As the Chinese economy continues to grow, we see an expanding middle-class of Mass-affluent Chinese consumers who are creating demand for consumer brands and services. 1.With the young and limited domestic consumer brand market, significant opportunities exist for foreign consumer brands (esp. luxury and premium foreign brands), consumer technology & services to fill the demand gaps. 2.Chinese brands can learn much from partnerships and ventures with experienced foreign brands as they attempt to go global. 3.China-based PE Funds are also shifting their focus away from investments in domestic market towards more attractive M&A opportunities in foreign brands (seeking capital due to weak domestic markets)

1. China Outbound Private Equity..
Identifying Attractive Global Consumer Brands..
Apr 2012
BY:
BY: KC YOON & MATT BRANDT
GLOBAL CHINA CAPITAL, SHENZHEN
Email: kcyoon07@gmail.com
mbbrandt@gmail.com
CONFIDENTIAL

2. “Upwards” Growth in Chinese
Consumption ..Driven
Primarily by Unique Segment
of Mass-Affluent
Mass-
Consumers..
CONFIDENTIAL

3. Source: McKinsey 2012: Chinese Consumers 2020
Growth of Chinese
170M Mass-Affluent Base by
Middle-Class
300M+ Households
Mass-Affluent
>50%
2020
Urbanization and
Growth of Cities
>200 cities over 1M
2nd/3rd Tier
Cities New Growth
Areas
>60% Urban Pop. Across
400+ cities
Impact of the
Internet-
900M users Mobile &
Ecommerce
New Channels
Source: iResearch report 2009
CONFIDENTIAL

4. Unique Characteristics &
Needs of China’s Mass
Affluent - Create Market
Opportunity for Range of
Consumer Brands & Services
CONFIDENTIAL

5. Unique Behavior Drives Increasing Urban Household Discretionary
Consumption Pattern Consumption
2020: 80% of
Urban Chinese
Household Spend on
Non-necessities >US$3.5 trillion
Spend by
2020!!
Chinese men
play significant role
in driving
consumption
CONFIDENTIAL

6. Market Segments that Fulfill the Following Attractive
Categories of Consumer Needs Market
Segment!
Affordable Luxury for
Fashion
the Young Affluent Significant
Apparel &
Market
Accessories
“Premium” Products
to Pamper/Show
Status QSR Food High
Services Growth
Services for the
Urban Consumer
Personal
Attractive
Devices
Online Services with Margins
Access to Brands
Education
Services that Services Defensible
Enhances Career & - Brand,
Job Prospects Tech, Svc
Health Food
Services to maintain & Snacks
“Health”+ “Well-being”
Examples of successful
Consumer brands & services
targeting Mass-Affluent
CONFIDENTIAL

7. Attractive , High Growth
Potential Consumer Market
Segments – Future Demand
from China’s Mass Affluent
Consumers
CONFIDENTIAL

8. Consumer Goods & Products
Mass Affluent Rationale Potential Domestic Value of Foreign Remarks
Consumption Market Industry Brands
Segment
Fashion Apparel, • Trade up strong RMB 1.3 trillion • Fragmented • Established Global Attractive
Accessories & • Willingness to try new brands (2020e) market luxury brands Segment for
Sportswear • Large share of spend • No clear leader; • Global distribution foreign brands
Brands & Retail • Increased casual time; niche • Few luxury-status
activities domestic brands
Personal Care & • 3rd largest & growing market RMB 255 billion • Limited local • Strong marketing Regulatory
Cosmetics • Trade-up strong (2015e) brands • R&D & Hi-tech in hurdles key
• Chinese men also big • TCM-based products obstacle to
consumers of personal care products • High safety market entry
upcoming standards
Processed • Increased concerns about food Largest global • Fragmented • Advanced Chinese Govt
Foods, (snacks, quality &safety makes foreign market for industry- many processing tech encouraging
diary, health brands attractive dietary small food • High QC & safety foreign co help
food & drinks, • Wealthy consumers willingness supplements processing co. standards upgrade
to spend on healthy well-being • Food safety • Premium branding domestic
organic food), (2020e)
• Snacking is increasing issues eg, wines, health industry
Vitamins & supplements
Nutraceutical
Personal • Display of personal wealth & • Fast cheap copy- • Global brand status Apple’s
Devices – status cats • Worldwide service iphone/ipad
recreational, • Younger generation tech savvy • Increasing support good case of
• Music, online gaming, online innovativeness • Leading edge foreign brand
entertainment,
entertainment integral part of e.g. mobile phone technology winner
communications
Chinese social live
Consumer • Urban living- seek convenience • Strong domestic • New technology
appliances brands exist for • Cutting edge
general appliance appliance design
List is not meant to be exhaustive but represents major opportunities
CONFIDENTIAL

9. Consumer Services
Mass Affluent Rationale Potential Domestic Value of Foreign Remarks
Consumption Market Industry Brands
Segment
Education & • Chinese traditional focus & RMB 900+ • Fragmented & • Education Chinese Govt
Knowledge willingness to pay for billion (2015e) open market technology keen on
Services education • Strength in • Innovative improving
• Significant spend size distribution and teaching methods education
operations standards
Food Services • Urbanisation trend 750M Fast Food • Fragmented • Brand & Marketing Foreign QSR
& QSR Brands middle-class consumers market RMB market; few • Consistency i.e. KFC are
2020 – dining-out rate still 400 billion nationwide • Strong QC & leading brands
low vs. global (2015e) domestic QSR management
• Clean dining & safe food chains system
Hospitality, • China top tourism 2X Number of • Service quality & • Established Potential for
Leisure & Travel destination by 2020 hotel rooms standards not yet hospitality brands mid-scale brand
Services (Hotels, • Chinese spending more (2020e) global par • Strong service
Amusement time on leisure activities • Fragmented, culture, talent &
Parks, Car dominated by management
rentals, sporting non-branded 2-3 system
events, etc) star operators
Mobile & Web- • Internet-savvy population eCommerce • Dominated by • Access to global Combination of
based Services • eCommerce market rising RMB 1.5 domestic industry supply chain & foreign network
(inc.eCommerce) exponentially trillion (2013e) leaders source of goods with domestic
• Online gaming operations
Consumer • Upgrade of healthcare • Upgrade of • Advanced
Healthcare system service in healthcare mgt
• Increasing elderly progress • Hi-tech
population
List is not meant to be exhaustive but represents major opportunities
CONFIDENTIAL

10. Market Foreign
Growth Brand
Value-
Potential Market Domestic added
size Brand
Competitiveness
Market Fashion Personal Food & Personal Consumer Edu & Food Hospitality Mobile & Health
Segment vs Apparel Care Beverage Device Appliance Knowledge Service Service Web care
Screen Service Service service
Criterion
Market Size 4 3 4 3 4 4 3 4 4 4
Growth 4 3 3 4 3 4 3 3 4 3
Potential
Opportunity 4 3 4 3 3 4 4 4 2 4
W Domestic
Competition
Foreign 5 5 5 5 3 4 5 5 3 5
Brand
Value-add
17 14 16 15 13 16 15 16 13 16
Assessment Rating : 1 to 5 (5 being strongest)
Most Attractive
Segments
CONFIDENTIAL

11. Analysis of Segment to
Further Identify Specific
Sector Targets - Premium
Positioning due to Brand,
Technology or Unique Service
CONFIDENTIAL

12. Brand
Fashion Apparel,
Accessories & Sportswear 1
Attractiveness & Value of Foreign
Brands Market Opportunity
Brand story & history (esp. European brands)
Strong design and material technology content
Bring brand management skills
Established fashion design & output cycle
linked to global fashion trends
Established global marketing & distribution
network
Strong links to global media and entertainment
industry
Impact on Domestic Market
O Fashion houses start to build & own portfolio of
brands BCG’s Analysis of brands with niche market potential
O Closer interaction and collaboration between brands
Global brands continue to enter the
within China’s domestic fashion industry Chinese market- Recent cases- GAP
O China’s fashion industry slowly integrates into (2011), A&F (2012), IZOD (Licensed)
global fashion ecosystem as original brands
CONFIDENTIAL

13. Fashion Apparel,
Accessories & Sportswear 2
Target Market Segments
•Female lingerie
•Female/male office wear
•Female/male premium casualwear
•Sports performance brands
•Board, surf and street wear brands
•Fast Fashion – Premium
•Mass-premium accessories- Fashion jewellery
CONFIDENTIAL

14. Brand
Industry-
Food & Food Industry-
related Products 1 Technology
Attractiveness & Value of Foreign
Brands Market Opportunity
Global branding brings consumer confidence
in China
Advanced food processing technology
Higher quality control & food safety
management standards
Access to foreign food production resources Food 2020 Report
Established global marketing & distribution
network
Impact on Domestic Market
O Consolidation of domestic food processing industry
O Demise of weak brands
Deloitte market analysis 2010
O Upgrade in overall food industry technology, QC & Chinese companies have been
Food safety standards actively investing in agro-production
O Consumers gain access to wider choice of packaged resources, food brands esp. in the
& processed food diary sector
CONFIDENTIAL

15. Industry-
Food & Food Industry-
related Products 2
Target Market Segments
•Dairy products esp Milk Powder
•Organic food
•Nutraceutical food supplements
•Health, Energy Drinks & Juices
•Snacks- chocolate; nut-related snacks
•Wine & Premium Beers
CONFIDENTIAL

16. Service
Educational & Knowledge Expertise
Services 1
Technology
Attractiveness & Value of Foreign
Brands Market Opportunity
Bring world-class teaching methodologies;
educational programs & technology
Access to educational talent
Access to global business leaders for
management education
Established global marketing & distribution
network
Strong links to global education ecosystem C
BDA market analysis 2010
China’s (2010-2020) plan for education reform
will significantly increase the student
throughput through the system (see below)
Impact on Domestic Market
O Consolidation to create industry leaders- nationwide
education service provider
O Inflow of global educational methods & teaching Pearson PLc recent acquisition of
technology into the market Chinese English Educational
Provider Global Education & Tech
Group (NASDAQ:GEDU)
CONFIDENTIAL

17. Educational & Knowledge
Services 2
Target Market Segments
•Kindergarten-pre-school + K-12 Tutoring
•Service-industry focused higher & professional
education
•Creative Media & IT training
•Business Management Education & Seminars
•Education Tools & technology + e-learning platforms
CONFIDENTIAL

18. Service
Expertise
Hospitality & Leisure
Hospitality , Recreational
Services 1
& Leisure Services Brand
Attractiveness & Value of Foreign
Brands Market Opportunity
Global hotel management knowhow &
technology
Strong service & talent grooming culture
Global marketing & distribution network
Brand familiar to foreign visitors/tourists to
China
Impact on Domestic Market
O Consolidate non-branded fragmented players into Thayar Lodging Group Report 2010
larger nationwide branded chains
O Upgrade overall industry service standards
Recent several cases of acquisitions
of foreign hotels & resort brands by
domestic companies
CONFIDENTIAL

19. Hospitality, Recreational &
Leisure Services 2
Target Market Segments
•Mid-scale Hotel Brands
•Themed Resort Chains
•Theme Parks
•Beauty & Spa Brands
•Service providers/Media platform in the global travel
ecosystem
•Fitness Clubs & Sports Academy
CONFIDENTIAL

20. Service
Expertise
Consumer Healthcare 1 Technology
Attractiveness & Value of Foreign
Brands Market Opportunity
Hi-tech Innovative technology
Significant R&D invested
Well-designed & ergonomically superior
High quality and reliability
Better service level provider
Global after-sales support
Impact on Domestic Market
Target is that by 2020 Universal healthcare will
O Improve overall standard and accessibility to be available to all Chinese citizens
healthcare
O Bring mobility to healthcare
Investment interests from foreign
players in Chinese healthcare
industry
CONFIDENTIAL

21. Consumer Healthcare 2
Target Market Segments
•DIY Healthcare personal devices
•In-home Monitoring/Homecare Network
•Online healthcare services
•Lifestyle health services i.e. cosmetic surgery, TCM
acupuncture, massage therapy, dental
•OTC Drug retail
•Mobile healthcare eg. iphone-based apps
CONFIDENTIAL

22. CONFIDENTIAL