Is China Just Too Irresistible for Global Retailers?
During 2011 BDO saw retailers begin focusing more and more on the possibilities presented by the growing China markets. Leaving current economic questions aside for a moment, it is easy to see why retailers have become more interested in opportunities in China:
- A growing middle class
- The majority of the population has now shifted to living in urban areas as opposed to rural
- An overall optimistic consumer confidence
As a result of these factors, BDO expects retailers to continue to develop plans for expanding their operations into China. Others also see potential opportunities for retailers based on the latest studies in China that forecast a 16% to 18% increase in 2012 retail sales
over the prior year.
China is currently the second largest economy in the world, but retailers must understand the differences and challenges that China poses as opposed to other large, developed economies. The most significant difference appears to be the availability of well developed, reliable infrastructure for shipping products through distribution channels and eventually arriving on store shelves. Additionally, the significant imbalance of power between suppliers and retailers is a huge hurdle in China. As opposed to other developed economies where this relationship is much more balanced, suppliers in China have proven their strength over the retailer. This gives the retailer little leverage to improve margins by negotiating terms and conditions with those suppliers.
Finally, economic forces are a reality, and the Chinese economy is expected to cool off somewhat as the U.S. and European economies continue to flounder and the Chinese government intentionally takes steps to keep the economy from overheating, particularly with its booming real estate markets.
However, can global retailers realistically afford to ignore a country that is expected to eclipse the U.S. in 2016 and become the largest economy in the world, according to the International Monetary Fund?
Those retailers that find the right structure to supply the ever-growing consumer demands in China could position themselves to be significant players on a global scale.