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Unlocking potential won't be easy.

NEW YORK -- China's booming economy is proving to be a lure for many foreign retailers and consumer goods manufacturers. But a number of recent studies have sounded a cautionary note, emphasizing that enormous regional variations and vast income gaps constitute hurdles to understanding China's huge consumer base, 1.3 billion strong.

China's economic growth is unquestionably impressive. According to a recent report from Ernst & Young, "The Path to Success for Retailers and Consumer Brands in China," the Chinese economy expanded by 9.5% in 2004 and will likely grow by over 8% this year.

Retailing plays a huge role in generating China's gross domestic product, accounting for about 48%, according to the country's National Bureau of Statistics (NBS). This year retail sales are expected to rise about 13% to 5.2 trillion yuan ($628 billion).

The retail marketplace is highly fragmented on various levels, regional differences representing only one. The top six retailers, for instance, account for only 20% of national consumption.

Currently Shanghai, with a population of 16.3 million, and Beijing, with 14.3 million residents, are the leading consumer markets. But there are several provinces and provincial centers as yet little known to Westerners that are growing rapidly and may offer the biggest future opportunities.

For example, Henan, with 103 million residents, has the largest population of any province and is still relatively undeveloped by major retailers. Hubei, another interior province, is well positioned for major economic growth.

As foreign marketers penetrate China's interior they will encounter a bewildering array of cultural and ethnic variations. "China is one country, but with 32 markets, each with its own tastes and shopping habits," says a spokeswoman for IGD, a global retailing think tank and research organization based in the United Kingdom. "We believe that the greatest challenge facing anyone in China is understanding the diverse, fragmented and constantly evolving needs of the consumer."

A study released by IGD earlier this year shows that in addition to regional variations, generational differences greatly influence shopping behavior. In general Chinese over age 35 tend to be more conservative and loyal to local brands, while young consumers, who are more familiar with foreign lifestyles, are more open to trying foreign products.

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Title Annotation:China
Publication:MMR
Geographic Code:9CHIN
Date:Oct 17, 2005
Words:368
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