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27 Feb 2009

International Economy

Beverage Business in China, 2009: Growth Opportunity despite Global Crisis (Business Brief No.2443)

China opening themselves to global trade in 1978 and becoming a member of the WTO in 2001 were the vital changes to boosting the rapid growth of the Chinese economy and consumer purchasing power. However, domestic consumption and business operations – including beverage business – in China have already slowed due to the global economic crisis.
In 2009, China's domestic beverage business will no doubt continue to be affected by the global crisis that impedes their domestic retail sector and wilts consumer purchasing power. Beverage entrepreneurs also face intensifying competition from the increasing number of producers according to the China Beverage Industry Association that now has more than 1,300 members.
KASIKORN RESEARCH CENTER (KResearch) seesthe trend for beverage business in China this year that the value will slow to 18.9 percent YoY at CNY55.35 billion – USD7.9 billion – versus the estimated growth in 2008 of 21.5 percent. However, despite possible sluggish growth that will likely carry on into mid-2009, China's implementation of easing monetary policy and fiscal stimuli to aid domestic consumption since 4Q08 should help their 2009 GDP to grow 8 percent (their target). This likely to propel domestic consumption higher and increase the domestic trade value in the coming months with a gradual recovery beginning mid-2009.
Therefore, their domestic beverage business should improve soon. The China Beverage Industry Association expects that by the end of China's 11th Five-Year (2006-2010) Social and Economic Development Plan, China will be the largest beverage manufacturer in the world. In the next 30 years, they will be the world's most important beverage manufacturing country, rising from their current position of the second largest. The market there now features an increasing proportion of natural juices versus soft drinks, reflecting changing consumer behavior toward healthier consumables. This has influenced many large-scale beverage producers – both local and transnational companies – to adjust strategically toward this trend.
Trade and investment opportunities in the Chinese beverage business seem to offer Thai businesses the chance to export raw materials and ingredients, particularly farm produce such as fruit – particularly pineapple and oranges – to support Chinese beverage production because we are competitive in agriculture. In addition, Thai producers can take advantage of the ASEAN-China trade liberalization that has offered duty free status to fruit since 2003, thus facilitating our exports.
In addition, Thai entrepreneurs who have the potential to export Thai brand name products could boost their distribution there via agents or local alliances. Other Thai producers could set up factories to produce packaging, such as cans and cartons, to support beverage business expansion there. Furthermore, joint investment with local firms that are familiar with the Chinese market and marketing channels would expedite successful market entry. A bright future seems to lies ahead for many types of beverages, such as energy drinks, sport drinks, fruit juices and ‘functional drinks' that target consumers concerned about health and beauty. Another interesting beverage category is herbal drinks with such offerings as longan juice, tamarind juice and pandanus juice because our production, research and marketing experience gives us a lot of potential in this niche category. This kind of beverage is expected to show satisfactory sales growth in China, especially in the middle- to high-end consumer segments because they are still interested in traditional Chinese medicine using herbs to take care of their health. Nonetheless, Thai manufacturers would have to increase their PR budgets to popularize their brands with Chinese consumers.
The above trade and investment opportunities are supported by many factors, such as an increase in Chinese consumers' incomes and changes in their consumption behavior due to their higher incomes. Amid the economic deceleration, Thai entrepreneurs should however beware of many external risks, such as the sluggish global economy that might lessen demand there, particularly with costly beverages that will be viewed as non-essentials, such as alcoholic beverages and functional drinks.

Another factor that we should keep an eye on is tougher competition due to an increase in experienced competitors from foreign countries as well as local competitors who are familiar with Chinese consumers and have effective distribution channels. Before entering this market, beverage businesses should study the local consumer behavior, culture, tastes and customs which vary with each province, in order to develop and present products that suit local demand. Look closely at trade barriers and import regulations, such as non-tariff barriers, logistics, transportation and investment regulations and food safety regulations that cover both product and packaging aspects, because such knowledge is a key to accessing the Chinese market successfully.

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International Economy