Business to Consumer Market (B2C)
For over three decades now, China has offered product companies one of the best if not the best growth opportunities. The economy is experiencing a transformation that will extend these growth opportunities to new levels. Consequently, international companies can leverage to expand their footprint in this exponentially-booming country. This transformation has mainly resulted from the rise of upper-middle-class and affluent households driving consumption growth, a new generation of higher expenditure, and the increasingly critical role of e-commerce. In 2020, the Chinese population was estimated at 1.44 billion, according to UN data, with a relatively small share of young people under the age of 25 (Chen et al., 2020). China has an average population density of 153 inhabitants per kilometer squared, with a population increase of around 0.4% per year (Santandertrade, n.d.). The areas of higher consumption are in major cities such as Beijing, Shanghai, Shenzhen, and other Chinese urban areas that have high consumption power.
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The Gross Domestic Product of China in 2019 was $16,784 adjusted for purchasing power parity. The country’s market has a varied composition, with some parts having relatively high confidence and spending rates among consumers, such as Shanghai. Others record lower growth or even negative growth. Urbanization in the coastal cities has pushed the demand for consumer products to high levels. The country is undergoing a consumption revolution as consumers take increasing criteria into account when making a purchase. Brand awareness is becoming increasingly important in the country, and marketing is starting to play a crucial role in attracting Chinese consumers with research and advertising techniques (Santandertrade, n.d.). Consequently, many brands are now focusing on increasing brand recognition and recall to gain a competitive advantage in the market.
In China, the consumer expectations of product quality have been steadily increasing, explained by the rising income and sociological forces that have prompted high expectations of a better lifestyle (Li, 2004). Li states that “Chinese consumers today are looking for aesthetic and social value instead of just focusing on the basic needs of warmth and the protective function of products. …Chinese consumers are eager to see what is available, especially from among foreign products. Chinese consumers have a lot of time to browse, and therefore are disinclined to convenience or impulse buying. In Chinese cities, window-shopping and browsing are favourite weekend pastimes” (p. 10). This trend is crucial for multinational companies, such as Viega Holdings, because it offers insight on opportunities for the company to showcase
its products. The company can create a resilient brand using the first few customers in each region in the country. Subsequently, it could use these customers to spread the word and attract more customers because of the behavior of Chinese consumers to love trying what others have already used. “The typical Chinese consumer does not want to be among the first to try a new product, but the discomfort of being ‘behind the times’ may make them think that if the neighbours have tried it, they had better follow suit soon” (Li, 2004, p. 10). Informal channels of communication are essential in Chinese society because consumers tend to rely more on word-of-mouth communication. Additionally, there is evidence that Chinese customers judge a product based on the brand’s reputation and track records and do not express dissatisfaction directly as consumers in Western countries. Understanding these behaviors and potential changes in the future could be crucial in improving the brand’s footprint.
Undoubtedly, the COVID-19 pandemic has caused significant changes in the Chinese market, possibly shifting what was known about consumer behavior before. Consumption has gone down since the outbreak, decreasing demand for most products. Consumers have adopted a ‘wait-and-see’ attitude during the pandemic to avoid overspending or depleting their savings. The home construction sector will likely see a hit as fewer residential houses and commercial buildings get erected during or immediately after the pandemic. Viega Holdings might need to adopt a strategy that differentiates its products from the rivals to attract a vital market share in this period, hence even better statistics after full economic recovery.
Business to Business Market (B2B)
China began building a nationwide data communication network in 1993 to support B2B e-business. Today, the network reaches more than 2200 cities and towns in China, characterized by advanced and unified public data and multimedia communication platforms from the national Internet backbone (Zhao et al., 2008). Advanced B2B markets have since emerged in the economy, helping aggregate suppliers and buyers, and providing trustworthy and secure market information. Companies can now use China’s international e-commerce network to find the latest foreign trade policies, management practices, government legislation and regulations, and the general market environment.
A significant portion of China’s e-commerce is unique from other developed countries. For instance, IT has yet to get widely deployed in the country. But the development of a full-scale e-commerce process may encounter several identified obstacles that many companies experience. For instance, there is no business infrastructure for supporting e-commerce. Purchasing in small enterprises is still done with cash. The corporate culture in most enterprises does not promote the innovation of IT. For instance, “A random sample of 1300 managers in 520 large state-owned enterprises and local backbone enterprises released by the National Council on Economics and Commerce in 2001 indicated that 69% of businesses hosted their own websites, 21.6% had a proposed e-commerce strategy, 4.1% completed procurement over the Internet and 3.4% engaged in Internet marketing” (Zhao et al., 2008, p. 243). Also, there is a barrier of trust and security in the development of e-commerce as credit problems plague the economy. According to Zhao et al., an immature credit system and regulation allow a loss of 10-20% of the national GDP.
The evolving B2B e-market in China offers companies, such as Viega Holdings, significant opportunities to connect with consumers through other businesses. Primarily, much of Viega’s demand comes from small to medium-sized companies that deal with home construction. Nevertheless, consumers can influence product demand, especially if they perceive those products from a specific company to be of better quality than alternatives. Companies must consider these connections aided by the internet and leverage them to improve their footprint in an international market. The B2B environment in the country could influence the company’s marketing, profitability, sustainability, and ultimately, competitiveness.
3.5 Market Threats and Opportunities Summary
Because of the unique nature of international e-commerce, the current policy and regulatory environment have been unable to keep up with the market development. Chinese consumers are driving the rapid growth of global online shopping, and this trend will likely continue for several years. One reason for this shift is that consumers are gradually losing confidence in the quality of domestic products (Wang, 2014). One notable hindrance is the product quality and after-sale service. Recently, the government showed great interest in developing e-commerce, especially international e-commerce, and promoting the industry. Wang explains that in 2013, the Chinese State Council issued a notice intended to show support to global e-commerce that included an outlet customs control model, an appropriate inspection and supervision model, adaptation of a taxation policy, and establishment of the export credit system.
One year later, the nation’s customers department implemented an e-commerce pilot program in six cities (Shanghai, Hangzhou, Ningbo, Zhengzhou, Guangzhou, and Chongqing as bonded import pilot areas for e-commerce, specializing in international e-commerce (Wang, 2014). As a result of the continued government support, global e-commerce will exhibit exponential growth in the future. Yet, several challenges may impact companies negatively. For instance, it is unclear whether it will be possible to have a significant breakthrough in policy soon, such as more flexible measures or regulations.
3.5.1 Sector Threats
Overall, the consumer discretionary products sector meets the threat of language and culture barriers. E-commerce players may encounter consumers speaking different languages with different cultures and customs that complicate purchasing and selling activities. Most businesses today are prioritizing regions where the language spoken is the same. It cuts the expenses associated with an integrated marketing campaign. At the same time, it enables packaging in a manner that suits different groups of people. Take, for instance, Viega Holdings. The company must incorporate staff in China’s firm who can effectively handle operations that conform to the language and culture of different Chinese regions.
In a survey conducted on investors, business service providers, independent sales organizations, global payment service providers, and online merchants, around 29.5% of the companies prioritize neighboring markets or regions with a common language (Wang, 2014). Additionally, over 70% of the surveyed firms consider common language a powerful internal driving force in expanding international e-commerce. It came second to having a common border amongst neighboring countries.
Networks within a country can only address issues concerning communications, but the supply chain itself between one country and another remains under the control of the inherent national system. For this reason, cross-border e-commerce face a dual structure, as the flow of goods and money can get limited by borders. Viega Holdings operates in different countries, and at times, products have to move from one country to another. This process can be tedious, and because of customs, it can present challenges to the firm. For instance, consumers in China may place their orders through online platforms. But, without customs clearance, these products might be returned to their country of origin.
3.5.2 Sector Opportunities
As of 2014, the Shanghai Free Trade Zone included Ningbo Meishan Bonded Port, Guangzhou Nansha Bonded Port, Chongqing Cuntan “Harbour Water + airport” Port, bonded logistics center in Zhengzhou, Hangzhou e-commerce cross-border industrial park. These have all developed an integrated approach to importing goods (Wang, 2014). These situations enable global companies that are yet to expand into China to enjoy an organized system of clearance of imported goods, a paperless workflow model, and regulation points. These get set in the region where checkpoints can occur directly in the warehouse. Additionally, the Chinese Customs Administration has been studying a retail e-commerce providers’ clearance management system. The purpose of this is to implement inspection in a large batch. Improvement in the market indicates that cross-border shopping will continue to be more convenient.
China pays great attention to the significance of foreign trade development by improving electronic commerce through information and the application of international E-commerce. These practices will enhance the ability of Viega Holdings to expand markets within the country and extend its footprint with ease by using existing technology infrastructure. The Chinese Ministry of Commerce launched the country’s international trade enterprise applications of E-commerce platform in Chinese Export Commodities Fair, April 16, 2006 (Yu & Liu, 2010). It has enabled the simplification of business operations of foreign trade processes and improvement of communication between the country and foreign trading partners.
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