The New Land of Opportunity
By George Anderson
Wal-Mart, Home Depot, Circuit City, McDonald’s, KFC and Starbucks are there. So are Metro and Carrefour. All these large retail and foodservice companies are doing business far from their American and European homes in the new land of opportunity – China.
As an article on the Retail Traffic web site points out, China is a huge consumer market that is growing at a phenomenal rate. According to the report, the retail business is now a $700 billion market with disposable income in urban areas growing at an average of 64 percent a year.
The nearly unlimited upside to the Chinese market has many that are there looking to expand, and many who have yet to crack the market considering a means of entry.
Morgan Parker, president of Taubman Asia, a unit of Taubman Centers, said, “Virtually everyone in commerce generally, and in our sector particularly, is looking at China.”
The realities of entering China, however, can make it a daunting task. As Mr. Morgan pointed out: “China is not a slam dunk.”
First, the country has many successful homegrown retailers. Only Carrefour is among the “imports” in the country’s top ten list of retail businesses.
“The real strength of the retail market is in national retailers that are building chains,” said Taubman’s Parker.
While it may be true that incomes are growing, most of that is limited to urban areas and the differences between rich and poor remain sizeable. China is still looking to create a vibrant middle class.
For those looking to enter the market, there is good news. The Chinese government has relaxed regulations over foreign investment in the country, allowing retailers to build as many stores as they wish with limited restrictions on where they are built.
Still, issues ranging from product counterfeiting, personnel challenges and bureaucratic red tape make doing business in China a constant challenge for those seeking the rewards they seek.
Meeting the needs of consumers vastly different than those retailers are used to serving is also a major hurdle to overcome. Points of difference and a competitive advantage in the U.S. may not translate to China. Wal-Mart, for example, has found that it is not the low price leader in China. Street vendors, who represent the largest “segment” of Chinese retail are able to sell goods for lower prices than Wal-Mart.
To be competitive in China, said Ira Kalish, director of global consumer business at Deloitte Touche Tohmatsu’s Deloitte Research unit, means the retailer has “to compete on the basis of quality, product mix and convenience.”
Personnel issues are also huge largely because there are more jobs than workers. According to Mr. Kalish, turnover is significant. He told Retail Traffic the story of a trucker who, after finding a better paying job, left the products he was hauling on the side of the road. After a couple of weeks, someone else picked them up and made the delivery.
Moderator’s Comment: What do you see as the biggest opportunities and challenges facing retailers looking to do business in China? Do you expect to see
a sizeable number of U.S. retailers opening up stores in China? Are there retailers here that you think would do particularly well there? –
George Anderson – Moderator