Why FMCG companies should explore China opportunities as Covid impact fades
How is China’s economy recovering post-Covid? For a start, they have introduced a nationwide scheme to conduct regular Covid-19 tests on all of its citizens, particularly workers returning to their offices and factories, and is rapidly improving both the availability and affordability of test kits.
After a massive testing blitz, costing nearly $US127 million and involving 10.9 million people being tested over two weeks (the entire city population over the age of six), the city of Wuhan, the city worst hit by Covid-19 and where the virus started, has now been officially declared “Covid free” and China’s “safest city”.
Meanwhile, the economy is slowly recovering, with a promise to introduce extra stimulus measures of up to US$500 billion to create 9 million jobs and blunt the fallout from the pandemic. China observers have been shocked by the decision not to release a GDP growth target for this year, the first time this has happened in decades, due to the great uncertainty caused by Covid-19. In addition, China’s economy is reported to have contracted by 6.8 per cent in the first quarter of 2020, making it the first time that Beijing has reported a negative GDP growth rate since 1976.
By all accounts, Chinese people are getting back to work, shopping, eating out and trying to get back to “normal” after the lockdown. Domestic tourism is picking up again and China’s manufacturing engine is bouncing back strongly. According to a local government spokesman, “as of March 25, the resumption rate of large and medium-sized enterprises was 96.6 per cent, an increase of 17.7 per cent from the survey results on February 25.”
Focus on domestic consumption
From 2015 until the end of last year, China’s economy was driven by domestic consumption, a big shift from the past when China was an export-led economy. In addition to becoming the world’s biggest market for online retail, the country now represents more than 30 per cent of the global market in luxury goods, automotive, consumer appliances, mobile phones and spirits.
After 20 years as a manufacturing hub for the rest of the world, China is now focused on world-class innovation, and so it is looking to serve the domestic consumer rather than worrying about exporting to the rest of the world. Acknowledging external challenges (geopolitical and economic) the Chinese President Xi Jinping recently said: “For the future, we must treat domestic demand as the starting point and foothold as we accelerate the building of a complete domestic consumption system, and greatly promote innovation in science, technology and other areas”.
This focus on stimulating and encouraging domestic consumption provides unique opportunities for global SME owners and leaders, particularly leading players in the FMCG sector, to develop a market entry strategy for China at a time when consumers are actively seeking new, innovative products from new and alluring foreign destinations. Despite recent political tensions, Australia remains an attractive and highly rated source of new FMCG products and, with the rest of the world still battling their Covid crisis, this is the time to strike.
A China market entry strategy for leading Australian FMCG players should include the following:
China has one of the largest, most vibrant and dynamic online marketplaces in the world but it operates behind a “firewall” and requires foreign players to adapt to an unfamiliar, complex and fast-changing e-commerce environment.
In developing its digital-marketing strategy for China, Australian FMCG leaders need to familiarise themselves with the attributes of major e-commerce platforms (eg Alibaba, JD) and popular social-media apps (particularly WeChat and TikTok) in order to build a following, gain the attention of KOLs (key opinion leaders) and promote their brand in way which will engage with consumers, particularly a fast growing, mobile, aspirational and wealthy segment known as “Chinese millennials”.
Despite the importance of developing a compelling online presence, as mentioned above, China still does business the old-fashioned way, which requires new foreign entrants to spend time and effort developing local relationships with distributors, influencers and advocates on the ground. Developing long-term personal relationships with local business partners who you can trust and depend on to promote your brand and represent your best interests in China, is as important today as it ever has been.
Clean and green
Australia enjoys a reputation for high-quality FMCG products as a result of our “clean and green” environment, our high regulatory standards and a strong commitment to quality control. However, it’s clear from recent research that “clean and green” is no longer a competitive advantage in China, and in fact it’s become a baseline requirement for any product manufacturer or brand from any country looking to enter the China market.
To stand out from our competitors in other “clean and green” countries (for example, New Zealand, the US and Europe) the real work has to go into articulating a value proposition which includes some unique messaging around ingredients, sourcing, supply chain, technology, tracing, processing and other product attributes.
Do your research
While it’s tempting to get on a plane to China to start shaking hands, exchanging business cards and attending Chinese banquets, you will be wasting your time, money and energy until you’ve done some comprehensive market research. China is not one market, it is many markets, each with different characteristics, opportunities and challenges, and the place you start (even if it doesn’t end up being the place you finish) should only be determined after proper research and an evaluation of different market entry options.
With China the first market to come out of this Covid crisis, and the rest of the world (our competitors) still grappling with the economic and social fallout, now is the time to get started.
- David Thomas is President, Australia China SME Association and author of China Bites.