China Catalyst: Powering Global Growth by Reaching the Fastest Growing Consumer Market in the World

Praise for China Catalyst "Breaking through the clutter with a fact-based and analytical approach, China Catalyst identifies new sources of consumer growth, strategies companies are using to reach new consumers, and how your company can participate." —Shaun Rein, founder of China Market Research Group and author of The End of Cheap China "Comprehensive, current, and concise, China Catalyst provides a rich understanding of China's evolving consumer market. It separates reality from perception with unique foresight that will help you build a future-focused China strategy." —Bill Eichhorn, Current Executive Vice President and Former International President, Textura Corporation "From identifying today's consumer demand hot spots to outlining the future state of retail in China, China Catalyst provides important insights for any company looking to expand into China's growing consumer economy." —ED Rennemann, Chief Transformation Officer, Crate & Barrel Maximize your presence in the Chinese market One billion consumers are awaiting your business in China. Most of these consumers reside in cities that are not yet the household names of Beijing and Shanghai. The top ten fastest growing cities in the world are all in China. They lie inland, away from cities like Beijing, Shanghai, and others that have been the focus of the last generation. Despite this significant opportunity, many companies are not yet fully equipped to reach them. The emergence of China's consumer economy in these new, emerging areas are happening at a faster pace than most realize—it's time to prepare. China Catalyst provides you with a comprehensive overview of China's economic transition to help you chart a road map to gain a competitive edge in the marketplace.

Preface ix Acknowledgments xiii PART I THE NEW PHASE OF GLOBAL GROWTH 1 CHAPTER 1 Into the Light: China’s First Economic Miracle 3 A System Spirals Out of Control 6 Chaos Returns 7 Riding South to Reignite Reform 12 The Rise of Shenzhen and a New China 13 Notes 15 CHAPTER 2 Economic Transition 17 Wage Rates Are Increasing Signifi cantly 17 Foreign Direct Investment Is Evolving 20 Export–Directed Growth Is Being Challenged 21 Demographic Megatrends 22 The Rise of the Chinese Consumer 25 Notes 28 CHAPTER 3 Catalysts for Consumption 31 Build It Quickly: The Physical Infrastructure to Move Goods and People 33 Incentives to Increase Consumption 38 The Free Flow of Capital 40 Notes 43 PART II: MARKETS, CHANNELS, AND CAPABILITIES 45 CHAPTER 4 One Country, Many Markets 47 Disposable Income: Who’s Got the Most? 50 Urban Income Growth Rates: Emerging Consumers 50 Getting a Fuller Picture 52 Consumer Demand Clusters 57 Notes 64 CHAPTER 5 Channels to a Growing Market 65 An Overview of China’s Major Channels to Market 66 A Closer Look at China’s Top Brick–and–Mortar Retailers 75 Notes 81 CHAPTER 6 Guan Xi Goes Online 83 An Overview of China’s Digital World 85 The E–Commerce Rocket 87 E–Logistics: The New Core Capability 90 The Infl uence of Social Media 91 Go Where the People Are 95 Notes 96 CHAPTER 7 Distribution Issues and Trends 99 Overview of the Distribution Structure 100 Closing the Consumer Trust Gap 105 Distribution Trends 110 Retailer–Supplier Partnerships 114 Notes 117 CHAPTER 8 Hefei: Home of the World’s Next–Generation Consumer 119 Life in the Middle 119 China’s Sibling 122 Hefei Rises 124 Big Retail Moves In 127 Notes 130 PART III: FORGING AHEAD 133 CHAPTER 9 Go Deep: The Emerging Go–to–Market Retail Model 135 The Emerging Go–to–Market Model 138 Targeting Demand Clusters and Expanding Out 138 Expanding In 140 The Implications for Retailers and Manufacturers 142 IT as an Enabler 145 Notes 148 CHAPTER 10 The New Export Machine 149 Two Examples of China–Based Innovation: Kraft Foods and the Coca–Cola Company 150 Switching the Innovation Gear 152 Digital Culture 156 Multichannel Innovation 157 Notes 158 CHAPTER 11 The Path Forward 161 Challenges at a Crossroad 162 Final Thoughts on Strategy 164 Conclusion 166 Notes 168 About the Author 169 Index 171

DAVE M. HOLLOMAN is currently an Associate Partner with IBM's Global Business Services organization. He has more than twenty years of global experience in applying technology and leading practices to help companies develop new sources of competitive advantage. Dave has received certification in production and inventory management from the American Production and Inventory Control Society (APICS). He also received a BS in industrial engineering from the University of Cincinnati and an MBA from the Kellogg School of Management at Northwestern University in Chicago.