"How to conquer the Chinese market" is perhaps a question every chief executive officer of a multinational company has to think about if the company wants to succeed globally.
A panel of business leaders, who experienced working in China, offered insights on how to succeed in this huge and diverse market during the 2013 Fortune Global Forum.
Many of the world's top companies regard China as a major target, as they seek to develop in fast-growing markets, according to Martin Sorrell, the Group chief executive of Wire and Plastic Products PLC. The British advertising and marketing multinational entered the Chinese market in 1987 and now operates in more than 80 Chinese cities.
China's pursuit of high-quality growth, the shift from savings to consumption, and the greater focus on the service industry, will increase China's appeal as a high-growth market, according to Sorrell.
Talking about the competition between foreign brands and local ones, Sorrell said that the major battleground is brand awareness and distribution.
"Chinese brands are more and more effective," he said, after spending the past couple of weeks analyzing major Chinese companies including Haier, Hisense, Alibaba, Tencent, and Sina, to understand how they build their brands.
Refuting the western myth that China is all about cheap manufacturing, copying or even stealing intellectual properties, Sorrell said:"From what we've seen, not just in the last two weeks, Chinese companies are beginning to strongly understand the importance of branding."
According to him, foreign brands tend to enter the Chinese market with products and services that are overpriced and although they have customer recognition, the distribution of their brands remain quite low when China's 1.33 billion population is taken into account.
"China has 184 cities with more than a million people each-it's not just about developed cities like Shanghai, Beijing, Guangzhou and Shenzhen," said Sorrell while referring to the Chinese government's policy to push people into the hinterland."It's also about Chengdu and Chongqing. The real battleground is in store distribution and retail."
Many of Sorrell's clients, multinationals, who have operations in China, told him that they compete with local companies more than with other foreign multinationals.
"Local companies have highly competitive formulas," said Sorrell.
The Chinese companies are starting to understand the concept of brand loyalty and are changing their price curves; whereas the foreign companies are tailoring their brands for a better distribution and brand awareness.
François-Henri Pinault, another panelist, chairman and chief executive officer of Kering (formerly known as Pinault-Printemps-Redoute), used the example of its company to offer advice on what it takes to win over Chinese consumers.
The number of Gucci stores in China has grown from 5 in 2005 to 71 today, demonstrating the company's extreme success in a country where appetite for various luxury goods keeps growing, according to Pinault.
Kering, a globally renowned luxury group that owns Gucci and Alexander McQueen, has been present in China for years.
"We have to deal with sophisticated customers, and those new customers have no experience when it comes to the purchase of luxury goods," said Pinault.."This is very new. We have intensive training sessions, on how to cater to our new customers, for our salespeople. They need to be able to explain that the materials used, craftsmanship, and creativity are responsible for the price of our products."
Recognizing the young age at which Chinese consumers are capable of buying luxury goods, Pinault said:"Taking into consideration that Chinese are by far the youngest consumers in the world,, their lifetime as luxury goods' consumers is twice as long as their counterparts in the United States and Europe."
"One way to address this long consumption period is to have a portfolio of brands," Pinault said.
Victor Yuan, chairman and founder of Horizon Research Consultancy Group, one of China's leading market research providers, believes that companies who can provide quality and innovative services will be the biggest winners when China will try to develop a service-driven economy.
"People can now afford to pay for better and innovative services," argued Yuan."China's GDP per capita has exceeded US$5,000."
In addition, young people are becoming more career-oriented in the sense that they focus on their jobs, according to Yuan.
"They will not know how to cook, housekeep and raise a child. They will purchase all kinds of services, which will create a new market," he said.
The same applies to companies, said Yuan."At different stages, companies outsource different services, creating a bigger business-to-business market."
Victor Chu, chairman of the Hong Kong-based First Eastern Investment Group, underscored the importance of value when seeking success in China.
"Value is the No. 1 factor," Chu said."Whether you are in control or you are a minority partner, value-added is really your long-term insurance for success."
According to Chu, the meaning of value has evolved over time.
"Initially, the No.1 value was capital, but today capital is probably No. 5. There is technology, management, branding expertise, corporate finance expertise and operating expertise."
The 2013 Fortune Global Forum, which gathered business leaders from the world's biggest companies, took place in Chengdu, China's Sichuan Province, from Thursday to Saturday, under the theme "China's New Future." An audience of 600 participants, the largest number of participants in the forum's 12 years, offered insights on trends and forces that are redefining China's economic growth, the world's second largest economy. .
