This past February, I visited some outsourcing firms in southern India -- Chennai, Hyderabad, Mumbai.
The food, I have to say, was excellent. As a vegetarian, I have to say that I have never eaten as well as I did during that ten-day trip.
I was shocked, however, by the state of the roads. Even near major airports, roads were in disrepair and there were few signs of ongoing construction -- at, least, in the places I've visited.
I flew from Shanghai to Chennai and the difference in the roads to these airports was stark. In Shanghai, the highway is wide and straight. Yes, it's packed full of cars, but for the most part, traffic moves. In Chennai, the road was narrow, full of potholes, and wound through what appeared to be abandoned constructions sites -- inadequately fenced -- residential areas, and shopping districts.
And don't get me started on the taxis. Compared to the cabs in Mumbai, the taxis in Shanghai might as well be right out of the Jetsons.
The roads in other cities I visited were no different.
My experiences were not atypical. The problems of India's transportation network are a major bottleneck for that country's development. It's railroads, airports, and highways are full to capacity, and its difficult to get new projects approved.
China's transportation network, by comparison, is a modern marvel. Keep in mind, I'm comparing it to India and not, say, Germany. But for all its faults, the roads are straight and wide, and there are new plans for road and airport construction in every part of China.
And those plans are backed by political will, financial wherewithal, and by a centralized power structure.
Now, in the long term, India's decentralized, democratic decision-making system may take the country further. By having to get buy-in from affected constituencies, the country may be able to avoid some of the social problems associated with development.
But that's not necessarily a guarantee of stability, and there are plenty of other areas of social stress besides highway construction.
In addition, new highways and airports bring new manufacturing plants, new logistics hubs, new retail outlets -- in other words, jobs and economic prosperity. And the highways don't only bring in new jobs, but help employees get to jobs elsewhere in the country. That helps to alleviate a great deal of social discontent.
They certainly alleviate my social discontent.
But, more importantly, it alleviates the discomfort of China's growing blue-collar working class, the foundation of this fast-growing economy, the basis of a middle class culture.
Chinese regulators should be more careful in ensuring that there is adequate buy-in from everyone affected by a construction project. With cameraphones in the hands of everybody these days, high-profile "nail houses" will only become more common, creating the possibility of embarrassment for local officials, or a focal point for protests. Adequate public comment periods and open information about future transportation planning will help deflate some of the frustrations.
Meanwhile, those of us doing in business in China will be able to benefit from one of the fastest-growing transportation networks on the planet.
Every day, with every new road built, a new land of opportunity opens up.
Wednesday, July 25, 2007
Wednesday, July 18, 2007
Buying Power
As Shanghai and Beijing reach retail saturation, international retailers are increasingly looking to smaller cities as their entry-points into China.
According to new research from A. T. Kearney, a Chicago-based management consulting firm, consumers in second- and third-tier cities are ready to embrace Western-style retail concepts and products.
The reason? The influence of television, movies and the Internet, researchers said.
"In China, foreign retailers such as Wal-Mart and Tesco, and Hong Kong-based retailers are branching into smaller mainland cities, such as Yuxi, Weifan, Nanchang and Wuhu," the research company said.
However, companies may need to use different approaches in the smaller cities.
"Retailers should not go into second-tier cities armed with a first-tier strategy," said Mike Moriarty, a partner with A.T. Kearney and co-leader of the GRDI, in a statement. "Successfully entering a new country via smaller cities requires careful identification of cities with consumers who are ready to embrace modern retail formats. But with the right strategy, smaller cities can be attractive targets for retailers that missed the window of opportunity in major cities and for established retailers looking for growth."
For example, in the most obvious difference, incomes tend to be smaller outside Shanghai and Beijing. This means that some products may need to be priced or marketed differently.
In addition, consumers in China's smaller cities live different lifestyles and have different needs than those on the coast. Differences in the quality of public transportation and penetration of car ownership may affect the kinds of products consumers can easily bring home, for example.
And, of course, there are market considerations.
In Shanghai, for example, a new product may be competing against twenty existing brands. The key marketing challenge would be differentiation.
In a smaller city, a new product may be one of the first of its type, and the challenge would be consumer education.
The problem for us business journalists -- and for you business executives -- is the lack of good research about the retail industry in central and western China. Most research reports still focus on the coastal cities, and those that do look west tend to be very broad and infrequent.
This situation is bound to change over time, but, until then, international retailers are relying on custom research reports from some of the smaller research shops that have recently opened doors in China.
Unfortunately, custom research is time consuming -- and expensive.
As a news magazine -- and not a research firm -- we at Emerging China can't hope to fill this gap. But we will try to do our own small part to address it, with special sections on China's retail industry and in-depth reports about particular cities and industry segments.
Also keep an eye out for reports about China's market research firms.
If there is anything in particular you would like to see us focus on, please don't hesitate to write. In fact, we welcome letters to the editor on any topic.
According to new research from A. T. Kearney, a Chicago-based management consulting firm, consumers in second- and third-tier cities are ready to embrace Western-style retail concepts and products.
The reason? The influence of television, movies and the Internet, researchers said.
"In China, foreign retailers such as Wal-Mart and Tesco, and Hong Kong-based retailers are branching into smaller mainland cities, such as Yuxi, Weifan, Nanchang and Wuhu," the research company said.
However, companies may need to use different approaches in the smaller cities.
"Retailers should not go into second-tier cities armed with a first-tier strategy," said Mike Moriarty, a partner with A.T. Kearney and co-leader of the GRDI, in a statement. "Successfully entering a new country via smaller cities requires careful identification of cities with consumers who are ready to embrace modern retail formats. But with the right strategy, smaller cities can be attractive targets for retailers that missed the window of opportunity in major cities and for established retailers looking for growth."
For example, in the most obvious difference, incomes tend to be smaller outside Shanghai and Beijing. This means that some products may need to be priced or marketed differently.
In addition, consumers in China's smaller cities live different lifestyles and have different needs than those on the coast. Differences in the quality of public transportation and penetration of car ownership may affect the kinds of products consumers can easily bring home, for example.
And, of course, there are market considerations.
In Shanghai, for example, a new product may be competing against twenty existing brands. The key marketing challenge would be differentiation.
In a smaller city, a new product may be one of the first of its type, and the challenge would be consumer education.
The problem for us business journalists -- and for you business executives -- is the lack of good research about the retail industry in central and western China. Most research reports still focus on the coastal cities, and those that do look west tend to be very broad and infrequent.
This situation is bound to change over time, but, until then, international retailers are relying on custom research reports from some of the smaller research shops that have recently opened doors in China.
Unfortunately, custom research is time consuming -- and expensive.
As a news magazine -- and not a research firm -- we at Emerging China can't hope to fill this gap. But we will try to do our own small part to address it, with special sections on China's retail industry and in-depth reports about particular cities and industry segments.
Also keep an eye out for reports about China's market research firms.
If there is anything in particular you would like to see us focus on, please don't hesitate to write. In fact, we welcome letters to the editor on any topic.
Thursday, July 12, 2007
Looking west at real estate
Until the late 1990s, Chinese households and enterprises occupied state-owned property. Average residents had their housing provided for free, through government welfare departments and the housing offices of state-owned enterprises.
With the advent of privatization came one of the largest real estate booms the world has ever seen.
Shanghai is an obvious beneficiary of this -- new skyscrapers, shopping malls, and residential housing complexes are springing up both in the city and in the surrounding suburbs.
But central and western China now offer even more opportunities for real estate investment, and the reforms that have worked in the coastal cities are promulgating through the rest of the country.
According to a report by Beijing-based research firm Zhongjing Zongheng, just released in English last month, the real estate market has grown by 19.5 percent in the Eastern cities. But that pales before the growth in the inner regions -- 36.3 percent increase in central China and 32.1 percent in western China.
The research company predicts that the boom will last for another 20 years.
They may have a point, since city residents still account for only 42 percent of China's population, according to United Nations Population Fund, compared to an an average of 75 percent in the developed world.
That's a lot of growth potential.
Here at Emerging China we plan to devote a significant amount of time to cover the changing real estate market in China's central and western cities.
International companies are affected by this growing market in a number of ways. Foreign firms buy and rent property for their offices, and sometimes need residential space for their key employees.
In addition, many foreign investors are getting into the real estate as an investment, to the constraints allowed by law.
Finally, international real estate companies may have an advantage over local competitors when it comes to reliability, service, and their global capabilities. But, again, local regulations may limit the extent to which they're allowed to do business.
Regulatory changes are as important -- if not more so -- than market demands, when it comes to the Chinese real estate industry.
When we plan our coverage for the coming months, you can look forward to articles about the ways the laws are changing throughout China, and how foreign investors, renters and property companies are affected by the laws.
Next week, we will be posting an online calendar with a schedule of our special issues -- please keep an eye out for it.
Have a great summer!
With the advent of privatization came one of the largest real estate booms the world has ever seen.
Shanghai is an obvious beneficiary of this -- new skyscrapers, shopping malls, and residential housing complexes are springing up both in the city and in the surrounding suburbs.
But central and western China now offer even more opportunities for real estate investment, and the reforms that have worked in the coastal cities are promulgating through the rest of the country.
According to a report by Beijing-based research firm Zhongjing Zongheng, just released in English last month, the real estate market has grown by 19.5 percent in the Eastern cities. But that pales before the growth in the inner regions -- 36.3 percent increase in central China and 32.1 percent in western China.
The research company predicts that the boom will last for another 20 years.
They may have a point, since city residents still account for only 42 percent of China's population, according to United Nations Population Fund, compared to an an average of 75 percent in the developed world.
That's a lot of growth potential.
Here at Emerging China we plan to devote a significant amount of time to cover the changing real estate market in China's central and western cities.
International companies are affected by this growing market in a number of ways. Foreign firms buy and rent property for their offices, and sometimes need residential space for their key employees.
In addition, many foreign investors are getting into the real estate as an investment, to the constraints allowed by law.
Finally, international real estate companies may have an advantage over local competitors when it comes to reliability, service, and their global capabilities. But, again, local regulations may limit the extent to which they're allowed to do business.
Regulatory changes are as important -- if not more so -- than market demands, when it comes to the Chinese real estate industry.
When we plan our coverage for the coming months, you can look forward to articles about the ways the laws are changing throughout China, and how foreign investors, renters and property companies are affected by the laws.
Next week, we will be posting an online calendar with a schedule of our special issues -- please keep an eye out for it.
Have a great summer!
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