In the last article of this series about the Chinese automotive market, we will take a deeper look at how the industry is currently divided. I will wrap up the topic with a possible market strategy, which could be pursued by foreign start-up companies looking to tap into China. If you have arrived here by accident, then I suggest you start with the first article of the series: The History of Foreign Automotive Companies in China. Now that I've got my introduction paragraph out of the way, let's get to what really matters, shall we?
Despite its potential, China's consumer market is not one without challenges and limitations. Boasting one fifth of the world’s population and a diverse income disparity between urban and rural residents, China's consumer market is very much fragmented. Although China's overall consumption has been growing exponentially in the past decade, individual markets have been developing at their own pace, factored by variations in the level of economic and social development in different regions and cities within the country.
The urban Chinese market
Changing demographics in China has raised a generation, below 30 years of age, that is less careful in consuming, as compared to their predecessors who were brought up to cherish the virtues of saving, under the influences of the Cultural Revolution. Due to the country’s one-child policy, the new generation of Chinese was raised by several adults, thereby enjoying a larger margin for spending. Now of consumer age, this group of individuals is constantly exploring the market for global trends, under the influences of the internet and foreign media.
The Chinese middle class is also observed to be stronger. Broadly based on the level of disposable income, educational levels, as well as purchasing habits and attitudes, this group of consumers has adopted modern purchasing habits. Estimated at 250 million of the population, this group of middle class consumers is fast becoming one of the key drivers behind the growth of most product categories that enjoy high penetration within the country.
The rural market
In 2009 the Chinese government launched an incentive for purchasing cars with engines under 1.3 liter. Sales in China's immense hinterland are booming, encouraged by tax cuts, government subsidies and growing consumer spending power. Through these measures, a door has been opened to an immense number of first-time buyers who did not have the perspective of owning a vehicle before. Many of these customers are laborers returning home after years of work in eastern cities and are now deciding to invest their savings in the purchase of a family car.
In farmlands throughout China, the vehicle of choice appears to be micro-minivans such as those made by Wuling and Changan. The reason for this being the fact that these type of vehicles can be easily used as means to generate income for the car owner.
Possible market strategy for China
While the per capita disposable income of urban households in Shanghai was at RMB 20,668 in 2006, in Gansu, a less developed province, the per capita net income was no higher than RMB 8,921. As a result of this economical disparity, comes also a disparity in the expectation of consumers towards the market. While the more influential city population seeks for greater brand value in products, others are contended with meeting bare necessities. As such, companies entering into the Chinese market should adopt a strategy to reach the different markets.
Instead of just targeting consumers with a higher income, brands must stretch vertically, to reach the majority of Chinese with a lower disposable income. Processes down the line of supply chain management must be adjusted, while products characteristics are modified, so that prices are made more affordable for a wider customer base.
According to statistics provided by Shanghai Securities Journal, women are now the major car buyers in the Chinese market. In the first two months of 2012 women consumers accounted for 51.4% of car sales whilst men accounted for 48.6%, the first time that female consumers had exceeded male consumers in the Chinese market. Start-up automotive companies should seek to gain an edge over the competition, by developing products that appeal to the taste of these new buyers. They must identify fields where the competitors have not yet reached and work there strategies from there. Because China is a very complex and unique market, these opportunities could arise in sectors that are less obvious in other regions.
China’s capability in developing indigenous auto parts and core systems remains rather limited. In recent years, with the support of the Chinese government, the auto industry has invested heavily in R&D and an increasing number of R&D centers and laboratories have been established by Chinese automakers and research institutes. Meanwhile, several international auto giants are moving their R&D centers to China. Joint R&D centers and laboratories are still strongly encouraged by the government. Due to ongoing concerns with regards to the protection of the environment and energy consumption, innovations in areas such as fuel cells, hydrogen power, natural gas engines, and hybrid engines present good opportunities in China.
Well, this is it for this series on the Chinese automotive industry. At this point, I would like to thank you for taking the time and would strongly suggest that you browse our other articles focusing on this and other industries in China.
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