What is the market like in China's second and third-tier cities? Companies are scurrying to jump into the China fray, but many completely miss the opportunities for their products and services which lie inland.
International News sources balk so much about the income gap in China that many foreign companies assume any Chinese city they have never heard most likely does not even have running water, much less the ability to buy foreign goods. To those companies who do not have the insight to truly evaluate the China market and the opportunities lying in wait, fine. Smarter companies who know what they are doing will make a killing on the second and third-tier cities while the losers try to edge their way in to an already blanketed market in China's famous, coastal cities.
I just read an article in BusinessWeek Asia titled "Beyong Beijing: Selling Across China" speaking of the lower add costs, cheaper rents, better labor, and customers with money in ther pockets. The writer understands, but the comments showed a variety of people who still do not grasp what a country-wide 10% growth rate really means and how that affects the market for foreign goods.
The writer even states that an executive for L'Oréal said their fastest sales are in Guizhou (The author said Guizhou was a city instead of a province, Guiyang is the capital city of Guizhou. Not a big deal, but I think he probably means Guiyang.). Not only is Guizhou the least visited province by foreigners as the article states, but having lived there, I will tell you: if you can sell in Guizhou, there are incredible opportunities elsewhere in inland China. Guizhou is well known for inefficient government, very closed minds to foreigners, and in competition with Tibet as the poorest province in China. If L'Oréal is doing well in the worst conditions, we should sit up and listen.
My personal definition of "second-tier" cities would be those considered major to Chinese yet to foreigners less well known than the household name, coastal cities: Chongqing, Chengdu, Kunming, Wuhan, Xi'an, and many more. But let's go a step further. Liuzhou, our fair city, is easily a third-tier city in China. One walk through downtown would change the minds of thousands of companies. Foreign companies completely underestimate the powerful draw foreign products have on the Chinese middle-class. Even third-tier cities are great markets.
McDonald's and Kentucky Fried Chicken are packed all day long, and at four or five times the cost of the beloved local noodle shops, that is interesting. How much money do they have to spare? GM has wisely built a couple of mini-cars in Liuzhou, and they seem to have been bought up by, what I would call, your average 30 year old yuppies. They have the money for everything from foreign food to new cars. And most of their cell phones, which is a hugely successful market, start around US$250, though most of the folks I know are carrying US$500 phones or nicer.
And that is a third-tier city. They certainly have the money, and they are almost begging to spend it. If a company wanted more incentive, rent and salaries are cheaper. These are not villages; these are developed cities full of potential customers.
