Everyone is talking about the People’s Republic of China (PRC or China), and not just because the country is hosting the next Olympic Games. Today China stands tall as a one of the fastest growing economies in the world. In the last three decades, as per the latest figures, China’s economy grew by 10.6%. The Chinese economy has gone from being a lumbering agrarian economy 25 years ago to a rapidly developing economy today. China-based factories make 70% of the world toys, 60% of world’s bicycles, 50% of world’s shoes, and 33% of world’s luggage.

In this first part of the article, I will discuss the miracle of China’s economic growth and what multinational corporations have done to succeed—and fail—in the Chinese marketplace. In the second part of the article, I will address some of the challenges International marketers face in their efforts to win the hearts and minds of Chinese consumers and other stakeholders.

AN INTRODUCTION TO THE CHINESE MARKETPLACE

At the present time China’s economic growth is in the golden era with high growth and low inflation. China is now the third largest trading nation and one of the fastest growing markets for U.S. goods and services. China’s economic miracle can be attributed to soaring exports and huge investments in buildings and the requisite infrastructure. Foreign investment is flowing in; trade is rising, as are the real estate and stock prices. China has received the highest Foreign Direct Investment (FDI) in the world. FDI in China was $63 billion in 2006.

Between 1985 and 2003, China has consistently been the world’s fastest growing economy with an average growth rate of nine percent. Since its entry into the World Trade Organization in 2001, China has been seen in a new light, not just the world's center of low cost manufacturing, but also as a legitimate consumer market open for global business. Currently, about 80% of the world’s top 500 companies have invested in China.

China’s Vast Consumer Market

The Chinese consumer market is growing by leaps and bounds as is evidenced by the sales record of many consumer durable products. According to The Economist magazine, car sales in China have risen by 30% over the last year. Sales of mobile phones and household electronics are up by 20% to 40%. Retail sales grew by 12.3% in real terms in 2006.

Already there are an estimated 300,000 Chinese with a net worth of $1 million USD or more, but it is not just millionaires who are on a buying spree. The China Branding Strategy Association claims that some 175 million Chinese can afford to buy luxury products. In a recent survey by the China Market Research Group, CMR, 60% of respondents claimed to have purchased luxury goods. A large majority of these (89%) luxury goods buyers were between the ages of 20 and 30 with assets less than $25,000 USD. Most foreign consumer companies decided to position their products at the top of China’s market pyramid.

Multinationals That Succeeded!

With their vast capital, technology and product lines, early entrants into China were the well recognized brand name owners such as Coke, Pepsi and P&G. These global giants practically scooped up the market with the power of their marketing offenses and the acquisition of existing local leading brands. Gaining a dominant market share was relatively easy for these early adopters.

Examples of successful marketers in China are illustrated here:

• Johnson and Johnson is now a very enviable household name in China and Volkswagen produces cars for 80% of Shanghai taxis. Nokia, Erickson, Honda, Buick, Sony, Glaxo, Phillips and Pierre Cardin have all been engrained in minds of Chinese consumers as brands of choice.
• Three years after its entrance in the Chinese market, Bentley has sold 133 cars (19 of which carried price tags over $1 million USD). In 2004 the total number of Bentleys sold in China was 56, with total revenues of $28 million USD, making China the third biggest Bentley market after America and Japan.
• In 2005 BMW sold 23,595 vehicles in the Chinese mainland, up 52% from 2004. In the first six months of 2006, BMW had already sold 16,833 vehicles to mainland China, a 78.4% increased from the previous year.
• China imported 20 million bottles of whiskey like Chivas Regal worth $87 million in 2005, an 86% increase over 2004.
• Car sales in China have risen by 30% over last year. Sales of mobile phones and household electronics are up by 20% to 40%. Retail sales grew by 12.3% in real terms.

Multinationals That Retreated!

Some Western business leaders are moving into China without any clear knowledge of the many pitfalls they will encounter: the weak rule of law, forceful government intervention, a scarcity of managerial talent, the likelihood of counterfeiting, a fast-paced business environment and highly aggressive local competitors.

Here are a few examples:

• Many global brewers entered China's market in the early 1990s trying to sell premium beer only to exit a few years later in the face of tough competition from countless low-cost Chinese brewers. The companies obviously rushed to market without a sufficient understanding of China’s market dynamics.
• In the high-technology industry, Google has lost market share to the search engine Baidu. Baidu.com is an internet search engine start up that began operating a few years ago and has one of the most trafficked websites in the world. The look of its home page is similar to that of Google, which invested in Baidu several years ago, but then sold its small stake at huge gain last year after Baidu went public on the NASDAQ. According to iResearch, Baidu commanded 63%share of the market Google was second with 19% and Yahoo with 7.6%.
• Yahoo recently transferred its operations to a Chinese company Alibaba.com, and eBay, even after buying one of its biggest competitors in China, continued to lose ground. In December 2006, eBay handed over its operations to Tom.com, which is based in Hong Kong, in a joint venture.

Next month I'll examine some of the challenges marketers face in China.