We received this insightful report from The Outdoor Industry Compass editor Marks Huber and wanted to share it with SustainAbler readers and members of the Outdoor Industry in North America.

Inventing the Chinese Market
By Markus Huber

Chinese success at the 2008 Olympic Games in Beijing was not driven by a government which used the games as propaganda—but by the nation’s 1.4 billion inhabitants, many of whom are passionate sports enthusiasts.

And while mountaineering and other classic outdoor sports played no major role in the Olympics, it is safe to say that the outdoor market in China is growing extremely fast, albeit at a still very modest volume. However, it is not difficult to predict that the Chinese outdoor business might reach the size of some larger European markets in the next decade. It’s hard to give precise figures here, but the Chinese market today is widely estimated to be as large as $300 or 400 million.
That figure may sound small, but estimated annual growth rates between 25 and 30 percent indicate that there will be big business here in the years to come.

The best place to get an impression of how the Chinese market is developing is the Asia Outdoor trade fair which was held for the third time in the Eastern city of Nanjing in late July. I was there, and I learned quite a few lessons which I think will be crucial to understanding how Asian companies will establish successful businesses.

Lesson N° 1: Optimism combined with realism.

Outdoor business in China is small and needs time to develop, but the figures are promising: The number of exhibitors at Asia Outdoor grew from 207 in 2007 to 241 exhibitors. Visitors increased by 14.4 percent to nearly 9.400. These are decent figures for an emerging market, but those who think the market will swell should also accept that no billion dollar economy will develop soon.

Lesson N° 2: It is an honour to be counterfeited, not a crime.

Western exhibitors were stunned by the shameless way in which booths are flooded by local “guests” who were taking pictures of the brands’ latest products. I asked a German boot manufacturer why he allowed such unwelcomed behaviour at his stand. He replied that he simply did not see any way to prevent such things. His local distributor had told him that he would have bigger a problem at market if no counterfeiter were interested in his products.

Lesson N° 3: Retail stores are the key to successful market penetration.

There are about 4,000 retailers in China are either specialty outdoor dealers or general retailers who grant a serious shelf space to outdoor products. Still, when the Chinese outdoor market was about to emerge a few years ago, many Western outdoor brands were not happy about the way their collections were presented in local stores. They determined that the key to promote their goods with a consistent brand message was to launch retail operations in the country. No wonder, that the global big players—first Columbia, then The North Face, and now others who have the financial muscle to pay for own stores—went massively into retail operations. In China, that usually means renting surface in shopping malls. The brands do not pay for the surface there per se but instead pay according to a percentage of their turnover, normally around 30 percent.

Lesson N° 4: Local manufacturers are about to develop their own brands. I

In 2007, the ratio between local and foreign exhibitors at the Nanjing show was at 50 to 50 percent. This year, Chinese manufacturers dominated the show on a 60 to 40 basis. The reasons for this development are both encouraging and alerting to Western brands. It is encouraging to see that local producers trust their own emerging market. That means that they are hopeful that big business is ahead in China. On the other hand, the companies behind these investments in local brands are none other than the manufacturers that have been supplying Western brands for years or even decades. The transfer of know-how is on its way—not only in terms of R&D, manufacturingm and technology, but also as far as marketing and brandbuilding is concerned. Just to give one example: The brand Tittallon was developed by the Chinese Fashion-Power Group. The latter made its fortune as OEM producer for some western companies including Intersport. Five years ago, Fashion-Power established its own brand, Tittallon, to conquer Western markets. The first step was in Europe where Tittallon now makes some $15 million. That sounds like small change, but compared to the big, established European players who have a hard time reaching global sales at $200 million that sounds like good business. Step two is conquering the own local market. That’s a major challenge for Chinese brands because Chinese shoppers who have the money like the status of international western brands than for local brands even though all the products come from the same factories in the neighbourhood of local customers. Step three will be conquering the American market. Chinese brands clearly see that a move into the US market should be on their agenda, but the Euro zone is, at least for the time being, by far more attractive due to currency exchange rates.

China is on certainly its way. It may not immediately become a first-rank global power in the outdoor business, but it will reach the volume of medium-sized European markets in the near future. There are a good deal of medium-sized markets in Europe which are really healthy (notably Switzerland and Austria) and in which outdoor companies from Europe and America alike do great business. Nevertheless, it will still take little time for China to become the Austria of the Far East.

Markus Huber has been covering the European outdoor market since 1998. Since May 2008, he has been editor of THE OUTDOOR INDUSTRY COMPASS. The newly launched COMPASS is published by EDM Publications which also puts out the European edition of Sporting Goods Intelligence.