Chinese consumers are becoming increasingly sophisticated in their tastes and expect a wider range of better products, according to a report released Monday that says local companies lead foreign ones in using e-commerce to expand sales.
The report by the American Chamber of Commerce in Shanghai and the consultancy Booz & Co. says China will likely become the second-largest consumer market in the world by 2015, just trailing the United States.
As their incomes grow, Chinese will have enough purchasing power to buy 14 percent of the world's goods by 2015, up from 5 percent now, said the report, which surveyed 135 major consumer goods companies, 70 percent of them multinationals.
Wider access to information, travel and the Internet is raising awareness about different lifestyles and driving demand for a greater range of choices than in the past, the report said.
"As wealth continues to grow, people will begin to focus more on enjoying the fruits of their labor, increased attention to leisure activity, domestic travel, interest in arts and science and self-betterment," it said.
Such trends reflect the transformation of China into a dynamic consumer economy from a centrally planned one that several decades ago was dominated by rationing and shortages. In recent years, frequent food and drug safety scandals have highlighted the poor and sometimes unsafe quality of many of the products available to most Chinese consumers.
Investing in brand building and quality control are crucial and will pay off, Ken Newell, president of PepsiCo (China), said in a panel discussion of the report.
"Increasingly we're seeing consumers willing to pay a premium for a guarantee of quality," Newell said, noting that the growing size of the Chinese middle class will eventually drive up sales volume.
As the single-child families mandated by China's population policies mature, their shopping habits and tastes will also change, it said.
"These changes could affect purchasing behaviors in many ways including product innovation, packaging sizes, packaging, design, access and delivery," it said.
At the same time, as elsewhere in the world, access to the Internet, mobile communications and gaming allows shoppers to research their choices and buy online.
"Over the next three to five years, the growth in e-commerce in China will significantly change the way in which consumers access information, interact and shop," the report says.
This means a market dominated by "consumers who are less loyal to specific brands and less willing to pay more for the same quality," it said.
Almost all Chinese companies surveyed said they were already heavily using e-commerce or planned to begin doing so soon, while multinational companies were less likely to have such plans, the report said.
Chinese companies also have less trouble hiring the staff they need than foreign companies and are have strategies focused on high-volumes and low prices that are more attuned to the tastes of the hundreds of millions of new consumers they are targeting, it concluded.
The report highlights the aggressive strategies Chinese companies are adopting to gain market share.
"The Chinese companies are continuing to gear up to bring products into the marketplace that are not just your locally priced, "me too" products, but products that are innovative, products that are of high quality, and products that clearly are going to give the multinational companies a run for their money here in the Chinese marketplace," said Joanne Bessler, a partner at Booz & Co.