Roundtable lays out way ahead for multinationals

"Products and services will have to be made for China, if they are to match the demand of the vast number of Chinese consumers in both urban and rural areas," said Ying Yeh, chairwoman of Kodak Greater China Region and an honorary chairwoman of the eighth China Daily CEO Roundtable held under the theme "Address the New China, the Road Ahead for Multinational Companies," held on Friday in Hong Kong.

Branding, talent, further localization, maintaining international service standards, developing rural areas, a long-term view, readiness to compete with local companies and working closely with both central and local governments were the focus of discussion.

At the luncheon held on Friday, 20 China-based CEOs and senior executives of the world's largest companies such as HSBC, ExxonMobil, Disney, Wal-Mart, Deloitte, O&M, 3M, Oracle, and Bloomberg in charge of banking, finance, insurance, consulting, consumer products, media, entertainment, sport, retail, lifestyle products, energy, and IT, gathered to address some common but strategic concerns relating to the challenges and opportunities being brought about by the development in China of a xiaokang society - one that is moderately well-off.

While delegates were upbeat about China's sustained economic growth, Honorary Chairwoman Ying Yeh stressed that multinationals must be realistic in their consumer strategies and be aware of government policies to achieve a mutually beneficial situation. "Do your reality check as frequently as possible, paying particular attention to government policies," Ying suggested. The past seven years were just phenomenal in terms of China's economic growth, and, as of today, China has overtaken the United States as the world's number one consumer market, beating it in four out of five key sectors, apart from energy consumption, Ying stressed.

However when looking into the relative income growth between those in urban and rural areas, Ying cautioned that the income gap has actually widened and this should be closely monitored.

The Chinese Government's western development strategy therefore has a lot of implications for multinational companies. At the very least this means that hidden demand will be released. "Kodak's business in China's coastal cities has continued to generate substantial growth for us, but we are also allocating more resources to development in the burgeoning second and third-tier cities."

In closing her speech, Ying stressed the essence of Kodak's branding strategy in the decades to come in China is to cultivate "a culture that Kodak is part of consumer's everyday life." She added that the China market will be far more important than just a big market, it will be viewed as a strategic resource for global growth in research and development and skills.

To address the growing needs and income of rural regions and second-tier cities, the president of Wal-Mart China, Cassian Cheung, who was also an honorary chairman of this CEO roundtable, said the company employs four key strategies to develop its business model for China. These are choice and convenience, price leadership, logistics and technology, and localization and training.

Cheung said the 44 Wal-Mart stores (Supercentres, Sam's Clubs and Neighbourhood Markets) in China are located in 21 second or third-tier cities throughout China, and they must cater to the consumption preferences and spending power of their respective inhabitants. Wal-Mart plans to open another 15 outlets within 2005 and is hiring around 1,000 employees every month.

This has created a huge challenge not only for Wal-Mart but also for the entire retail industry. Towards this end, Wal-Mart has started the Fresh Food Academy, the Walton Institute and launched the concept of the "Store of Learning."

"The biggest challenge for us is to find the right talents and professionals for this industry, who are attuned to corporate governance and issues related to running retail operations in China."

Challenges and opportunities

After joining the World Trade Organization (WTO), China offers both challenges and opportunities for multinational retailers, who are allowed to operate as wholly-owned enterprises, and their geographical expansion is unfettered for the first time.

Head-on competition with local retail giants on all fronts is also expected. "Multinational companies in China are currently at a crossroads, and they must strike a balance between the consumer demands arising from both the urban and rural markets, and at the same time pay a great deal of attention to pricing strategies to be able to remain competitive with local companies," he said.

Lynne Ronon, North Asia region senior vice-president of Burberry Asia Ltd, echoed that training is a crucial issue, and every employee working at Burberry outlets in mainland cities should offer customers the same shopping experience as their counterparts in London or New York. There is considerable pent-up demand on the mainland for higher quality or up-market products, she said. "In the case of Burberry, the customer recognizes our brand and identifies with the product on a personal level, and because it is so recognizable, we will continue to encounter problems with intellectual property infringements, but luckily we have customers that understand the value of our brand and genuine products," Ronon pointed out.

Dicky Yip, HSBC China Business chief executive, stressed the bank's long-term view of the China market. "We have been here since 1865 and we see huge potential coming out of the high saving rate of Chinese consumers in general, at 40 per cent," Yip said. The bank looks forward to the complete opening of the banking sector by the end of 2006, according to China's WTO commitments.

Managing director of the Walt Disney (Shanghai) Company Limited Stanley Cheung said the company's primary goal is to create magic and dreams for the masses.

"The Chinese population, with an emerging middle class and elite that are constantly stressed out, are ready to be entertained. The biggest challenge ahead of us in China is the development of localized content for our films, programmes and theme parks," he added. As the market for film and television content is heavily regulated, Disney will probably adopt a strategy with a mixture of local and foreign content.

For the property sector, Associate Director and General Manager of Sino Land Company Limited Charlie Lin said property developments have become a demand-driven commodity as the Chinese people's spending power increases.

"We are very positive about the growth of real estate on the mainland, and we continue to see a sustained demand as property has changed from a fringe benefit to a genuine consumer-driven commodity," he said.

Mark Fischer, managing director of NBA Asia, drew attention to the need for entertainment as Chinese people become increasingly affluent and can afford more leisure activities.

With the importing of homegrown stars such as Yao Ming to the NBA, the basketball promoter is enjoying tremendous growth on the mainland. "On the Chinese mainland, there is an overwhelming 97 per cent awareness of the NBA brand, and every one of our games broadcast on any number of the Chinese channels is a two-hour advertisement for us," he told delegates.

Fischer said the NBA brand is a very compelling statement in its own right, and the company intends to consolidate its strong brand position and extend its business beyond licensing and television programmes.

"We will continue to promote the game of basketball in China, and set up additional offices across the mainland, along with basketball stores, gymnasiums and centres with the help of local partners, such as the Chinese Basketball Association."

For the 2003 to 2004 NBA season, the cumulative audience for NBA programming in China was over 1 billion viewers.

Arics Poon, managing director of Oracle Systems South China and Hong Kong, said growth in China is a matter of how fast and how much. Oracle implemented the Golden China Programme which is essentially a 30-year commitment training programme to educate its employees, customers and stakeholders.

Ivan Yuan, CEO of China Entertainment Television Broadcasting Ltd (CETV), said that despite the tough competition with other television networks, he remains bullish about the future of his company. He said localization is the key strategy for his station which is currently producing 40 per cent of its content locally. It also recently moved its operations to Shenzhen to get closer to the market.

"We are actually turning down customer orders because we do not have sufficient people to serve them," said Peter Bowie, chief executive officer of global financial and consulting group Deloitte Touche Tohmatsu in China.

"The demand for IPOs, M&As, and restructuring, in addition to the already huge demand for professional accounting, taxation and auditing services, has caused my firm to occasionally turn down orders.

"The right people with a financial services background and related experience that we can develop into industry professionals remain scarce in China, while the retention of these people presents another problem for us," he said.

Bowie said that money is usually not the most effective element to attract or retain talents, training is. The company is in the process of developing comprehensive training programmes to cultivate professionals in accounting, audit and tax services, as the company plans to recruit 40 per cent more staff in the next few years.

Stephen Mosely, managing director of L'Oreal Hong Kong, Taiwan and Viet Nam, highlighted that China is far more important than a pure market for consumer products. "China today has a clear advantage as being not only cost-productive but also in terms of quality of its production,"he said.

He stressed that the Chinese element is strategically affecting multinational companies global operation and therefore multinational free trade will be an important development for China.

Steven Yung, chairman of outdoor media company Clear Media Limited, shared his bullish view about the future of the China market and was delighted to see his company's stock option programme value increased by 50 per cent in recent years.

He does not foresee too much competition, as the advertising industry in China is actually growing at a rapid rate.

Joseph Wang, vice-chairman of advertising group Ogilvy and Mather Greater China, maintained that consumer growth in second and third-tier cities on the mainland will drive the company's business in the coming years.

"The problems of our clients are also our problems. As many multinationals move into the second and third-tier cities, we must understand the needs and spending habits of their consuming population in order to advertise effectively," he explained.

Richard Leung, country head for China of DBS Bank (Hong Kong) Ltd, the largest bank in Singapore and Southeast Asia, sees many opportunities in China though his bank has previously experienced frustrations. "There are simply not sufficient local people with banking knowledge, not to mention experience."

Conclusion

"Not many negative signs," concluded Ying Yeh.

However, multinationals should remain aware of the importance of protecting intellectual property rights, effective branding as well as increasing investment on issues related to the environment, health and safety.

Yeh said branding in China is a double-edged sword, and multinationals must aim to further their brand position with a clearly defined image that caters to the urban population, with pricing strategies sensitive to rural consumers.

"I think everybody agrees that things will not be only made in China in the years to come, they have to be made for China," she added.


(February28, 22005)

 
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