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It's still not too late for global retailers to enter the lucrative Chinese consumer market, but they should first understand the nuances of the market and find the right business models in order to win, say experts.

 

China's consumer market, expected to become the world's second largest after the United States by 2015, according to investment bank Credit Suisse, presents enticing opportunities for retailers.

 

Some early movers such as US retail giant Wal-Mart and French firm Carrefour have already set up shop in China while many others are considering joining the fray.

 

"I would say it is still not too late for other global retailers to enter the market," said Michael Silverstein, senior partner and managing director of Boston Consulting Group.

 

As the economic boom in China's major cities - where most global companies are concentrated - spreads to second- and third-tier cities, it is expected to fuel an increasing demand for consumer goods in those areas, said Hubert Hsu, a senior partner and managing director of the Hong Kong office of Boston Consulting Group.

 

Understanding China's unique landscape and culture, both Silverstein and Hsu agree, is the first step toward developing a winning retailing strategy.

 

Winning in the scramble for China's retail customers will depend on how quickly a retailer, especially one from outside China, understands the economic, geographic and cultural landscape of its market, Hsu said.

 

"Finding the right local partner is one of the keys to success," Silverstein said.

 

The urban, coastal and inland markets in China, Silverstein said, are quite different and demands different requirements for retailers. Local partners, he said, would help foreign players adapt to local needs. "Missing the nuances is to miss the opportunities."

 

Latecomer retailers, Silverstein suggested, may look at the secondary cities first to avoid the fiercely competitive markets in top cities such as Beijing and Shanghai.

 

Most global retailers understand the differences between Western and Eastern preferences, but there are many nuances that will continue to affect shoppers' choices within China, Hsu said.

 

Such diversity often calls for customized products and services as well as a different product mix from one city to another, Hsu said. The trick is to find the right balance between uniformity and customization. Too much uniformity will hurt sales productivity whereas too much customization will lead to lower margins.

 

Foreign retailers should also get familiar with the supplier representative model in China.

 

Retailers act as landlords in this model, renting floor space to suppliers who handle customer interfaces such as merchandising, sales and after-sales services while jointly managing logistics and promotion with retailers.

 

Foreign retailers should also push a business model that combines international and local trade formats, said Patrick Ducasse, senior partner and managing director of Boston Consulting Group and the global leader of BCG's Consumer Practice at its Paris office.

 

Although modern trade formats such as supermarkets and hypermarkets are gaining ground in China, traditional trade formats are still going strong in some sectors such as the home decoration market.

 

"They should make sure that they understand the format, the demographics and find a commercially and economically viable business model," Ducasse said.

 

Network expansion and increasing productivity, Ducasse said, are equally important.

 

Retailers should ask themselves some of the following questions before they set out to meet the challenges they will face in China, Hsu said.

 

Which format will help us break traditional trades' stronghold in some sectors?

 

Do we know how to balance the benefits of customization against scale advantages in China's fragmented market?

 

Do we know how to seek opportunities in China's white spaces without sacrificing same store productivity?

 

Do we understand the pros and cons of the supplier representative model for our business?

 

What capacities do we need to answer these questions?

 

(China Daily July 11, 2007)