About China SC Group

The Challenge

The 12th 5 year plan voted by CPC in 2009 ushered in the consumer era in China. China's total consumption will reach two-thirds of that of the US and account for about 12% of world total by 2020. Consumption share of GDP is expected to grow rapidly, and coupled with robust GDP growth will create unprecedented growth in many consumer segments. In addition to physical goods such as cosmetics and health and beauty aids, Chinese consumers are increasingly interested in high end services such as travel services to anywhere outside the PRC.

By the end of the 5 year plan it is expected that the Chinese middle class will number over 300mm, many millions of which will live in 3rd and 4th tier cities where there are rarely luxury stores or effective physical distribution of foreign consumer goods or services despite consumers' ability to afford them. Even today foreign high end consumer brands find it hard to rapidly reach Chinese consumers everywhere in china, especially beyond first tier cities. These companies are challenged in entering the Chinese consumer market due to several unique issues:

• Creating a 'buzz' for a new consumer product is difficult in China. Traditional consumer advertising and marketing approaches are commonly not cost effective
• Knock-offs pose a huge problem across the entire nation.
• There are no reliable and ubiquitous Direct to Consumer (DTC) distribution channels for foreign consumer brands. Traditional distribution channels such as pharmacies typical price point is much lower
• Consumer eCommerce in China is very unreliable and prone to fraud and abuse.
• Online channels are dominated by few large eCommerce sites which do not accommodate brand promotion well.
• The Chinese legal system requires establishing hundreds of entities to gain national coverage; and even gaining access to the first tier cities can take years.
• Distribution of products and services through employers (e.g., employee benefit portals) is just emerging.
• Associating brands with philanthropic causes, a practice increasingly popular in the west, is virtually nonexistent.
• China's size is similar to that of the USA but foreign products commonly reach only the part of china which is well penetrated with little access to the rest of the country.
• Distribution systems are hard to build and expand and reliance on third parties commonly leads to dilution of brand equity, fraud and loss of control.