Sector-Specific Considerations for EU Businesses considering entering the DIY Market in China.| |
As Deng Xiaoping once said “Cross the river by feeling the stones”. This saying is very relevant for the DIY market in China because you are threading down a road into the very unknown. In 2004 the Chinese DIY and home improvement market reached an all-time high of RMB 195 Billion and has been depleting ever since. DIY stores are constantly losing popularity within the market .The market demand currently is for “soft decoration”, with the rural family’s moving to the fast growing cities to attain employment, there is a demand for moveable decoration in case they have to re-locate again. The younger generation are also leading the market for multifunctional, low cost furniture, such as DIY kitchens and bathrooms; this is due to the culture of the Chinese families with the kitchen and bathroom being the most personal area in their homes. (Allience, 2007) A major competitor and threat to the DIY businesses already established in China are the growing number of smaller contractors, as their knowledge of DIY is improving with the market trends. A high percentage of new homes being bought are being left unfinished and require a major investment in home improvement, this is where they just decide to hire a smaller contractor to do the time consuming work instead of doing it themselves thus the companies are losing out on the profit, but with China’s property prices rising it is entirely possible that the Chinese consumer will simply be pushed in the direction of DIY as a cheaper option. But what will happen when Chinas sees a fall in construction and property? Will the DIY companies suffer? This can be construed as a major economic threat to new European companies entering into China. (Allience, 2007)
Who are the major competitors?
There is not one but many already established competitors within the Chinese DIY market. B&Q is the major contender with it being the largest Western DIY retailer in the country. B&Q opened its first store in China in 1999 and has continued to establish strong brand awareness. As The Guardian reported, the local culture did not fit with the DIY practices that B&Q already had and therefore B&Q had to adapt their once very successful European format to a Chinese one, hence making it a CIY (create it yourself) strategy. (Tran, 2007) Another competitor for an EU DIY business to go up against is a well-established Chinese DIY company called Orient Homes. Orient Homes was founded in 1999 in Beijing. It receives its stock from local manufacturers consequently lowering the cost of the goods for consumer, thus making it a very large threat not just economically but because it is so well established within its home market. It has come to my attention in according to the China National Interior Decoration Association there is an estimate of more than 40,000 registered companies engaged in home improvement in China alone. (Unknown, 2009) The market is so densely populated that an EU company trying to enter the market is going to have some major struggle.
Joint Venture or Wholly Foreign Owned Enterprise (WFOE)?
Many companies entering china have to ask themselves this very difficult question, it’s a difficult decision to make as there are many advantages and disadvantages to both. Entering into a WFOE I believe is a lot harder than a Joint Venture, because with no Chinese partner they are left to approach their chosen market alone. It’s also difficult for the company to “create a market for their chosen products, especially when there’re already local competitors. Sometimes even with a local sales and marketing team it can take years to have a name on the Chinese Market” (Bergonovo, 2011) . The culture of the market can be very diverse and for a WFOE it can be difficult to understand alone. There are advantages as well as disadvantages, “unlike in JVs where there're...