German electronics retailer Media-Saturn opened its first Chinese store in Shanghai last month and plans to open 10 more in the city in the next two years. Provided to China Daily

Latecomer to booming chinese market hooks up grand expansion plan with partnership

German electronics retailer Media-Saturn may be a latecomer in China's fast-expanding but fiercely competitive market, but the company remains ambitious about its growth in the country.

Partnering with Taiwan's famous original equipment manufacturer Foxconn Technology Group, Media-Saturn last month took the media on a preview of its new mega store in Shanghai, one of China's most cosmopolitan cities.

Accompanied by Foxconn President Terry Kuo, Media-Saturn's Chief Executive Officer Roland Weise unveiled the partners' daring plan that extends beyond Shanghai.

The initial phase of the plan, Weise says, calls for the opening of 10 Media Markt stores in Shanghai in the next two years. The partners will then "ramp up its presence" on the mainland by opening more than 100 outlets throughout the country, Weise says.

"China is one of the world's largest growth markets for consumer electronics. The electrical goods retail sector in China is currently growing by some 8 percent a year and sales are projected to climb to 180 billion euros within the next 10 years," he says.

But competition for a share of the market with the dominant domestic players, notably Suning and Gome, can be a formidable task even for such successful foreign chains like Best Buy of the United States.

Having overtaken its troubled rival Gome, Suning has emerged as the top dog of the pack with 1,228 outlets nationwide by the end of September. In Shanghai alone, it has 70 stores covering all city districts.

Even though it was torn by internal strife following the arrest and conviction of its founder and former chairman Huang Guangyu, Gome has remained a force to reckon with. The company has 1,165 outlets around the country as of June 30, with 50 in Shanghai.

Lesser players abound, carving out a big share of their respective local markets in the secondary cities and rural townships in the interior provinces, where future growth in sales of electronics goods is expected to outstrip that in the major cities.

But breaking their stranglehold of those markets can frustrate even the most determined foreign retailers, with little knowledge of the local customs and practices.

To Media-Saturn, as well as Best Buy and others, the prospect for growth in consumer spending on electronics goods and household appliances in the major cities is more than worth their troubles, especially at a time when demand in the US and Europe is seen to be depressed by nagging economic problems.

In contrast, Chinese consumers' purchasing power is soaring, making this the ideal time for Media-Saturn to enter the market, according to the company's executives.

"As a leading innovator in the market for consumer and home electronics and working with a strong partner like Foxconn, we are in the best possible position to pursue our growth strategy - which has already proved successful in Europe - in Asia to tap this huge growth potential," Weise says.

Louis Woo, head of the channel business group of Foxconn, says that Media-Saturn's track record in Europe clearly demonstrates that the company is capable of becoming a region-wide market leader within a short period of time.

Foxconn already has strong ties with German electronics chain store Media Markt China.

"As a Media Markt China shareholder, we will be working with Media-Saturn to successfully serve this market that we know so well. This cooperation between the world's leading electronics manufacturer and one of the world's leading electrical goods retail companies offers countless other opportunities which we will be seeking to develop for the benefit of consumers in China and all of our shareholders," Woo says.

"The time is right for us to start our business in this great country - China - with so many people and so many market perspectives for us," says Ton Wortel, chief executive officer of Media Markt China.

Consumer spending power in China has eclipsed the European market, which has taken a great hit from the economic crisis. "The market growth in Shanghai is more than 25 percent this year, according to the consumer electronic product portfolio we are selling here. The market is so dynamic in this market growth," Wortel says.

"That's the main reason why we are starting our expansion plan here. The market has great potential to grow substantially in the next 10 to 20 years," he adds.

The launch of the Media Markt store, in the eyes of some analysts, will accelerate the maturity of China's electronics retail market.

Zhou Qun, sales and marketing director from GfK Retail and Technology China Co Ltd, says he believes the influx of international electronics retailers will intensify the already fierce competition in local market, in which Gome and Suning are wrestling painfully with Best Buy for thinning profits.

But Zhou welcomes the introduction of more international competitors into electronics product market. "New heavyweight players with international backgrounds will facilitate the maturity of local market, and customers will benefit more from this new change," he says.

According to GfK, China's total electronics retail market is valued at 990 billion yuan (108 billion euros) in 2010, a growth of 17.3 percent year-on-year. The market research company forecasts that the total market will increase to 1.105 trillion yuan in 2011.

Calls to Best Buy went unanswered.

China's electronics retail market is expected to be worth 150 billion euros in 2013, and the Shanghai market alone will exceed 5.5 billion euros, according to Media Markt.

"Shanghai is the most important market to start from, and if we are able to succeed in this highly competitive market, we will copy our success to other parts of China," Wortel says.

Wortel says Media Markt's first plan is to solidify its foothold in Shanghai in the next two years, and try to open another five stores in 2011.

"Our first focus is to learn and understand how to adapt our business model to the China perspective, and in the period of time over the next two years, we will also define our further expansion strategy into China, which will be much focused," Wortel says.

"Media Markt will not just open up stores in several cities in the first two years, we will further planning for expansion into China," he adds.

"Obtaining success in Shanghai will teach us how to develop our expansion strategy we see perspectives to open up many more stores in cities in China because the country is so big," Wortel says.

The first Media Markt store on Huaihai Road of Shanghai takes up a sales area of 9,500 square meters and offers more than 45,000 different products. The five-level store will provide products made from both domestic and overseas markets, and allow customers to try out any product.

Media Markt China was established as a joint venture with Metro Group and the two Media Markt founding families, the Kellerhals and the Stiefels, holding 75 percent of the shares and Foxconn Technology Group owning a 25 percent stake.

Media Markt and Saturn are considered Germany and Europe's No 1 consumer electronics retailers, which come under the Media-Saturn-Holding GmbH group.

Media Markt and Saturn are managed independently of each other and are competing retail brands. The Media-Saturn Corporate Group, in which Metro AG has a majority shareholding, currently has 861 stores in 16 European countries.