Has the China volume potential been overstated? Penetration levels are low; only 2pc of babies, for example, use disposable diapers. And limited disposable income places an iron lid on household consumption. Although China now has over 200 million mobile phone subscribers, the average revenue per user is US$15 compared with $80 in Japan. The only way to overcome a low volume ceiling is by "standing in front" - grabbing the category benefit to effectively "own" a fundamental motivator and grab a big slice of a small pie.
Is a "gold rush" corrupting decisions? The PRC, awash with the overcapacity, is plagued by supply-driven commoditisation and falling prices. The annual demand for TVs in China is 35 million sets while the capacity is 50 million.
FCMG goods are often trapped in the same vicious cycle.
To establish a profitable foothold, MNCs can adopt one of three strategies: 1) acquiring local business to build scale/distribution rather than investing in new capacity, 2) forming strategic alliances and 3) stepping up imports or outsourcing.
Are price points too high? MNCs often fail to recognise a majority in China is poor. For example, in most countries, Pantene (China share: a low 6pc) is priced at market average; in China, it's 60pc above. Ariel foists a 113pc premium; its share is 3pc.
In the face of cut-throat prices, MNCs are launching "second tier" brands as volume generators. P&G carries both mass-market Tide (global name but cheaper COGS) as well as premium Ariel. Within Nestle's culinary portfolio, Maggie (190 price index and 6pc share) skims the frosting while Taitaile (88 price index and 43.6pc share) chomps on the cake. Colgate Palmolive, similarly, has leveraged a powerful brand by extending the equity of Colgate Total to embrace no-frills Colgate Strong (share: 9.8pc).
Is a product compatible with consumer demand? Too many global giants impose Western tastes on the public. Cheese, ice cream, chocolate and breakfast cereal are not natural fits with local preferences. Instead of pushing water uphill, MNCs are moving into local product categories either through acquisition (Danone and Wahaha AD calcium drink) or introduction of familiar concepts under global brand names (Heinz Babao congee, Knorr MSG).
Are ATL costs unaffordable? Due to high media rates, heavy clutter and difficulty in reaching discrete targets, building equity is expensive.
Advertising-to-sales ratios in China are high. This, regrettably, is a fact of life and must be confronted with deep pockets or a (realistic) tactical approach encompassing below-the-line, gradual distribution expansion or brand extensions.