CHINA FRANCHISE NEWS
Vol. 3 , No. 7 - May 30, 2002
TOPICS THIS ISSUE:
- Northeastern China Welcomes Carrefour and Wal-Mart
- China, An Emerging Global Procurement Base
- Challenges and Opportunities in the Building Materials Market
- Chinese Companies set to Cooperate with International Retailers
- Asia's Largest Shopping Mall to be Built in Shanghai
- Official Anticipates Advantages for Thailand's Logistics Industry Entry Into China Market
Northeastern China Welcomes Carrefour and Wal-Mart
Two retail giants, Carrefour SA and Wal-Mart Stores Inc., have recently unveiled their plans for opening three outlets each in Heilongjiang, a northeastern province of China. The total investment by Carrefour and Wal-Mart amounts to $57 million. According to Zhao Wenhua, director of Heilongjiang Economic and Trade Commission, Carrefour has signed two contracts, one with Harbin Power Equipment Co., to invest $29 million in Harbin. In comparison, the total amount of Wal-Mart's investment is $28 million.
Carrefour, as the largest retailer in Europe, has already opened at least 28 stores in China since 1995, including 4 in Beijing and 6 in Shanghai, while Wal-Mart, one of the world's largest retailers, has opened 15 outlets since 1996. Compared with Carrefour, most of Wal-Mart's outlets are located in Southern China. In competition with Carrefour, Wal-Mart is speeding its expansion efforts in northern China.
Economists estimate that China's growing middle class is spending more on cars and other luxury goods, though demand is dropping among farmers and workers, which is caused by mass layoffs from state owned enterprises.
(Source: North Asia News)
China, An Emerging Global Procurement Base
Besides the country's attraction as a huge market for multinational retailers, due to the country's cheap quality products many retailers have also listed China as one of their global procurement bases.
In April, two fairs were held in Nanjin and Tianjin, attempting to facilitate international retail procurement in China. The participants include many famous international retailers such as Wal-Mart, Carrefour, Metro and Jusco, as well as more than 1,100 domestic manufacturers. Philippe Rabit, vice president of Carrefour, sent over 100 global sourcing buyers from France, Belgium, Italy and China to the Nanjin fair. He said: "Chinese products have low prices, but high quality, and besides, they are safe." He further expressed Carrefour's intention to double its procurement value from China in the next few years and regarded China as Carrefour's important partner.
The other two retailing giants, Metro and Wal-Mart, said that the price, design and packaging of Chinese products were very competitive and thus help those products gaining in international popularity.
In fact, many retailers, including the three international giants, have established or have already moved their global sourcing centers to Mainland China. For example, Carrefour this year alone established another nine branches in China.
According to analysts, against the situation of a drop in global consumption, Chinese products' competitiveness has become even more conspicuous.
In 2001, the commodities purchased from China by international retailers were worth US$ 30 billion, which accounted for 12 percent of China's exports. At the same time, Chinese products only accounted for 2 percent of the total sales value of the retailers listed as the world's top 500 companies. Analysts anticipated that there still is huge potential for China to expand its products exported to retailers.
Galanz, as China's largest microwave oven producer, sold US$ 12 million worth of its products abroad through Carrefour last year. More and more Chinese manufacturers also want to increase the amount of their products exported through international retailing channels as Galanz did. However, difficulties do exist, namely, some retailers are unaware of many Chinese companies and their products and most Chinese manufacturers are unfamiliar with retailers' requirements and international consumption trends.
Therefore, it is necessary to provide some kind of channels for suppliers and buyers to communicated and exchange views with each other, which in turn will ensure a better mutual understanding. To achieve this, the State Economic and Trade Commission has decided to organize more events like those in Tianjin and Nanjin. It will also adopt some other measures, such as encouraging retailers to establish procurement centers in China by solving issues concerning customs, foreign exchange control and taxation, and at the same time supporting domestic enterprises in upgrading technology to better suit the requirements of retailers.
(Source: Xinhua General News Service)
Challenges and Opportunities in the Building Materials Market
According to a report recently released by the China Research Society of Building Materials Industrial Economy, China's building material industry is anticipated to achieve a growth 3-4 percentage points higher than that of the national economy in the coming decade or beyond.
The report also estimates that there will be more than RMB 1 000 billion in output value generated by the industry by 2010 and that the industry will become a key powerhouse of national economic growth. Many international construction businesses have been attracted to the China market. The first company to start doing business in China was the famous British building materials dealer, B&Q. B&Q opened a chain store in Shanghai, east China in June 1999. Then, OBI, a German building materials enterprise, opened outlets in Wuxi and Shanghai. The British Kingfisher Group, one of the top 500 in the global industry, has also decided to open several building materials chain stores in Shenzhen located in southern China's Guangdong Province.
As for the domestic building materials wholesale market, its prices are no longer competitive. There are two reasons why the domestic building materials wholesale market has become uncompetitive. First, a large amount of foreign environmentally-friendly building materials and large retail enterprises has entered China. Second, after China's entry into the World Trade Organization (WTO), tariff rates on building materials in eight main categories have been reduced, including glazed tiles, marble, ceramics, kitchen equipment, windows, decorating thin board, redwood furniture and stainless furniture. This will, on one hand bring about pressures to bear upon the domestic industry, on the other hand it will lead to an inflow of large amounts of high-tech products and building materials to China from other countries.
Meanwhile, new concepts of business operation will be brought to China by foreign building materials retailers. Changes will takes place in some traditional market forms such as free market and selling by renting market booths. It is likely that those traditional forms will be replaced by modern distribution methods such as individual trading, agency distribution, direct supply, franchised shops and online trading.
Furthermore, China's building materials wholesale market is a property management market, earning profits from collecting property management fees while losing profits from the trading business. In comparison to China's market, in developed countries, the form of building materials stores ('hardware stores') is normally used with the support of a global purchasing network that will reduce cost and price. Most of the hardware stores are operating independently by franchised trade mode.
Compared with Chinese building materials retailers, those international building materials retailing giants have greater advantages in many aspects. However, with the improvement of China's market economy, many Chinese building materials producers and retailers have started cooperation with foreign companies in a bid to gain an upper hand on the market (including the international market). This may help China-made decorating and building materials gain a bigger share of the building materials market.
(Source: Xinhua Economic News Services)
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Chinese Companies set to Cooperate with International Retailers
At a trade fair in Nanjin, which was co-sponsored by the State Economic and Trade Commission (SETC) and the provincial government of Jiangsu, State Councilor Wu Yi made some remarks regarding the development of China retail industry. The fair was attended by 34 foreign retail groups and 1,103 local manufacturers. At the fair, Wu Yi urged Chinese companies to cooperate with international retail groups for the purpose of improving the quality of products and to increase exports.
Mrs. Wu Yi further said that Chinese companies should also exert greater efforts to develop products with their own intellectual property rights (IPRs) and never to infringe on the rights of others.
According to the State Councilor, the government has just finished a campaign to check and rectify foreign-funded companies which were approved when local governments exceeded their authority.
She also announced that three central government departments, the State Economic and Trade Commission (SETC), the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and the State Administration for Industry and Commerce (SAIC), would jointly issue an interim rule on the administration of foreign-funded commercial enterprises.
Wu Yi added that China would keep its promises to the WTO and further rectify and regulate the distribution field so as to create a fair, transparent and foreseeable market environment for overseas enterprises.
Wu Yi also expressed that she wished international retailers would buy more domestic-made commodities, to improve their marketing network in China, and to find more well-run local companies that produce quality goods.
(Source: Xinhua General News Services)
Asia's Largest Shopping Mall to be Built in Shanghai
Asia's largest shopping mall, the Super Brand Mall, is going to stand by the riverside of Huangpu River in Pudong, the financial center of Shanghai. The total amount to be invested is approximately US$ 335 million. Developing the project is the Charoen Pokphand Group (CP), which is Thailand's biggest conglomerate and one of the largest foreign investors in China.
Somkit Tan, of CP, when speaking about the proposed 240,000 sq-meter, 10-story shopping mall said, "this will become a showcase for Shanghai".
CP's relationship with China dates back to 1921, when two migrants from the southern Chinese province of Guangdong moved to Thailand and founded the company. The company has experienced rapid growth, from humble beginnings to its present holdings that include agribusiness, telecommunications and retail.
CP came to and was one of the first to invest in China in 1979, when China opened its door for foreign investment. Now, CP has 170 ventures in China, which spread over almost every province in the country. In the last year, CP's revenue derived in China was approximately US$ 5 billion, including some US$ 3 billion from its agribusiness interests. CP has managed to establishe good relationships with China business leaders, which in turn has made it easier for CP to develop and diversify its operations in China into areas including banking, wine-making, motorcycle manufacturing and cosmetics. Although the company claims it is making money from its Mainland operations, it has in the past been accused of risk taking in China and of draining its listed Thai Food Company of funds to prop up weaker businesses in China.
Mr. Tan, who traces his heritage back to the same area in southern China as the CP family, does not underestimate the challenge of making the symbolic project work. He said, "it is a very tough job - you need a lot of art, science and psychology. If I was in another place, I would have a much easier life."
(Source: Financial Times)
Official Anticipates Advantages for Thailand's Logistics Industry Entry Into China Market
According to David Edwards, the managing director of Logistics Bureau Asia, Thailand's logistics industry, as its attempts to enter the Chinese logistics market, will be able to take advantage of its experiences in developing its own industry.
"Thai firms that are going through the process of developing both infrastructure and standardization systems to support their supply chains have hands-on knowledge of what it takes to put these processes in place, and both the short and long-term benefits of doing so," Mr. Edwards said. There are more and more opportunities for retailers because of the rapid change in China.
Statistics show that the number of outlets in China has been growing by 3 to 5 percent a year. According to Mr. Edwards, there is still huge potential for retail business consolidation as 80 percent of the newly outlets were fairly small, with areas of less than 20 square meters. The consolidation in turn will put more pressure on logistics and supply chains because of insufficient infrastructure.
He also said that the evolution of the retail industry in China was following a pattern that was clearly demonstrated in Thailand.
Pursuant to China's entry into the World Trade Organization, the Chinese logistics industry will experience deregulation in three to five years.
(Source: North Asia News)
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