China's Economy Has Been Maintaining a Rapid Growth in Recent Years

China's economy has been maintaining a rapid growth in recent years and attracting global attention thanks to its vigorous market. International tycoons of bathroom products also showed favor for Chinese bathroom products industry which attracted little attention, and they have been early in tapping Chinese market even before we took notice of them. Through many year's effort, some of these tycoons grew familiar with the way of existence in Chinese market and gained a strong foothold in China, while some other unfortunate few are still struggling to make their presence felt and some even escaped from China in frustration. Undoubtedly, the 1.3 billion Chinese people represent a huge market potential and an attractive prospect. So what has been the hurdle preventing foreign companies' aggressive expansion in China? High-end position and prohibitive price Before entering Chinese market, these foreign brands have undergone more than a century's development, through which they achieved advancement in production technology and product quality, allowing them to quickly take over the high-end bathroom market in China. Particularly, the market for building construction and star-level hotels are dominated by these foreign brands. In first-tier cities such as Beijing, Shanghai and Guangzhou where consumers having great purchase power often prefer famous brands and expensive products, these foreign tycoons are enjoying very attractive sales turnover. On the other hand, for ordinary consumers in third and fourth tier cities and rural area, price is always the first concern, so their prohibitive prices become the handicap for these bathroom tycoons. Moreover, due to the unbalanced economic development in different regions of China, and also because the market in large cities such as Beijing, Shanghai and Guangzhou is becoming saturated, it is probable that future growth will tend to become stable. On the other hand, in numerous small towns and rural area, a huge market space remain to be developed, particularly due to the effect of policies encouraging selling building materials to the countryside, the demand on rural market will be stimulated in the coming few years, and therefore rural market promises a broad scope for development. During home decoration, people in small towns and rural area normally attached importance to price performance ratio when selecting products, and thus expensive price doesn't necessarily mean a good choice for them. Ordinary families' budget for kitchen and bathroom decoration is normally ten or twenty thousands Yuan, so price dominates their decision on bathroom products. International famous bathroom brands such as TOTO, Kohler and American Standard often price their products at several thousands and even ten thousands Yuan, which is far from affordable by ordinary families, so the scope of development is largely limited by their prices. Consumers are difficult to understand China is a huge country, where cultures, building styles, building piping design as well as consumer aesthetics and consumer demand vary form region to region. For example, consumers in northern regions normally prefer bathroom products of large size having magnificent and classic style, while Southern consumers prefer products of small size and having a simple and fashionable style. Foreign bathroom products entering Chinese market mainly feature American-Japanese style and European style; the former is represented by Kohler and TOTO which features simplicity without paying too much attention to appearance design, resulting in simple and undiversified product styles; while their European counterparts pay attention to artistic aesthetics and are human-oriented, featuring very smooth contours in product design and unique style. In addition to products with these two styles, Chinese consumers also have preference for products featuring Chinese style. Consequently, in order to seize market share, it may be necessary for foreign brands to adjust their product line according to the demand of different regions. Business strategy is not localized Some people say that the only thing needed by foreign companies to develop in Chinese market are capital and business pattern, and that they can seize Chinese market by offering a complete range of diversified products and through high-end positioning as well as continuous expansion. Is it true? Maybe it isn't so if we look at the difficult experience of Yahoo in China and Google's sad escape. When we look back at the bathroom product industry, we may want to ask the question why INAX was even unable to gain a foothold through so many years' struggling while Kohler and TOTO enjoyed success when the former is not inferior to the latter. The answer may be that, because American brands such as Kohler and Japanese brands such as TOTO entered Chinese market early and took the preemptive opportunity, they not only sold their products in China but also built factories in China to localize production and sales and therefore reduced the threat posed by domestic companies' low production cost. Problems as to how foreign companies should be localized and how to adjust production and sales strategy during localization remain to be considered by foreign companies allowing for the characteristics of Chinese market. The road to success for Starbucks in China may be worth our consideration, and one of the keys to success for Starbucks lies in that, no matter where it is, it always shows respect for local culture and people, and this is the only way to become an inalienable part of local people's life. At the beginning of entering Chinese market, to win customers, Starbucks has made improvement in its operation according to local requirement. In some Starbucks shops within China, we can find some very prominent Chinese features, and in addition to design features, the logo, the furnishing and decoration as well as shop area are closely related to local characteristics. Starbucks also started to offer moon cake, ice rice dumpling and tea products after studying Chinese consumer culture. As far as localization is concerned, it is very important for a multinational company to create corporate brand image in addition to adapting its operation, R&D, design and marketing promotion to local market need. In addition to traditional market promotion activities, companies also should try to create a positive brand image, including participating in various activities of social interest. For example, after the 5/12 earthquake, Kohler donated sanitary ware in value of 2.4 million Yuan to Jiangyou City for the post-disaster reconstruction of social and welfare services including schools and hospitals; and after the Yushu Earthquake, TOTO donated 500 thousands Yuan at the very first time. These philanthropic moves have won favorable word-of-mouth in China for these brands. Impact of the rising of domestic bathroom brands A decade ago, foreign tycoons may considered themselves lucky as most Chinese bathroom brands were positioned at low-end market, which made them unable to gain a foothold in high-end market. However, a decade afterward, we have noticed the activity of domestic bathroom brands in high-end market, and bathroom brands such as Arrow, Huida and SSWW have been making great strides. Taking Arrow for example, its sales reached approximately 1.2 billion Yuan, which is comparable with that of international brands such as TOTO. A change is happening to the Chinese bathroom market which is previously dominated by a few foreign brands, and it is likely that foreign brands may have to gradually condescend to compete with their domestic counterparts. Through many years' development, Chinese bathroom manufacturers have completed primitive accumulation of capital, and in order to take the upper hand in fierce competitions, many companies were in a hurry to invest huge capital to expand their plants, import advanced production technology and equipment and improve product quality. Meanwhile, domestic bathroom manufacturers' brand awareness started to grow and they gradually realized the importance of brand building for company development. Consequently they started to actively promote brand building and attempted to enhance their brand influence and increase their products' added value by appearing in various major exhibitions, organizing various events and employing stars as brand endorser. This series of moves has allowed local bathroom companies to reduce their disadvantage in terms of product quality and performance as compared with their foreign counterparts, more importantly, they have gained price advantage which increased their presence in the market. Domestic bathroom manufacturers produce huge number of products annually with numerous brands, and therefore gained absolute advantage in relation to their international counterparts in mid and low-end market, while in high-end market, bathroom brands such as Arrow, Huida, SSWW, HEGII and Suncoo have been fighting for the market share occupied by their foreign counterparts. Furthermore, domestic bathroom manufacturers also try to make their presence felt in international stage, for example, Huida will participate in the Frankfurt Bathroom Show this year as a representative of Chinese bathroom makers. In November 2010, T&B, a French investment company injected capital into Foshan Baili Sanitary Ware Company to form the new Baili Company through a Sino-French joint-venture, opening a channel for Baili to obtain refinancing from international capital market. This will be closely followed by its presence in European market, through which, an international brand operation network will be created to facilitate its international competition. This suggests that, international high-end bathroom brands will face increasingly greater threats posed by local bathroom brands in both Chinese market and international market, and it will be very difficult for them to maintain a monopoly position. There will also be increasingly greater challenge for international bathroom tycoons to create an integrated value chain ranging from production to sale so as to maintain a foothold in China and tap the world market. Source: fstcb.com