Opportunities in China for medium-high consumer goods
From our seat IC&Partners Asia
The Chinese market for medium to high market sector products is evolving rapidly, not only for the growing number of wealthy Chinese, but also because consumer preferences towards Western products and brands are changing.
In particular, anti-corruption measures introduced by President Xi Jinping, not only have drastically reduced the purchase of luxury gifts, but also shifted the focus of consumers towards more elegant products but less flashy. In any case, it is expected that China will become, by 2020, the country with the highest level of real spending value for middle-class consumption: this confirms how important is that the Italian companies have to increase their presence in this market order to capture the growing opportunities in the coming years.
An important measure which affected the medium-high consumer products is the decrease (in force since 1 June 2015) of the customs duties on imports of luxury goods, with cuts of up to 50% on the rates up then in force (the measure mainly concerned the clothing, footwear and cosmetics).
This measure was taken by the Chinese government to curb the foreign purchases of Chinese citizens and stimulate purchases in China (by sacrificing a part of the customs duties on imported products): for Italian companies that sell the medium-high consumer products in China it is an important opportunity because it stimulates the demand from the Chinese middle class, already favored by a steady growth of income per capita (which will continue in the coming years).
The Made in Italy products are appreciated by Chinese consumers for quality, a wide product range, design, style, innovation and craftsmanship: they often represent a target for the Chinese who follow the international fashion trends and it is realistic to think that the demand for Italian products in China is potentially superior to present sales.
In order to fully take advantage about market opportunities in China, our companies need to invest more in marketing policies and devote more resources to the pre-sales and after-sales services; they also need to take advantage by the increasing use of the internet and smart-phones by Chinese consumers in the purchase of consumer goods.
One of the most promising sectors for the Made in Italy is furnishings. There will be a steady market sale increase thanks to strong demand both from the hotel chains (deriving from the implementation of numerous high-end hotel) and from the Chinese families (which, with the increase of their income, more and more are opting for high-end imported furniture); moreover, the phenomenon of urbanization (which has characterized the last years) is continuing and will lead in the next five years more than 100 million people in more cities, with consequences in terms of building development and increased demand of products for the furniture.
Another traditionally important Italian industry for the Chinese market is clothing: currently Italian producers in China hold a market share of over 17%, an increasing share over the past five years.
There will be an increasing consumption, thanks to an average rapidly expanding class, that will further encourage the sale of clothing Made in Italy. In fact, the foreign competitors of Italian firms in China are mainly from Korea, France and Spain with the exception of French: these foreign companies offer products at lower average unit values, at a Chinese target consumers who, probably, with the increase of their disposable income in the future will opt for a higher-end clothing and will buy clothes Made in Italy.
Another important industry for the Made in Italy is footwear: today Italy covers about 25% of China’s imports and is the supplier country that gains more market share recently. it is reasonable to believe that the Chinese market potential is still not fully exploited and that in the coming years will see an increase in imports of Italian footwear in China, especially if the SMEs in this sector will implement appropriate marketing policies. Currently, in fact, the Italian presence in the Chinese market is dominated by the most famous brand and many SMEs of Italian footwear are still not able to have the visibility that allow to enhance the quality of their product and win the favor of a wider range of Chinese consumers.
Furthermore, China is among the most interesting foreign markets for Italian eyewear companies: in this area, it is expected a growth in imports Made in Italy by about a third by 2020. The main competitors of our businesses are the local producers which in recent years have improved the quality of their products in order to satisfy even the medium-high end market.
Apart from the need to make changes to the product to adapt models to the different measures and to the taste of local customers, there are a number of obstacles for Italian companies operating in the eyewear sector: in addition to a complex set of laws, the Chinese market it is characterized by tariffs and non-tariff barriers aimed at protecting local enterprises.
Finally, it is important to point out that the Italian gold-jewelry industry has an excellent positioning in China: the Italian quota on Chinese imports (above 35%) ranks Italy first among exporters of gold-jewelry industry.
This result was achieved despite the presence of strong competitors among both mature countries (Switzerland and the United States) and in emerging ones (Turkey and Malaysia); as well as with these competitors, the Italian gold-jewelry companies must now also deal with a cooling in demand resulted from the tightening anti-corruption measures taken by the Chinese government.