Innovation Inspiration: China - The Basics

27 May 2010|Added Value

Welcome to our May edition of Innovation Inspiration – Added Value’s monthly e-mail designed to provide you with a short burst of facts and stimulation on marketing and innovation topics.

We’ve taken a look in recent months at India and Russia. What about some of the opportunities and challenges surrounding China?

China is the largest consumer market on the planet with 1.32 billion inhabitants, or 20% of the world’s population, and is already the world’s 3rd largest economy. In 2007, GDP reached $3.6 trillion; a growth of 11.4% over 2006; Personal Disposable Income per capita among urban residents rose 12.2% over the same period; and retail sales of consumer goods increased 16.8% 2007 versus 2006.

Read more: China Knowledge

And it’s sure to get even bigger:  following the bursting of the credit bubble, Chinese leaders know more clearly than ever that they need to free up consumer spending as a basis for long-term growth.

Read more: A Consumer Paradigm for China, McKinsey

Recent business wisdom suggests that China is “modernizing, but not Westernizing,” – Chinese consumers are not about to give up a deeply-held nationalistic attachment to an immensely rich culture and 5,000 year-old history; and the roots of Confucianism, Buddhism and Taoism are as robust as ever. China’s greater conservatism, collectivism and business culture based on ‘guanxi’ contrast sharply with the individualistic, transaction-based Western norms. Examples abound of non-Chinese companies that have failed to pay enough respect to Chinese mores: “you cannot just plug and play”, as Edward Tse of Booz & Co Greater China puts it.

Read more: Is It Too Late To Get Into The China Market?, Booz & Co

So, how do you navigate the complexity?  Let’s begin at the beginning: with consumer segmentation. Oracle Added Value recently published a paper called ‘The 4 G’s in China’, amalgamating expert opinion from a variety of sources to create a generationally-based segmentation. We identified four distinct G’s: the In Between generation (born in the sixties); the Open Door generation (born in the seventies); the Take Off generation (born in the eighties); and the Flying Star generation (born in the nineties). The work argues that  fundamental differences between generations cut across regions and social contexts.

Read more: Generation China by Magdalena Wong, CEO,  Oracle Added Value

In terms of activation, think about combining city tier/regionality with a city cluster approach.

Read more: China – How to Grow More Quickly by Tim Ledgard, Managing Partner, Oracle Added Value

How is the web impacting China? The internet user base reached 384 million in 2009 – an increase of 50% over 2008, and more users than the US and Japan combined: it is forecast to hit 650 million by 2015. What’s more, 233 million Chinese accessed the web on handheld devices; and the number of internet users increases by 800,000 every week. Online content and aggregation will grow from $14 billion in 2008 to $40 billion in 2012. And, compared with other BRICI economies, but also the US and Japan, Chinese internet usage has a far higher emphasis on communication and entertainment: people in the 60 largest cities spend 70% of their leisure time online.

Read more: China’s Digital Generations, Boston Consulting Group

Read more: China’s Internet Obsession, McKinsey

And last but not least – Luxury. China is currently the second biggest Luxury market in the world, after Japan, and is predicted to take number 1 spot by 2015, with 32% of the global market. China had 300,000 millionaires in 2007 and the second largest number of billionaires after the US. Crucially – for consumption generally, not just Luxury – the middle class is estimated at 250 million in 2010, predicted to rise to 670 million by 2021. From our work, Luxury in China is associated with two main beliefs: social success and knowledge: the first is significantly stronger in the business world. In most international cities, this “Status through Show” has become “Status through Know” – people relate luxury to knowledge: of product quality and its benefits, but also to personal culture and self-confidence.

Read more: Luxury & The Middle Kingdom by Ben Wood – Director, Added Value France

As well as working locally out of Shanghai and Hong Kong, Added Value has partnered with multinational companies throughout the world on how to approach China. And if you’d like to discuss how we can help, we’d be delighted to hear from you.
Best Wishes,

Jonathan Hall
CEO, Added Value France

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