With the Chinese economy continuing to grow at a healthy pace, significant opportunities await for UK businesses looking to take their products to new markets. According to McKinsey, the United Kingdom has seen exports to China grow more than 30%, with savvy entrepreneurs realising the potential of taking their businesses overseas to unlock foreign revenue streams and combat the growing political and economic uncertainty in the UK.
Whilst opportunities are widespread, with growth in virtually all sectors, some industries are outperforming others, inviting UK businesses to get involved. Below, we share with you those key industries and offer some words of wisdom for those planning to tap into the market…
Fast Moving Consumer Goods (FMCG)
China’s fast-moving consumer goods market grew more than 6.3 percent year-on-year in Q3 2018, whilst supermarkets reported growth of 5% in the same period. What’s also interesting to note is that across lines such as alcohol, cosmetics, fresh food and more, ten times as many consumers spent more, trading up to higher-ticket brands, than those who cut costs.
One of the reasons for growth is changes in China’s customs, with the country agreeing to import both fresh and processed foods, as well as cross-border e-commerce, with Alibaba and JD.com offering luxury FMCG goods from foreign countries, and brands from around the world (including the United Kingdom) tapping into the increased demand for foreign produce.
JD.com now hosts more than 20,000 international FMCG brands on its Chinese e-commerce site, with barriers to entry for international FMCG brands lower than they’ve ever been. As a UK business, latching on to the growing demand and changing consumer spending habits is the key to your success - incorporating and marketing sooner rather than later makes sense.
In times of unprecedented change, many local FMCG companies are acquiring or partnering with international brands to increase their value proposition and appeal to consumers’ new purchasing habits, so it may be wise to partner up with a local leader to increase sales. Such businesses are set to increase their expansions into Southeast Asian markets this year, so if you partner up with a business operating in a similar niche, your UK products could travel far.
More than 120 million Chinese citizens have passports, and estimates suggest the country will issue another 30 million before the year is through. As China’s middle class continues to swell and airlines introduce new routes around the world, destinations including the United Kingdom are becoming increasingly attractive to Chinese tourists, so marketing your brand using Chinese channels like WeChat, Weibo, and Baidu will increase visitor numbers to your UK business or attraction, provided you create the right value proposition via social media.
UK businesses in virtually every sector can benefit from an influx of Chinese tourists, but it is very important to tailor both your marketing and in-store experience to accommodate their needs. WeChat Pay is currently being trialled in Camden Market and Heathrow Airport, and a nationwide rollout is expected in the coming months, which would reduce friction during the sales process and allow UK businesses to attract more Chinese tourists. Translating menus into Chinese and positioning your business as British and Premium will aid in your growth.
Software as a Service (SaaS)
China’s technology market is highly competitive, so as a UK business, it’s essential that you have a strong and tested concept before entering into the country. Once you do have such a product, however, the opportunities are great, with the Chinese SaaS market booming. New data from the Zhiyan Consulting Group shows the SaaS market is set to balloon between 2018 and 2020, from RMB 16.9 billion (US$2.5 billion) to RMB 47.3 billion (US$7.1 billion).
What’s perhaps most interesting is that no market leaders have emerged in the SaaS sector yet, so it’s anyone’s game. UK technology firms could take advantage of the UK-China FinTech Alliance - a support system for the established UK FinTech sector and its Chinese counterparts - or work with a Chinese technology company to pool resources and talent.
Provided you have a quality product and effective marketing strategy, it’s possible for small foreign entrants to make a big impression in the underdeveloped sector, at a time when the country is shifting from commodity hardware to cloud-based technology. But in order to succeed, you’ll need to host your software on a server located in China, operate under a fully-owned Chinese entity (so working with a partner is essential) and receive an internet content provider (ICP) license (which cannot be issued to foreign firms - only local entities).
China’s luxury goods market is growing at an unprecedented rate, with Chinese consumers spending an eye-watering 170 billion yuan (US$25.3 billion) on luxury goods last year alone - 20% up on 2017. The country accounted for 33% of the global luxury goods market last year, compared with the United States’ 22%, Europe’s 18%, and Japan’s 10%. Research suggests spending on luxury goods will increase by 10% in 2019, so the market is showing no signs of slowing down. Expanding into China now before your competitors get there makes sense.
What’s interesting to note is that the majority of Chinese consumers spent money on luxury goods overseas, where exchange rates allowed them to pick up bargains, so factor that into your marketing strategy and consider the potential of the Chinese outbound tourism market before you dive head-first into an expansion. Businesses planning to enter into e-commerce needn’t worry, however, as the domestic market grew 20% for the second year in a row, too.
When marketing your luxury goods and services towards Chinese consumers, put your focus on millennials. According to Lannes, they were responsible for almost all of the growth of China’s domestic luxury market over the past year and are “willing to spend on luxury brands, and financially able to do so.” Just shy of 70% of China’s millennials own their own homes (just 31% of UK millennials own their own homes in comparison), although many young consumers still rely on the Bank of Mum and Dad to fund their luxury goods habits.
Finally, don’t underestimate the power of e-commerce for your UK brand. Granted, you’re unlikely to find success opening your own e-commerce brand and taking on Alibaba (even Amazon can’t make a splash in the country, shutting its Amazon Marketplace product) but you can take advantage of sites like JingDong, Alibaba, 58.com and WeChat. China looks set to become the world’s biggest retail market this year, overtaking the US, so if you want to sell more of your products and services in new countries, China is no doubt the place to be.
According to forecasts, China’s total retail sales will climb 7.5% to reach US$5.636 trillion this year (e-commerce sales will grow more than 30% to reach US$1.989 trillion) whilst US retail sales will grow 3.3% to reach $5.529 trillion. Although growth rates are beginning to slow down in both territories, China’s will exceed the United States’ into 2022, providing a safer bet for businesses looking to expand into a new market via e-commerce.
By the end of 2019, China is expected to hold a 55.8% share of the online retail sales market - and that figure will climb to 63% by 2022. In the same period, the United States’ share of the global e-commerce market will drop to 15%, demonstrating China’s unmatched potential.
As e-commerce sales increase, demand for quality e-commerce goods imported from other markets will also soar, and e-commerce on mobile will also continue to stand its ground. As a UK brand, utilising the platforms and using video and social media to push your e-commerce products makes sense, relying on key opinion leaders and paid advertising to promote your brand and build a loyal audience. Remember a brand’s reputation isn’t built overnight, so we recommend starting sooner rather than later, even if you’re not ready for a full China launch.
At Zudu, we offer a range of services designed to help you break into the Chinese market, covering digital marketing, market entry strategy, and anti-counterfeiting solutions. To find out more, give us a call on 01382 690 080 or click here to send us a message.