I don’t think driving which car has anything to do with happiness, no matter if its worth 100,000 or 500,000. The pursuit of materialism doesn’t really buy happiness. I don’t need luxury stuff. Something practical is enough. — Xuetao Du (37), Yichuan 70’S ONLINE SPENDING THEIR SAVINGS RATE THEIR WANTS THEIR WORRIES FINANCIAL GOALS REASONS FOR SAVING FINANCIALS SALARY INCREASE 71% 3.8YEARS TO ACHIEVE IT POST 70’S 29% 24% KID’S EDUCATION FURTHER INVESTMENT FOR KID’S MARRIAGE FOR DISEASE ♦ It is hard to send my child to a good school ♦ It is hard to manage the relationship with my children ♦ I am stressed in my job ♦ I worry about my pension ♦ I would love to have children ♦ I want to be rich ♦ I need career success to prove myself ♦ I want a stable life
  24. 24. ““ “ “ Born in the 1960s, Yueli (54) is enjoying her life after retiring from a chemical factory four years ago. Before her grandson was born, she liked playing mahjong with her friends and traveling. She has visited Hong Kong a few times and bought a lot of jewelry and clothes. After the birth of her grandson last year, Yueli’s started focusing most of her attention on taking care of him. With everything she wants already in place, Yueli has few worries. She thought about moving to a better apartment, but hesitated because she does not want to lose all the neighbors she knows so well. Now, the only thing on her mind is her health. She’s enthusiastic about finding healthy diet tips on WeChat for herself and the whole family. After retirement, I feel very relaxed. Sometimes, my neighbors or friends would call me and say, let’s go to visit Nongjiale (restaurant in the countryside). Then we’d go right away. I enjoy it very much. I also enjoy seeing my grandson growing up everyday, from a tiny baby to a small child who can smile and talk. Of course there are annoying moments being with the child, but most of time, it brings happiness. — Yueli Cheng MORE VOICES I feel happy and content with my life. In the past I worried about buying an apartment, raising children. Now, my first son is already married and has become independent. My second son will finish college soon. Within a few years, he will find a job and get married, and all my tasks will be finished. I worked very hard in the past. Now I feel very relaxed. My biggest wish is that the whole family stays in good health. My second wish is that we would always have sufficient money. I can buy whatever I want without thinking about money. — Xiuqing Lian (48), Quanzhou My son works in a logistics company. Even though he didn’t become a business man or a government official, we still love him. As long as we all stay safe and healthy, I feel happy. — Tao Li (47), Wuhan 60’S ONLINE SPENDING THEIR SAVINGS RATE THEIR WANTS THEIR WORRIES FINANCIAL GOALS REASONS FOR SAVING FINANCIALS SALARY INCREASE 61% 3.4YEARS TO ACHIEVE IT POST 60’S 27% 15% FOR KID’S MARRIAGE PENSION FOR DISEASE FOR RAINY DAYS ♦ I worry about my pension ♦ Medical insurance bill is high ♦ I am concerned about my health condition ♦ It is hard to manage the relationship with my children ♦ I want to have good health ♦ I want to be rich ♦ I need enough sleep everyday ♦ I want to have mental peace
  25. 25. It is our belief that research needs to live beyond just a document: these findings and data exist to be used, to be discussed and expanded. This is why the entire Future of China dataset is available on the desktops of everyone in OMD China. Not only did we make the data accessible, but OMD also partnered with Telmar to integrate our study with one of China’s largest consumer and media databases — China National Resident Survey (CNRS). This data fusion provides a new layer of understanding, allowing us to map media habits, consumer category usage, brand awareness to our deep insights, ensuring the impact of Future of China goes further than these pages. We’ve covered a lot, but inevitably there is always more. If you’d like to find out more about the research, feel free to reach out. A project of this scale requires a lot of helping hands. We’d like to thank Mark Goh, Lynn Ding, Windy Wang, Yuki Xi, Hellen Yu, Joe Bao, Robert Paschen, Helen Xie and Yan Xu for their support. BHASKER JAISWAL Managing Partner Business Intelligence Bhasker.Jaiswal@omd.com JEANETTE PHANG Director Business Intelligence Jeanette.Phang@omd.com RACHEL FAN Manager Business Intelligence Rachel.Fan@omd.com ENRICHING FUTURE OF CHINA FIND OUT MORE THANK YOU

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