Feature Article:The markets in China

There is no such a thing as "the Chinese market". China is a patchwork of regional markets at various stages of economic development, bound together as a nation, but separated by differences in governance, communications challenges, regional rivalries and poor infrastructure. Any aspiring market entrant must be prepared to deal with this reality if they hope to be successful.

The pragmatic accepts this and looks for ways to segment the market so that they can focus resources on segments that offer realistic opportunities. In this article we consider China as a collection of first-tier, second-tier and third-tier cities, each at a different level of development, each one primarily serving customers in its immediate geographic area. Building a bridgehead in the most cost-effective manner begins by selecting one or more of these cities and the constituency it serves.

There are four first-tier cities. Shanghai is the main business centre of the prosperous Yangtze River Delta. Shenzhen and Guangzhou, located within the even more prosperous Southern Pearl River Delta, are both cities of high economic development with well-established infrastructure. Beijing is still the leader in R&D and home to China's finest universities and research institutes as well as being the seat of government. Private-sector R&D facilities have been established in Beijing - Microsoft and IBM are notable examples. Beijing also offers Zhongguancun - a home-grown version of Silicon Valley. Many foreign enterprises begin by establishing a directly owned entity in one or more of these cities. This can be a major investment and while it demonstrates a long term commitment to the market, it may not be appropriate for every business. China's quality distributors will almost certainly be headquartered in one of these first-tier cities.

Second-tier cities cover other key regions, including cities such as Shenyang, Dalian, Tianjin and Harbin in the Industrial North East. The metropolises of Chongqing, Chengdu and Wuhan, cover the more developed areas of Western China. For specific industries - such as automotive - these second-tier cities may in fact house the majority of their customer base - "clustering" is common in China. Strong local distributors can usually be found in these cities. These distributors are familiar with the local market and will have existing relationships with potential customers - local knowledge and "access" are still very important in China.

The third-tier cities are numerous and catching up rapidly. Many are key cities in the far West, the South West and Central China. If there is a distinguishing feature of third-tier cities, it is that they serve areas that are economically undeveloped and less well provided for in infrastructure terms.

Clearly, the selection of your preferred base of operations can only be made once you have a clear understanding of the geographic distribution of your target customers. In the second article of the series we will consider the obvious next problem - identifying reliable sources of current market information.

Ben Walter

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