China: The Reality of the “Market” Giant

|China

Since the financial crisis arose, many Japanese firms are now concentrating their managerial efforts on developing the Chinese market. Local general stores have been disappearing and supermarkets, convenience stores and department stores have been appearing. White-collar numbers have grown rapidly, and they perform the central role in consumption. Each firm, while visualizing such a mass consumer society, is framing marketing strategies for the Chinese market.

Looking at reality dispassionately, however, you realize an unexpected truth. That is that the “market (the physical place)”, which is the traditional distribution system, is displaying, as of old, an overwhelming presence in China. As of 2008, 57.3% of China’s wholesale and retail turnover (in other words domestic demand) was being created only with “markets” with a turnover of more than 100 million yuan. On the other hand, the share for retail chain store systems, such as supermarkets, department stores and convenience stores, has stayed at just 22.4%. Checking in detail the changes from 2005 on, the proportion which retail chains occupy in wholesale and retail turnover has practically stalled at 22.2%, 24.2%, 22.6% and 22.4%. Subsequently it is expected that “markets” will continue supporting China’s domestic distribution over the long term.

The great presence of “markets” in China also shows in the multiplicity of commodities traded there. In addition to the agricultural produce which Japanese readers are familiar with, clothing, leather shoes, and miscellaneous goods, and then even metallic materials (steel, etc.), machinery, and automobiles, are dealt on “markets”. In recent years, what have grown most markedly are the metals markets and the automotive markets. In the period 2000–2008 both the former and the latter grew explosively, with the turnover of the former going from 124.5 billion yuan to 1,110.9 billion yuan and the number of retail premises from 30,748 to 79,620, and the turnover of the latter going from 62.1 billion yuan to 302.3 billion yuan and the number of retail premises from 15,521 to 55,449.

There are a variety of types within China’s “markets”. In the coastal regions with their industrial accumulation, wholesale markets termed “specialty markets” have been established. Then, going to consumer cities like Shanghai and Beijing, secondary wholesale markets such as “farmers’ markets”, “clothing cities”, “shoe cities”, and “car cities” can be seen everywhere. Furthermore, periodic markets still remain in many agricultural areas. These “markets” are continuing, while forming a network, to deliver commodities over the whole length and breadth of the nation.

“Markets” are seemingly primitive, and Japanese firms which sell high-value-added goods aimed at the middle class appear unlikely to be involved. On much closer examination, however, it can be seen that, in advancing the development of the Chinese market, a number of important points which cannot be overlooked lie hidden there.

First, “markets” are a typical low-end market-oriented distribution system. The size of their presence suggests the harsh reality of the existence of an enormous low-income group in China. China’s middle class, not surprisingly, are adopting consumption behavior while being conscious of the existence of these people. This is because it is clear that, in the area of so-called “conspicuous consumption”, the pattern of behavior of these people differs greatly from that of the Japanese consumer. Japanese firms which are tackling the development of the Chinese market must first understand this point.

Following on, “markets” display, in ultimate form, the management environment of Chinese firms. For “markets” the entry barriers are low and new entrants are continually making their appearance. Accordingly there are no end of firms which get weeded out. Chinese managers who have grown up in such an environment are accustomed to fierce competition and develop management on the premise that new business partners will appear daily. For the Japanese firms rushing to develop the Chinese market, it is also important that they continue to cultivate flexible business relationships, recognizing these characteristics of local firms, and not sticking to long-term negotiated transactions.

[Translated by ERINA]