Over the years, B2B International has worked for several of the large global courier transportation companies.  It was, therefore, with interest that we read the following article in Media recently, which discusses the changes that have occurred in this sector within China in the last year or so:

SECTOR INSIGHT… ‘BIG FOUR’ EYE GROWTH IN CHINA DELIVERY MARKET

UPS, DHL, FedEx and TNT have been cutting Chinese adspend despite ambitious plans to expand.

It was hard to miss UPS at last year’s Beijing Olympics. Life-size cut-outs of brown-garbed UPS deliverymen sequipment from improbably small packages, while the slogan read ‘Nothing is impossible - UPS delivered everything and anything to the Beijing Olympics’.

As the event’s sponsor and official courier service, UPS used every opportunity to display its logo. Nielsen data shows UPS spent Rmb 404 million (US$58.6 million), or 61.4 per cent of the Rmb 655 million that courier services spent on TV and print last year. Its global rivals DHL and FedEx spent Rmb 128.5 million and Rmb 90.7 million, respectively, while TNT was, in terms of adspend, nowhere in sight. Besieged incumbent EMS, a subsidiary of China Post and officially named China Courier Service Corporation, spent a more modest Rmb 24.3 million.

A year later, things have changed. UPS has cut back so severely that it is no longer the top advertiser. During the first eight months of 2009, UPS spent just Rmb 74 million. The sector’s overall ad investment totalled only Rmb 253.8 million in those months.

One might suspect a post-Olympics hangover or the global economic downturn, especially since the latter resulted in a sharp drop in air cargo leaving China for the US and Europe.

Both certainly have influenced promotion budgets, but the decline in adspend actually began before the Olympics or the September collapse of Lehman Brothers. DHL slashed its budget from Rmb 367.2 million in 2007 to Rmb 128.5 million in 2008, and in September of that year announced a pitch involving no TV work. FedEx, which spent Rmb 260.6 million in 2007, cut its budget to Rmb 90.7 million in 2008, though interestingly FedEx is spending again this year.

The lull in advertising does not signal a change of heart for DHL, UPS, FedEx and TNT, all in their third decade in China.

China’s first courier express was EMS, founded in 1980 and in service by 1984, relying on the Universal Postal Union for overseas delivery. DHL, UPS, FedEx and TNT arrived in the mid-80s, establishing joint ventures as required by law, all of them choosing the largest logistics player, Sinotrans Group.

Today the ‘big four’ dominate the international express business. By 2006, EMS had seen its share shrink to around 20 per cent, while DHL claimed 30 to 34 per cent, FedEx 19 to 21 per cent, UPS 18 to 20 per cent and TNT seven to eight per cent, according to a 2007 study by Booz Allen Hamilton.

DHL has retained its partnership with Sinotrans until today, while UPS, FedEx and TNT realigned themselves with local players, through acquisition or partnerships, to build their domestic networks - a new opportunity since China’s entry into the World Trade Organisation in December 2001.

That is where the future lies. Domestic coverage of China is still limited to the coastal tier-one cities, but it is rapidly expanding inland, and the big four are pouring billions of dollars into the construction of logistics hubs and ground fleets. Already, the domestic courier, express and parcel (CEP) business is twice the size of the international business.

This is likely to lead to renewed marketing activity. UPS recently hired Ogilvy & Mather to handle its global ad account, with China earmarked as a key Asian market. What’s more, Malcolm Sullivan, VP marketing for Asia-Pacific at FedEx, says that the company will resume spending on ads to back its investment in lower tiers. “As the economy expands beyond the coastal areas, we are investing in infrastructure in tier-two, three and four cities,” he says. “Our marketing communications will follow, and potential users will see more advertising in these areas.”

Sullivan adds that FedEx’s activity extends beyond advertising. It sponsors the China Badminton Team, and renewed its contract in August. He adds: “By activating this sponsorship through events, we extend our brand presence and broaden our community relations in the country.”

To find out more about the market research work we do in the transport sector, please go to:

http://b2binternational.com/China/b2bsectors/transport.php

Following our last blog post – a sector update on the Chinese automotive industry – we spotted an interesting article in last week’s AdAgeChina entitled “Great Wall is China’s Turtle in the Race to Build Global Car Brands” by Yang Jian of Automotive News China.

Great Wall Motor Co. is a small Chinese automaker. But its recent achievements provide some food for thought for its domestic peers who may be seeking to enter new or more developed markets such as Western Europe and America.

Between 2005 and 2007, a number of own-brand Chinese passenger vehicle brands – including Chery Automobile Co. and Zhejiang Geely Holding Group Co., Hebei Zhongxing Automobile Co. and Changfeng Motor Co. – displayed their vehicles at overseas auto shows.  In addition to participating in foreign auto shows, Shengyang Brilliance Jinbei Automotive Co. sent its vehicles for crash tests in Europe in 2006 and 2008, but the ratings received were very low.

After recognising the difficulties of meeting the stringent safety and emission standards of the European and American markets, most of these Chinese companies had, by late 2008, given up on any immediate-term plans to introduce their cars into these markets.  Some have this year looked into the possibility of merger and acquisition opportunities, which would effectively be a ‘short-cut’ to enter these new markets but, to date, no meaningful progress has been made in this area.

Great Wall, however, has adopted a different approach and strategy – one which can be summarised as more low key but more persistent – hence the article’s reference to ‘the hare and the tortoise’ fable.

Great Wall sold about 125,000 vehicles in 2008, with around half being exported to other developing markets.  It has yet to send its products to exhibitions in developed countries.

Instead, the company has been focusing its efforts on building, improving and upgrading its vehicles so they will meet the standards of these developed automotive markets.

In June of this year it began exporting three vehicles to Australia after certifying them for the market there.  In September it has managed to certify four of its models for the European Union – and with it has become the first domestic Chinese auto manufacturer to clear all the regulatory hurdles necessary to launch its vehicles within this market.  Great Wall has also, this year, begun preparations to design cars in line with U.S. safety and emission standards, with the aim of certifying them for the American market.

While its vehicles may be certified for the European market, Great Wall must still focus on building a suitable distribution network and put much effort into marketing before it can sell its products there.  But few would deny that with the slow, steady and solid progress it has been making of late, the company seems to be well ahead of its contemporaries in the race to crack Western auto markets.

For more information on our research experience in the automotive industry, please visit: http://www.b2binternational.com/China/b2bsectors/automotive.php

According to recent reports in Ad Age China, the global recession has turned cash-hungry Western companies into takeover targets for Chinese marketers.  Foreign countries have also become increasingly tempting new markets for a number of Chinese brands.

Chinese companies haven’t been hit by the economic crisis to the same extent as those in many other countries and, thanks to a huge domestic stimulus package, China’s GDP rose 7.9% in the second quarter of 2009 (compared to a year earlier).  Economists are optimistic that the growth will continue, with Credit Suisse, for example, forecasting economic growth of 8% this year and 9% in 2010.

A number of Chinese organizations have been taking advantage of the recession to take over other firms at a bargain price.  What’s more, instead of merely looking overseas for resources and cheaper manufacturing sites, Chinese companies are now looking further afield from more of a marketing (rather that production) perspective – i.e. to build their brands and retail operations.

Computer company Lenovo Group was one of the first privately owned Chinese firms to expand overseas, although its original plans were affected somewhat by the recession.  However, the world’s fourth-largest PC manufacturer is now refocusing its efforts on consumers rather than corporations and, over the summer, opened a ‘concept store’ in Malaysia which allows consumers to test and experience its full product range.

Similarly, Li Ning Co., a well established and respected sportswear and sporting goods company within China, is making efforts to build its brand overseas, recently opening a flagship store in Singapore.  The store, which is dedicated to badminton – very popular in Southeast Asian markets – lets shoppers try out first-hand technology-inspired badminton sportswear and rackets.

Meanwhile Haier Group, China’s largest appliance maker, has bought a stake in a New Zealand competitor in order to get a foothold for its own brand products in the New Zealand and Australian markets.

Chinese companies are a growing presence on the world stage, with 37 appearing in Fortune’s annual ranking of 500 top global companies this year – up from 28 last year and just eight a decade ago.

A recent article appearing on AdAgeChina.com reported that the China Advertising Association has introduced new guidelines for 2009 to consolidate internet media advertising standards.  It is hoped that these new measures will make it easier for digital media companies to sell advertising space and reduce the associated production costs.

Digital media in all its various forms has seen rapid growth in China over recent years.  China, with 290 million internet users (more than 80% of whom have broadband connections) in November 2008, is the world’s largest internet market, and the number of new internet users grows by nearly 240,000 per day.

It is estimated that up to $2.3 billion was spent on digital media in 2008, with some experts predicting this amount could grow by 35% in 2009.  Yet Chinese marketers spend only a fraction of their advertising budgets in online media compared to marketers in the world’s second largest internet market, the United States.

Internet advertising in China has, until now, been a complicated business.  The new guidelines have reduced some 170,000 different sizes of internet ads to just 199 standard formats.  It is hoped that this figure, which applies to more than 80% of China’s websites, can soon be cut further to help manage what has become a fragmented digital media industry.

With fewer size options and format permutations for online advertising, more marketers should be willing and able to invest in online advertising in the future.  Online advertising has witnessed huge growth in many other countries around the world, and it increasingly forms a vital and integral part of any company’s marketing mix.