Shop­pers ‘of­fer great busi­ness op­por­tu­ni­ties’ for com­pa­nies

China Daily (Hong Kong) - - BUSINESS VIEWS - MICHAEL BARRIS

The “un­even” growth of China’s con­sumer class and those in other de­vel­op­ing mar­kets presents “tremen­dous po­ten­tial for com­pa­nies” if they choose to play in fast­grow­ing cat­e­gories, ac­cord­ing to a re­port by con­sult­ing firm McKin­sey & Co.

The re­port said that by 2025, when the num­ber of con­sumers world­wide has reached 4.2 bil­lion, those with dis­cre­tionary in­come will, for the first time,out­num­ber those strug­gling to meet ba­sic needs. That de­vel­op­ment presents “what may well be the big­gest op­por­tu­nity in the his­tory of cap­i­tal­ism,” ac­cord­ing to the re­port.

For in­stance, United States-based bev­er­age gi­ant Coca-Cola Co, “rec­og­niz­ing Chi­nese con­sumers’ pref­er­ence for pulpier juices”, in 2004 launched Minute Maid Pulpy, which had a thick tex­ture adapted to Chi­nese tastes and in­cluded bits of fruit, ac­cord­ing to the re­port. The fruit juice be­came China’s most pop­u­lar fruit juice brand in seven years and At­lanta-based Coke’s first brand to reach $1 bil­lion in emerg­ing mar­kets.

In another cat­e­gory wait­ing to be tapped, the re­port said the growth rate of the skin care mar­ket in Shang­hai is pro­jected to triple that of the en­tire na­tion of Malaysia.

Multi­na­tional com­pa­nies aren’t the only po­ten­tial ben­e­fi­cia­ries as the con­sumer goods land­scape is re­drawn, ac­cord­ing to the re­port. In the fastest grow­ing con­sumer pack­aged goods cat­e­gories in China, Brazil and Mex­ico, eight of the top 50 com­pa­nies were found in emerg­ing mar­kets, ac­cord­ing to the re­port re­leased Dec 23.

“Th­ese lo­cal en­ti­ties — com­pa­nies like Mex­ico’s Grupo Bimbo — are ven­tur­ing out­side their home mar­kets and skill­fully lever­ag­ing their emerg­ing mar­ket know-how, fa­vor­able cost po­si­tions and prox­im­ity to a rapidly ex­pand­ing cus­tomer base,” the re­port said.

As a re­sult, their sales growth in emerg­ing mar­kets far ex­ceeds that of US-based con­sumer pack­aged goods com­pa­nies, ac­cord­ing to the re­port.

The re­port con­cludes that con­sumer pack­aged goods com­pa­nies should take “a more data-driven ap­proach to un­der­stand­ing how com­peti­tors will grow in each mar­ket, and how their own strate­gic po­si­tions will change as a re­sult. They will then be able to pre­dict crit­i­cal in­flec­tion points for par­tic­u­lar prod­ucts in par­tic­u­lar cities and re­gions.”

The re­port comes as China’s lead­ers slowly steer the na­tion’s econ­omy to­ward con­sump­tion and away from ex­port and in­vest­ment.

Ernie Preeg, an econ­o­mist for the Man­u­fac­tur­ers Al­liance for Pro­duc­tiv­ity and In­no­va­tion, a Vir­gini­abased man­u­fac­tur­ing in­dus­try group, told China Daily in early Novem­ber that third-quar­ter data that showed pro­duc­tion in China grow­ing faster than GDP in­di­cated the coun­try’s “grand strat­egy of shift­ing re­sources to per­sonal con­sump­tion isn’t hap­pen­ing”.

Third-quar­ter per­sonal con­sump­tion in China rep­re­sented 35 per­cent of GDP, Preeg said. To in­crease per­sonal con­sump­tion to 40 or 45 per­cent of GDP, “you have to have an­nual growth of 15 to 20 per­cent a year” — more than twice MAPI’s fore­cast na­tional growth rate of 7.1 per­cent in 2014 and 7.3 per­cent this year, Preeg said.

Growth is ex­pected to slow as the coun­try con­fronts a “slug­gish world econ­omy”, ac­cord­ing to MAPI (Man­u­fac­tur­ers Al­liance for Pro­duc­tiv­ity and In­no­va­tion).

China’s widen­ing ru­ral-ur­ban in­come gap also is ham­per­ing con­sump­tion growth. Last year, per capita dis­pos­able in­come of ur­ban res­i­dents more than tripled that of ru­ral res­i­dents, ac­cord­ing to gov­ern­ment sta­tis­tics.

The Cen­tral Ru­ral Work Con­fer­ence in Bei­jing was told that in­come from a year’s work in the fields may be less than three months’ work in a city. An­nual per capita in­come in the high­est-in­come house­holds was 20 times more than that of low­er­in­come fam­i­lies, the Chi­nese Academy of So­cial Sciences said.

Chi Fulin, pres­i­dent of the China In­sti­tute for Re­form and De­vel­op­ment, told a Pek­ing Univer­sity au­di­ence that con­sump­tion is ex­pected to reach 30 tril­lion yuan ($4.9 tril­lion) in 2016 and might fur­ther rise to be­tween 45 tril­lion yuan and 50 tril­lion yuan in 2020, Tai­wan-based Want China Times re­ported.

Tak­ing into ac­count the in­vest­ments such con­sump­tion would spur, do­mes­tic de­mand might reach 100 tril­lion yuan in 2020, Chi said.

From 2000 to 2009, the con­tri­bu­tion of con­sumer spend­ing to the growth of China’s do­mes­tic de­mand dropped to 48.2 per­cent from 62.3 per­cent, Want China Times re­ported.

In con­trast, the con­tri­bu­tion made by in­vest­ments to the growth of do­mes­tic de­mand dur­ing the pe­riod rose to 47.2 per­cent from 35.3 per­cent, the pa­per re­ported. Con­tact the writer at michael­bar­ris@ chi­nadai­lyusa.com

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.