Many foreign consumer goods companies operating on the Chinese mainland may have suffered losses in their initial forays, but seven in 10 are now making profits according to a recent survey.

The survey of 136 foreign consumer goods companies either already operating in China, about to operate here or who source from here was conducted by KPMG and market research firm Taylor Nelson Sofres. Seventy percent of the respondents are making profits or breaking even.

 

Twenty-three percent are making significant profits, while 47 percent claimed to be breaking even or making some profit. Only 7 percent were not optimistic about operating in the black.

 

Of those companies already operating in China, 93 percent are optimistic about their businesses’ five-year prospects, said Nick Debnam, chairman of KPMG’s Consumer Markets Practice. Over one-third believe their businesses will grow at a rate of at least 30 percent next year, while 64 percent forecast growth in excess of 10 percent.

 

“This view from companies on the ground tells you everything you need to know about this booming consumer marketplace,” Debnam said.

 

The survey found that successful companies do not view the mainland as a single market. “Marketing budgets and strategies need to be different,” he said.

 

There are 39 cities on the mainland with a population greater than 2 million, whereas there are just six in Europe and only four in the US. The fact that a multinational brand holds a leading position in one city may have little bearing on its performance in other parts of the country owing to the sheer scope of the market. For instance, the best-selling beer brands in four of the mainland’s biggest cities were different in each city, said Debnam.

 

Over the past five years, consumer spending has increased by an average of 57 percent in the richer eastern provinces of the country. The per capita figure has now reached 10,000 yuan (US$1,205) to 20,000 yuan (US$2,410) each year.

 

Despite this dramatic increase, several of the companies surveyed said that their biggest mistake was misjudging the potential of the mainland market. “The single most popular response -- just under a quarter of all responses -- was that the potential of the China market had been overestimated,” said Debnam.

 

Other challenges faced were related to intellectual property issues and the flexible strategies required to cope. A shoe manufacturer countered the problem of piracy by launching new designs more quickly, thereby keeping ahead of the counterfeiters, which take some months before they can produce the newest styles.

 

The survey also indicated that merger and acquisition is the preferred method of 53 percent of firms wishing to enter the market and 38 percent of those wishing to expand their operations.

 

(China Daily July 9, 2004)