China unbroken by Asian crisis

While Asia’s problems have derailed the plans and fortunes of many marketers, all is not lost. There’s still good reason for optimism about China, despite its economic troubles.

Though the government asserts that China’s eight per cent growth forecast this year will be achieved, privately some economists reckon growth has all but stopped. Rising unemployment, the Yangtse floods which have affected more than 100 million people, and export competition from Asian countries whose currencies have devalued, are just part of China’s problems.

Market research surveys highlight the buying power of approximately 120 million consumers who can afford modern consumer products. But even in the major cities, there are millions who still have to break out of poverty.

Close to the Beijing Riviera, one of the high-priced ghettoes where foreigners are obliged to live in the capital, are families of shepherds for whom even detergents are luxury products. Their only consumer appliances are black and white TVs and a light bulb to illuminate one-room shacks. Near Xian, a provincial capital of 11 million, some families still make their homes in mountain caves.

And even the 120 million potential consumers can be hard to reach. Poor roads and undeveloped distribution networks pile on the costs of reaching these consumers.

Not surprisingly, a survey of European investment in China by Fiducia, a Hong Kong management consultancy, found 54 per cent of companies had performed worse than expected. Another survey by AT Kearney, found that multinationals expect to take more than four years to break even in China and six to ten years to achieve the rates of returns they can achieve elsewhere.

Though the Gold Rush enthusiasm among Western marketers may have faded, China still draws more foreign investment than any other Asian country – $45.3bn (27.5bn) last year. And there are success stories. Procter & Gamble dominates the market for soaps and shampoos, and KFC is a household name.

Philip Goodstein, who heads Bozell’s agency network in China, is optimistic: “Even with limited economic growth, most Western marketers can expect to build their businesses in China simply through increasing distribution and market penetration. The early expectations that people had for rapid growth in China were often unrealistic, and were based more on ignorance than on understanding of the problems and opportunities offered by the market.”

Marketers have been surprised by how quickly Chinese manufacturers have improved their own product lines to match Western standards. Chinese consumers are just as likely to opt for brown and white goods from companies like Kelon than from international companies.

“It is one of the most competitive markets on earth,” says Bruno Le-magne, chairman of Unilever China. That is good news for Western agencies, since China remains one of the few markets where billings continue to balloon. Ad spend is forecast to grow by 13 per cent this year, according to MindShare Asia/ Pacific.

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