Regional Differences of Chinese Market
Regional Differences of Chinese Market
Regional Differences of Chinese Market
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SMEs Enter China:<br />
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
Xiaotian Zhang<br />
Xiaotian Zhang Xiaotian (PhD, Zhang Econ. (PhD.exp) Cand)<br />
University <strong>of</strong> Tartu, Estonia<br />
University <strong>of</strong> Oulu, Finland
Xiaotian Zhang<br />
•Rajawali Fellow, Ash Center <strong>of</strong> Democratic Governance and Innovation<br />
Harvard Kennedy School, Harvard University, US<br />
•PhD. Cand in Economics, University <strong>of</strong> Tartu, Estonia<br />
•Visiting Scholar, Said Business School, University <strong>of</strong> Oxford, UK<br />
•PhD studies, Turku School <strong>of</strong> Economics, University <strong>of</strong> Turku, Finland<br />
•Visiting PhD, University <strong>of</strong> Southern Denmark, Denmark<br />
•Chairman <strong>of</strong> the Board, Raatuse International Trade Ltd/ABG<br />
Collection/Kina.CC<br />
•Lecturer in International Business, Oulu Business School, Finland<br />
•Guest Lecturer, University <strong>of</strong> Shanghai for Science and Technology, China<br />
•Member <strong>of</strong> AIB-UKI, EIASM, EIBA
Huaxi Village<br />
• Every family has a house <strong>of</strong> between 400sqm and 600sqm, cars, healthcare<br />
support, free education, each villager has minimum half to one million euro in bank<br />
• A 2.5 billion RMB (300 million euro) building “not a big deal” (382m high)
Huaxi Village<br />
• Building a “New Village in Sky”<br />
• Many families start to purchase private helicopters and village is purchasing 20<br />
aircrafts to open its own airlines<br />
• Building world’s 15 th tallest skyscraper in China (118 floors, 538m tall)
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
• 23 provinces, 5 autonomous regions, 4 municipalities and 2 special administrative<br />
regions <strong>of</strong> Hong Kong and Macau.
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong>
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
• China is spread across three types <strong>of</strong> mountainous regions. More than 40% <strong>of</strong> the<br />
country is at an altitude <strong>of</strong> over 200m. The highest point is Mt Everst (8,844m).
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong>
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong>
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
Region<br />
South<br />
China<br />
East<br />
China<br />
North<br />
China<br />
Central<br />
China<br />
Southwest<br />
Northeast<br />
Northwest<br />
Satisfaction with life 86.6 87.5 81.3 80.2 66.8 81.3 67.6<br />
Work hard and get<br />
rich<br />
33.3 31.6 30.7 34.6 42.3 44.2 67.1<br />
Live one’s own life 41.7 42.1 40.4 38.1 33.6 31.9 20.0<br />
Favor foreign brands 56.4 57.5 32.2 24.1 19.6 28.1 15.7<br />
Table 1. Psychographics <strong>of</strong> the local consumers<br />
(Sources: McKinsey & Company 2011)
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
Region<br />
Often eat in<br />
restaurant<br />
South<br />
China<br />
East<br />
China<br />
North<br />
China<br />
Central<br />
China<br />
Southwest<br />
Northeast<br />
Northwest<br />
85.8 84.5 81.3 51.6 42.3 36.2 19.1<br />
Dancing and music 50.6 51.9 30.7 34.6 42.3 44.2 67.1<br />
Traveling in China 41.7 42.1 40.4 38.1 33.6 31.9 20.0<br />
Traveling abroad 56.4 57.5 32.2 24.1 19.6 28.1 15.7<br />
Table 2. Lifestyle <strong>of</strong> the local consumers<br />
(Sources: McKinsey & Company 2011)
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
Region<br />
Speaks at least one<br />
foreign languages<br />
Been to foreign<br />
countries<br />
Often purchase<br />
foreign products<br />
Own foreign luxury<br />
products<br />
South<br />
China<br />
East<br />
China<br />
North<br />
China<br />
Central<br />
China<br />
Southwest<br />
Northeast<br />
Northwest<br />
51.7 52.5 43.8 32.3 28.1 29.9 10.2<br />
29.9 30.1 19.2 15.6 10.1 14.5 8.5<br />
30.2 28.9 23.6 20.5 15.2 15.3 6.5<br />
15.6 16.3 11.2 10.8 8.1 9.0 3.3<br />
Table 3. Internationalization degree <strong>of</strong> the local consumers<br />
(Sources: McKinsey & Company 2011)
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
Developed<br />
market<br />
Fast growth<br />
market<br />
Developing<br />
market
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
• South China-includes Guangdong, Fujian, and Hainan Provinces. This regional<br />
economy was the first to attract foreign investment with its four original special<br />
economic zones (SEZs), and become the most outward-oriented.<br />
• It has embarked on transforming itself from labor-intensive operations to high<br />
tech manufacturing.<br />
• Guangdong has become more integrated with the economy <strong>of</strong> Hong Kong.<br />
Fujian has many investors from Taiwan, and is renewing its ties with the island.<br />
• This region also represents the culture <strong>of</strong> the South, i.e.Min-Yue Culture, with<br />
plenty <strong>of</strong> contact with the outside world and great emphasis on mercantile<br />
entrepreneurship.
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong>
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
• East China-around the mouth <strong>of</strong> the Yangtze River, consists <strong>of</strong> the municipality<br />
<strong>of</strong> Shanghai and the provinces <strong>of</strong> Zhejiang and Jiangsu. This regional market is<br />
densely populated and highly urbanized.<br />
• It is China's industrial powerhouse, boasting more than 35% <strong>of</strong> the country's<br />
industrial output<br />
• The delta area is also sprawling with medium-size cities such as Wuxi and<br />
Suzhou that is the national center <strong>of</strong> textile and light industry manufacturing.<br />
• Known as the “head <strong>of</strong> the dragon”, Shanghai is the industrial and financial<br />
center <strong>of</strong> Asia and the gateway to the 300 million consumers in East China.<br />
• Consumers in this regional market are the most innovative and cosmopolitan,<br />
setting trends in fashion and lifestyles.<br />
• Representing the “Hai-pai” culture, well-known for having the best amenities<br />
and products for enhancing the quality <strong>of</strong> life
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong>
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
• North China-including Beijing,Tianjin, and the provinces <strong>of</strong> Hebei and Shandong,<br />
historically has been the geopolitical base <strong>of</strong> this country. This regional economy<br />
has been growing fast over the last few decades and attracted FDI-s from many<br />
countries.<br />
• With access to key government agencies, this region is making tremendous<br />
investment in industries such as telecommunications, computer technology, and<br />
pharmaceuticals.<br />
• Shandong is the biggest agricultural province in China and has some <strong>of</strong> the best<br />
township enterprises in China.<br />
• Consumers here are relatively conservative, yet are still open to new product<br />
ideas.<br />
• Beijing as the nation's capital also represents the culture <strong>of</strong> North China-the<br />
“Jing-pai” culture, attaching great value to the Confucian.
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong>
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
• Central China-includes the provinces <strong>of</strong> Henan, Hubei, Hunan, Jiangxi and<br />
Anhui, is the heartland <strong>of</strong> China with heavy emphasis on agriculture.<br />
• This region is relatively less developed than East China due to its landlocked<br />
location. In recent years, these provinces have been trying to energize their<br />
economies and catch up with coastal areas.<br />
• This region also has diverse local cultures in dialects, cuisine, and operative<br />
styles, etc.<br />
• With limited purchasing power, consumers in this region largely follow the<br />
trends in major metropolitan and coastal areas.
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong>
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
• Southwest China-including Yunan, Guizhou, Guangxi and the most populous<br />
province <strong>of</strong> Sichuan (over 110 million people), has always been <strong>of</strong> interest to<br />
foreign companies.<br />
• Even though its industrial output and huge population, most foreign firms find the<br />
consumer market there sluggish.<br />
• Headed by the new municipality <strong>of</strong> Chongqing, this region is expanding its<br />
economic base to develop various industries.<br />
• Known as the “Shangri-La”, attracting a huge influx <strong>of</strong> tourists every year.<br />
• With rich natural resources and better transportation infrastructure, this region<br />
has great potential as both a manufacturing base and a consumer market.<br />
• Relatively isolated from other parts <strong>of</strong> China, consumers have a slow pace <strong>of</strong> life<br />
and are less exposed to foreign goods.
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong>
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
• Northeast China-refers to the three provinces <strong>of</strong> Heilongjiang, Jilin and Liaoning,<br />
with the port city <strong>of</strong> Dalian. This region emphasizes heavy industries such as<br />
mining, automobile and machinery manufacturing found in its old industrial cities.<br />
• This regional economy has been slow in reforming its economy and state-owned<br />
enterprise.<br />
• Manchurian and Koreans are the biggest ethnic minorities in the region and have<br />
great impact on local cultures.<br />
• Northwest China-includes Shanxi, Shan'xi, Inner Mongolia, Gansu, Ningxia,<br />
Xinjiang, Qinghai and Tibet. Among the high mountains and expanding desert,<br />
this region has the largest geographic area yet limited arable land and industrial<br />
output.<br />
• To close the gap between the interior and the coastal areas, central government<br />
has launched a “Fupin” campaign and encouraged more investment in this<br />
region. Foreign investors have been given the same privileges previously.
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong>
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong>
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong>
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong>
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong>
<strong>Regional</strong> <strong>Differences</strong> <strong>of</strong> <strong>Chinese</strong> <strong>Market</strong><br />
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<strong>Chinese</strong> <strong>Market</strong> Entry<br />
Main Barriers & Solutions: Example <strong>of</strong> Estonia<br />
1. Language barrier<br />
Solution:<br />
•Combine both Estonian and <strong>Chinese</strong> human resources together<br />
•Build up the early communication via pr<strong>of</strong>essional <strong>Chinese</strong> associations<br />
and agencies
<strong>Chinese</strong> <strong>Market</strong> Entry<br />
Main Barriers & Solutions: Example <strong>of</strong> Estonia<br />
2. Problem <strong>of</strong> “Where is Estonia?”<br />
Solution:<br />
•“Sale” Estonia first, and business comes secondary<br />
•Using famous references (Skype) and learn to title yourself<br />
•Go together with other countries within the region or union<br />
•“Come and see”
<strong>Chinese</strong> <strong>Market</strong> Entry<br />
Main Barriers & Solutions: Example <strong>of</strong> Estonia<br />
3. Disadvantages in economy and market size<br />
Solution:<br />
•Choice one city or one province instead <strong>of</strong> whole China to enter
Jiangsu Province<br />
GDP: 615 billion USD<br />
(Finland + Sweden)<br />
Population: 77 million<br />
Nanjing City<br />
GDP: 135.3 billion USD<br />
Population: 9 million<br />
Kunshan Township City<br />
GDP: 24 billion EURO<br />
Population: 1.5 million<br />
GDP per capital: 45,000<br />
USD
<strong>Chinese</strong> <strong>Market</strong> Entry<br />
Main Barriers & Solutions: Example <strong>of</strong> Estonia<br />
3. Disadvantages in economy and market size<br />
Solution:<br />
•Choice one city or one province instead <strong>of</strong> whole China to enter<br />
•Promote Estonia together with Finland, Sweden and other Baltic States<br />
as a whole package<br />
•Choose the advanced field to enter China or attract <strong>Chinese</strong> ODI-s<br />
(High-tech, logistic, tourism)<br />
4. Correct understanding <strong>of</strong> <strong>Chinese</strong> business culture is developing<br />
and changing due to the fast economic growth
Thank you!<br />
Official Personal Site: xiaotianzhang.edicy.co<br />
Email: xiaotian.zhang@ut.ee xiaotian.zhang@oulu.fi<br />
Zhang Xiaotian<br />
Xiaotian Zhang