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The Chinese market is massive and whilst American and European brands are actively pursuing it, Chinese companies are also actively courting this interest.
In this post, I’ll give some examples of brands that have moved into China, selling directly online. I’ll also detail moves from Chinese companies such as Alibaba, which is encouraging US retailers to sell into the country, as well as Chinese brands partnering with US brands with both parties benefitting.
To start with some context, Ernst & Young estimate that by 2030, China’s ‘middle’ will number 1bn and represent two thirds of the world’s middle.
And despite this burgeoning demand in China, home-grown brands are lacking. As China’s twelfth five-year plan comes to end (one of its tenets is aimed at encouraging national brands, not just designers), there are an increasing number of international partner brands in China, and some Western businesses have been bought, too.
The future is Alibaba?
Alibaba is set to IPO at a valuation of around $150bn. It’s clearly making waves.
Part of its strategy is helping US brands sell to China by offering ‘Alipay’ and shipping. Alipay is a service comparable to PayPal, used for mobile payments and secure checkout. Alibaba wants to offer this checkout option to US company websites in China. Shipping hubs will also open in the US, to take care of packaging and import fees for the merchants.
Brands newly selling into China
Cosmetics is one area where there is a certain degree of caution as the tougher economic climate since the recession has led to some changes in the market. L’Oreal’s withdrawal of its Garnier brand is one example, as is Revlon’s withdrawal from China.
Despite slowed growth of cosmetic sales and increased local competition, growth was still at 13% in 2013.
Clarins is one brand relatively new to selling online and in stores, having launched a .cn website in late 2012. Over a third of Clarins orders in China are coming from locations where the brand does not have a store, showing the importance of ecommerce.
Clarins has a sensible strategy of starting informational sites in countries such as Taiwan, Malaysia, Singapore and Hong Kong, before making these transactional, as it has done in Japan, China and Korea.
In travel, Hyatt Place, Hyatt’s business focused chain of hotels, is expanding into China this year.
This is fairly significant for a brand (Place) that had only US hotels until late 2012 and points to China being more open to the business traveller, globally.
Elsewhere, Victoria’s Secret is opening Victoria’s Secret Beauty and Accessories stores in China later this year.
Lingerie sales have been growing 20% each year in China. La Perla and Etam are European names already in the Chinese market along with home-grown brands and designers. But, like many sectors in the country, the growth of the middle class means there is likely further room for competition.
History of success in automotive
This is one of the sectors where Western brands are most well-established in China, and can provide good context as to the size of the market and how mature it is.
Volvo and Geely
The Chinese market is the most important for car manufacturers. Foreign manufacturers have been making cars in China for over a decade. Volvo provides a good case study for illustrating trends in China.
Four years ago, the Swedish manufacturer was bought by the Chinese manufacturer Geely.
Perversely, Chinese brands have to demonstrate an international flavour of car to succeed in China, where Chinese cars have a poor reputation.
In this BBC article, Geely chief executive Hakan Samuelsson explains thus:
..the Chinese car industry, if you don't count the international joint ventures, has a very bad reputation, especially on safety.
So in order to differentiate ourselves from the domestic manufacturers, I think we need to prove that we are a company which can build cars to international standards.
To that end, the manufactuer looks to obtain European safety ratings for Chinese models, and takes these models to international motor shows to gain prestige.
Of course, the European market is not particularly attractive, especially right now...but it is a market, and I think it makes sense for us to go there in order to be seen as an international company.
General Motors sells more cars in China than anywhere else. Through partnering with Shanghai Automotive Industry Group, the company has built Buicks in China since 1998, with Cadillacs and Chevrolets shipped there since 2004 and ‘05.
Despite having been in the country for a while, recent sales growth is impressive. This year GM expects to sell 3.5m units in China.
In 2012 GM sold 2.6m units in the US, so the landscape of the automotive industry is clear to see.
If you’ve seen any other foreign brands new to China, let me know in the comments below.