China: Turning Your Toehold into a Forward March - Audio slideshow with text transcript

Hello, this is Ann Chen. I'm responsible for the Greater China Consumer Goods and Retail practice for Bain. I'd like to share some of our thoughts on China and the opportunities it holds for global consumer goods players.
 
As CEOs look for new growth markets, it's no wonder that all eyes are on China. It is the world's second-largest economy, with healthy forecasted growth. With its natural resources and strong labor base, many are looking toward China to provide low-cost manufacturing capabilities. For consumer goods players, increasing consumer purchasing power and few government restrictions translate into domestic sales opportunities.

However, in the rush to participate in China, many companies have fallen into the China market-entry trap. Lured by initial successes, companies end up expanding too rapidly, spreading resources too thin or realizing unsustainable brand efforts. Few foreign companies today are able to point to long-term profitable growth.

Some of the common pitfalls and challenges include

• the need for significant investment to educate consumers on the overall category;
• overestimating the size of the premium segment: Despite newfound wealth, consumers are still highly value conscious;
• underestimating the strength of the local players, who are quick to react and typically have lower cost structures in place.

There are also a host of internal problems, which can also plague overly ambitious entrants: unstable or inexperienced management teams, lack of product differentiation or lack of scale versus entrenched incumbents.

Despite the gloom, there are a few success stories.

• For P&G, their China business is a real gem, cultivated through over 20 years of hard work. They have leadership in multiple categories and a presence in over 400 cities and are on track to reach $2 billion in sales this year.
• Coca-Cola also has a rich history in China. It now leads the carbonated beverage category, not just with its own Coke brand but with a range of different types of drinks and local brands. Wrigley's has mastered the art of distribution and covers over 90% of all the outlets across China. Its China business contributes over 10% of total company revenue.
• Anheuser-Busch has survived the beer wars, which have decimated many other global brands, and holds leadership positions in the premium segment with its Budweiser brand as well as in the midpriced and mass-market segments through local acquisitions.
• Finally, Colgate helped develop and upgrade the entire category of oral care and now leads in toothbrushes and toothpaste.

After the initial wave of success, companies cannot afford to stay still. There are a set of imperatives we recommend for our clients in China. Firstly, manage costs and ensure that competitiveness is maintained versus local players. Secondly, add products and enter into new geographies and channels by developing a highly flexible business operations model. And lastly, don't just think about organic growth. The M&A market is heating up with many opportunities to buy strong regional players in consumer goods.

We still believe China remains a land of great opportunities for consumer goods companies, and we look forward to seeing many more success stories.