china’s new complexities what a slower growing china means for the global economy

CHINA’S NEW COMPLEXITIES

What a slower growing China means for the global economy

CHINA’S NEW COMPLEXITIES | SILK ROAD ASSOCIATES | 2

China’s economy is largerthan the combined value

of Russia, Brazil, and India.

China’s economy has grown by $1.7bn in the

past two years.

BRAZIL$2.3 BN

RUSSIA$2.1 BN

INDIA$2.0 BN

That’s equivalent to the combined output of Sweden, South Africa,

and Nigeria

CHINA $10.4 BN

OVERVIEW

China’s vast markets are still a huge opportunity

CHINA'S NEW COMPLEXITIES

China’s slower growth and the world’s multinationals


Where do we start?

Asia has five times the number of million-plus

cities as the United States

KEY TREND

Selling to cities rather than countries

7

244

195

> 10mn

1mn to 10mn

500k to 1mn

Asia’s largest citiesCircle size denotes relative population size


CASE STUDY

Dennis: a local retailer with a big hypermarket niche

Founder is originally from Zhengzhou, but lived in Taiwan for years.

Dennis has 33 hypermarkets and 118 convenience store in Henan.

The company’s flagship department store offers a wide variety of product.

Dennis is a Henan-based retailer with hypermarkets, convenience stores, and department stores


CASE STUDY

Blue Moon: a nimble private competitor

KEY TREND

China’s future is digital

China

EXIT33%

Better deals, less expensive

74%

Less time consuming

55%

American or European origin

47%

What are your drivers for buying online?

43% 30%

Do you use your smartphone for online shopping?

U.S.

Source: Nielson’s The Mobile Consumer: A Global Snapshot Source: KPMG’s The Connected Consumer


CASE STUDY

The new digital competitors

HSTYLE sells ‘Korean-inspired’ clothes tailored for a local audience.

Started in 2008, the company today has 1,900 employees and 150 suppliers.

HSTYLE relies on online marketplaces and its own official online store.

HSTYLE is one of China’s largest online fashion brands, emerging in just a few short years.


EXPRESS FREIGHT

SF Express, China

KEY TREND

Asia’s markets are maturing fast

FRUIT JUICE

CR Vanguard, China


CASE STUDY


China’s Blue Moon used an innovative model to change market perceptions almost overnight

Blue Moon only entered the laundry liquid market in 2004.

The company’s share of the liquid market is estimated at 60%, buoyed by products suited for hand washing

Social media, in-store activation, and large presence on Tmall.


China goes global, again


CASE STUDY

Dalian Wanda: China Inc. is looking for brands and technologies

China’s box office revenue will shortly overtake that of the United States.

Dalian Wanda’s acquisition brings AMC’s brands and technologies to China.

Why build a global platform when the opportunities are at home?

China’s Dalian Wanda purchased AMC Cinemas to capitalize on the growth in China’s own box office


CASE STUDY

Honeywell: a local player with a global platform

1,400 China-based engineers redesign products for a China print-point

The next challenge is to redesign for the mass market.

Honeywell China is now selling to Turkey in competition with Honeywell Europe.

Honeywell China benchmarks itself against local competitors and competes with Honeywell Global


KEY TREND

Building a global business is not easy

UNITED STATES

$16 TN

EUROPE

$22 TN

NON-JAPAN ASIA

$17 TN

CHINA

GERMANY

FRANCE

U.K


China’s rising prices and its engagement with

Southeast Asia and South Asia


KEY TREND

There is no simple alternative to China’s factories

India, Indonesia, and the Philippines account for 40% of Asia’s population

40%

Bangladesh, Cambodia, Laos, and Vietnam are the default options for apparel buyers.

But what about the rest?


KEY TREND

There is no simple alternative to China

CHINA SE ASIA SOUTH ASIA

$35 bn

$26 bn$25 bn$60 bn

$16 bn$15 bn

Cambodia $4bn

Indonesia $7bn

Philippines $1bn

Thailand $2bn

Vietnam $10bn

Bangladesh $15bn

India $8bn

Sri Lanka $3bn

Apparel imports by France, Germany, the U.K., and the U.S.

$35 bn

$26 bn$25 bn$60 bn

$16 bn$15 bn


KEY TREND

Demographics and talent shortages will worsen

2000-

2015

2015-

2030

2000-

2015

2015-

2030

2000-

2015

2015-

2030

2000-

2015

2015-

2030

2000-

2015

2015-

2030

2000-

2015

2015-

2030

2000-

2015

2015-

2030

2000-

2015

2015-

2030

+73 +2

+11 +7 +3 +1

-2 -2 -1 -9 -3 -4 +3 -7

-79 -118

MYANMARINDIA MALAYSIAPHILIPPINES INDONESIA CHINAVIETNAMTHAILAND

Relative change in youth population (zero to 30 years) in million persons between 2000 to 2015 and 2015 to 2030.

Net loss of 141 million over coming 15 years.


CASE STUDY

Blue Box Toys: Asia’s new brand owners

Blue Box has a strong OEM business making toys for the largest global brands.

But the company is developing its own brands, such as B Kids and DeDee Duck.

Blue Box can its local relationships and insights into the new ‘Asian buyer’.

Blue Box Toys, a Hong Kong toy company, is typical of manufacturers evolving into brand owners


China’s Silk Road strategy. What are the

practical implications?


CASE STUDY


KEY TREND

China’s Silk Road policy: scale matters

TURKEY

SAUDI ARABIA

INDIA

INDONESIA

KOREA

Chinese provinces account for 5 of the Silk Road’s 10 largest economies

5

GDPCircle size denotes relative scale


CASE STUDY


KEY TREND

Can the Silk Road support China’s economy?

CSCEC

$133 billion2014 revenues

China’s largest construction company

PAKISTAN

$ 241 BN

CAMBODIA

$ 16 BN

MYANMAR

$ 60 BN

TURKMENISTAN

$ 54 BN

GDP (2014)


CASE STUDY

China’s $45 billion commitment to Pakistan

The power sector will account for $39 billion of total funding.

But bill defaulters are a larger challenge for the power industry.

The Pakistani government itself ranks as the biggest non-payer.

China has committed to fund $45 billion of infrastructure projects in Pakistan


CASE STUDY


KEY TREND

The Silk Road’s markets have wide income disparities

$1,000 to $4,000Per capita GDP, 2014

$25,000 to $40,000Per capita GDP, 2014

SINGAPORE $57 K

JAPAN $39 K

KOREA $27 K

SAUDI ARABIA $25 K

TAIWAN $22 K

INDONESIA $3.5 K

PHILIPPINES $3.2 K

VIETNAM $2.2 K

INDIA $1.7 K

PAKISTAN $1.3 K


CASE STUDY


KEY TREND

China’s private firms are critical to the Silk Road’s success

Chinese smartphone markers are targeting India

Chinese truck companies are focusing on ASEAN


CASE STUDY


KEY TREND

Japan also has less public Silk Road ambitions

95% of Indonesia’s auto market

$25 bn FDI in ASEAN(versus $9 bn FDI in China)

17% of the Mideast’s oil exports(versus China’s 16% share)

Ajinomoto buys Turkey’s Kukre

Helping our clients grow their commercial footprint in China, Southeast Asia, and the Middle East

About Silk Road Associates

Silk Road Associates is a trusted advisor for multinationals and mid-market firms looking to grow their commercial footprint across China, Southeast Asia and the Middle East.

We provide a range of services from business strategy and market studies to executive programs and boardroom briefings. Our team of consultants, business strategists, and operational specialists provide insightful and independent local knowledge across a range of industries. We tap our specialist networks to identify new opportunities and complexities.

Led by Ben Simpfendorfer, a world-leading specialist in the commercial rise of Asia and the Middle East, we also understand the challenges of operating across multiple countries and grappling with a fast-changing region. Our team partners with clients to provide multi-country solutions and strategies as companies assess their regional business propositions.

Visit us at www.silkroadassoc.com

Hong Kong1801 Wheelock House20 Pedder Street, Central+852 2293 2236

Melbourne8/350 Collins StreetMelbourne, 3000, Victoria+61 (3) 8601 1135

china’s new complexities what a slower growing china means for the global economy

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