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Considering your Growth Markets Strategy: China

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Considering your Growth Markets Strategy: China

December 10
10:49 2012

By Ann O’Connell, Partner, Corporate Strategy, PwC and Chris Brown, Senior Manager, Growth Markets, PwC

Irish food and drink produce is prominent in the UK, mainland Europe and US. This follows from many years of hard work and export success. Yet these traditional markets account for an ever shrinking proportion of the global market for premium and imported foods.

Invariably this means a number of growth opportunities, from Africa to Asia. Look past the current hype, and China is an obvious example for food and drink exporters with long-term potential. Already the world’s second largest economy, according to the PwC publication ‘The World in 2050’, it will overtake the US economy in purchasing power parity terms by 2018. It is little surprise then that according to the PwC 2012 CEO Pulse Survey, 32% of Irish business leaders are planning to target China in the next year. But where do you  start?

Ann O’Connell, Partner, Corporate Strategy, PwC.

Without an Irish diaspora or common language, China may appear remote. Despite our best efforts, general awareness of Ireland in China lags that of larger European countries. Scandinavian seafood, Australian beef, Scotch whisky, French water, and  New Zealand dairy already lead the way. But across any number of food and drink products, ‘Irishness’ has the potential to be sold as safe, healthy, and premium quality. The very fact that Ireland is less well known in China than Germany or Australia presents a great opportunity  to create and contribute to a premium image of green, organic Ireland. From mineral water to whiskey, potato snacks to porridge oats, opportunities abound.

While huge income disparities continue, there are now over 100 million ‘middle class’ urban consumers in China and this number is set to grow. Concentrated in a handful of cities, they are concerned with the safety and quality of their domestic food chain. Those who  can afford it are often happy to pay a premium for imported produce.  This has led to a tiered approach, both in terms of the channels that serve different segments of the Chinese consumer, and in the business model of  Western food companies.  For example, this includes  arms-length distribution agreements through to product and management localisation, even to the extent that China becomes a global centre for global Growth Market innovations. As summarised in the diagram below, this tiered system takes on a very different scale from European markets. While at present only around 10% of China population can afford the occasional imported food purchase, this still represents significant opportunities across several market positions, from high-margin/lower-volume produce, through to localised mass market offerings.

Framing the opportunity

 

But given China’s huge scale, it can be daunting to know where to start. Which business model to aim for? How much to customise your products and marketing? Which company structure or which distributor? How will shipping costs and trade tariffs impact end price and margins? How will you fund the venture and how will you extract cash and profits? Are you going to rely on local recruits or secondees from the existing group? The key to all of the above is advanced planning and getting the right people by your side.

Whatever your scale or product, there are a number practical steps when approaching China or any other Growth Market: from doing your initial ‘homework’ on which Growth Markets to prioritise, through the steps of sizing the opportunity and challenge, right down to on-the-ground implementation, as shown in the diagram below:

A structured approach for Growth Markets

If you’re interested in getting more out of Growth Markets like China, contact our team.

Ann O’Connell, Partner, Corporate Strategy, ann.oconnell@ie.pwc.com, +353 1792 8512;

Chris RB Brown, Senior Manager, Growth Markets & China Desk, chris.rb.brown@ie.pwc.com, +353 1792 8012.

 

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