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Updated: 2011-04-29 11:36

By Hu Haiyan and Yan Yiqi (China Daily European Weekly)

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Workers busy at an assembly line of Liby Group, one of China's largest household care products makers, in Guangzhou, South China's Guangdong province. Provided to China Daily

Chinese household care goods producers eye big cities, once stronghold of multinational players

Competition is expected to heat up in the market for China's household care products, as Chinese companies and international giants are keen to expand into each other's traditional strongholds for a larger share of the world's largest market. After securing a lion's share in small cities and rural areas, local companies are stepping up their efforts to penetrate the first-tier market, while international giants want to cash in on the vast rural market where increasingly rich consumers are willing to spend on foreign brands.

"Five years ago, these two types of companies were operating in different marketplaces. But now they have to confront each other," says Luo Jiexin, an independent analyst and business consultant in Shanghai.

"There is no buffer. A war is inevitable," he says.

Indeed, Chinese companies have surpassed international companies in sales of home care products such as washing powder, detergent and soap.

In 2009, the two largest local giants, Nice Group and Liby Group, had a combined share of 24.5 percent in China's household care market that registered sales revenue of 202 billion yuan (21.5 billion euros). US giant Procter and Gamble Co (P&G) and British-Dutch multinational firm Unilever together had a share of 12.3 percent.

Such success is boosting the ambition of local firms.

Liby, which became China's largest producer of household care products last year, says making inroads into big cities will be a priority for the company in the years ahead.

"Years of expansion (in low-tier areas) helped us accumulate capital, technology and human resources," says Xu Xiaodong, spokesman for the Guangzhou-based company.

That, Xu says, will help accelerate the company's expansion in first-tier cities such as Beijing and Shanghai.

Liby notched sales revenue of 12 billion yuan (1.3 billion euros) last year.

Big cities contribute so little to Liby's sales that "you can ignore it", Xu says.

That is something the company is keen to change. "We hope to increase the share gradually," Xu says.

What local companies believe is their trump card is their flexibility in building a distribution network and their familiarity with the local market.

"We started with the difficult rural area market. And we are good at networking," Xu says.

Liby now has more than 1,600 distributors who help deliver its goods to tens of thousands of counties, towns and villages.

"We started from a marketplace that foreign titans paid little attention to (in the 1990s)," Xu says. "We did it county by county and built a big empire that is strong enough to allow us to do something in big cities."

Analysts say the growth of local household companies offers a case study in how Chinese consumer firms, after growing up in rural areas, challenge the dominance of international giants in cities.

"The development of the home care market will teach foreign giants a lesson how to handle a fast-changing Chinese market where locals are growing from low-end to medium-end, from rural to urban areas, challenging foreigners' decade-long dominance," Luo says.

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Foreign brands still dominate the shelves of supermarkets in big Chinese cities. Dong Nairu / for China Daily

International giants are fighting back with strong branding and a good relationship with large retailers, which are opening more and more stores in rural areas.

In 2010, Unilever launched nearly 1,500 road shows in China's towns and counties, aiming to promote its products in lower-tier cities.

As early as 2008, Unilever had started its down-tier strategies.

"The only way for us to maintain sustainable growth in China is to follow the transfer of China's economic structure - putting more emphasis on the western part of the country and lower-tier cities," said Zeng Xiwen, vice-president of Unilever's Greater China Region in a press release in 2008.

P&G also has a plan to go rural.

Apart from launching promotional activities in rural areas, the company plans to establish a factory in Northwest China's Xinjiang Uygur autonomous region, says a source, who prefers to remain anonymous.

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