Establishing a strong presence online has been a key strategy for many overseas brands aiming for growth when entering the Chinese market. However, with rapidly evolving consumer trends in the post-pandemic era, is it essential for foreign brands to develop a sustainable growth strategy?
The national economy has maintained overall stability, with noticeable shifts in consumer behavior under the “new normal”
In the first quarter of 2023, China’s GDP grew by 4.5 % year-on-year, with a quarter-on-quarter increase of 2.2%. The economic outlook has shown some improvement, with total retail sales of consumer goods rising by 5.8% each year during this period, including a notable 10.6% increase in March. The Consumer Price Index (CPI) grew by 1.3% annually. While the pace of economic growth fell short of expectations, the consumer market is anticipated to recover as supported by ongoing policy measures.
A global survey revealed that 96% of respondents have adopted more cautious spending habits post-pandemic. However, as the pandemic’s effects diminish, some consumers are gradually returning to pre-pandemic consumption patterns. For instance, during the “May Day” holiday, the total of domestic tourists reached 274 million, an annual increase of 70.83%, exceeding 2019 levels by 10.09% on a comparable basis.
Regarding shifts in consumer categories, discretionary goods such as clothing and beauty products have reversed the downard growth trends observed last year, showing a rebound in the first quarter. This suggests a gradual recovery in consumer demand for “beauty” and life-style related spending
来源：国家统计局，普华永道分析
In 2022, China’s utilization of foreign investment reached 1,326.8 billion yuan, reflecting an annual growth of 6.3%. Simultaneously, the proportion of imported consumer goods in China continues to rise, driven by the domestic demand. Customs data reveals that i nthe first quarter of 2023 alone, consumer goods imports totaled 478.74 billion yuan, representing a 6.9% increase compared to the same period in 2022.
A significant driver of this growth is the rapid expansion of cross-border e-commerce. Between 2017-2022, the value of cross-border e-commerce import transactions in China surged from 1.8 trillion yuan to 3.4 trillion yuan, achieving a compound annual growth rate of 14%. Foreign brands are increasingly capitalizing on this trend by leveraging domestic e-commerce platforms. On Tmall international, for example, nearly 8,5000 new brands joined the platform in the year leading up to November 2022. Over the five-year period from 2017 to 2022, the average annual compound growth rate of overseas brands entering the Chinese market was an immpresive 52%
The figures signal a transformative stage for China’s online import consumption market. As consumer demand evolves, and e-commerce platforms grow more influential, foreign brands have unprecedented opportunities to establish a presenc.
Emerging opportunities in the Consumer Retail Market
Shifting consumer lifestyles are reshaping demand, creating new growth opportunities across various categories
The rise of social activities and short-distance travel has driven demand in sectors such as alcoholic beverages, camping, cycling, and pet-related products, Camping and outdoor trends continue to thrive, spurring the growth of subcategories like outdoor footwear, apparel, fishing gear, children’s outdoor products, and cycling equipment. Niche categories are witnessing the emergence of successful new brands. Between 2021 and 2023, searches for “outdoor” on Taobao and Tmall increased by 659%, with the outdoor category’s overall transaction volume reaching hundreds of billions of yuan.
The increasing focus on high-quality health and wellness has also reshaped food and beverage preferences. Products emphasizing health and beauty are gaining traction. In 2021, the size of China’s health food market exceeded 870 billion yuan, with reduced-fat and reduced-sugar goods growing by 127% over five years. This market is projected to maintain a compound annual growth rate (CAGR) of 14% over the next five years. Consumers are increasingly investing in health supplements featuring transparent ingredients and proven benefits to meet their nutritional needs.
Simultaneously, the self-interest economy is driving more personalized and niche consumption trends. Imported goods are expanding beyond traditional categories like beauty and maternity into specialized interest areas. For example, during Singles’ Day 2022, sales of land surfboards rose over by 3000%, imported coffee machines by 1600%, and vinyl record players by 530% within the first four hours. These shifts reflect growing consumer interest in niche hobbies and products, many of which are entering the mainstream market.
来源：天猫国际，普华永道分析
The shift from offline to alone sales, along with the rise of O2O commerce, has accelerated significantly since the COVID-19 pandemic. Emerging e-commerce channels like life streaming and group-buying platforms have become crucial for brands, allowing them to penetrate lower-tier markets directly and gradually expand into Tier 1 and Tier 2 cities. In 2022, the online retail sales of physical goods in China increased by 6.2% annually, with a 2.7 percentage point improvement over the previous year.
Stable Foreign Investment Policies Foster Openness and Attract Global Brands
China’s commitment to stable foreign investment policies continues to enhance openness and encourage global brands to strengthen presence in the market. At the start of 2023, China outlined plants to stabilize foreign investment expectations, aiming to maintain existing investments while driving new growth in international economic and trade cooperation. The implementation of the Catalogue of Encouraged Industries for Foreign Investment (2022 Edition) on January 1 further supported these efforts by expanding market access and opening the modern service sector.
Additionally, the development of international consumption centers has become a strategic priority for many cities. More than 20 cities nationwide have launched action plants to establish themselves as international consumption hubs, creating an attractive environment for global brands to deepen their foothold in China.
How Should Overseas Brands Prepare for Entry and Growth in China
From the Sino-foreign joint ventures of the 1980s to the modern landscape of cross-border e-commerce, the strategies for overseas brands to China have evolved significantly. Each entry strategy offers distinct advantages and challenges, broadly categorized into three main approaches.
Entering the Chinese market is not a simple task, success for entering the Chinese market includes careful preparation, starting with a throughout understanding of China’s current market dynamics and the brands own capabilities to determine the most appropriate entry strategy
Regardless of the chosen approach, market entry involves navigating a multi-step journey, including:
- Market assessment and strategic planning: Brands must begin with a comprehensive market analysis to understand the industry environment. This lays the foundation for developing an international expansion strategy that aligns with the brand’s capabilities and long-term goals.
- Partner selection: Identifying the right partners or service providers is crucial. This decision should be based on the brand’s specific marketing or distribution challenges and business objectives to ensure effective collaboration
- Implementation of the expansion plan: Practical steps include registering trademarks in China, obtaining necessary operational licenses, and managing customs clearance for imports and exports. These procedures are critical to establishing a legal and operational presence in the market
- Optimizing the local Business Model: Once operational, the brand should refine its business model to suit the local market environment. Tailoring strategies to align with cultural and consumer preference is essential to avoid potential mismatch and build sustainable growth
At KFD, we guide brands through every step of their e-commerce journey in China. People often ask if we’re a data research company, a market intelligence firm, a Tmall partner, or an e-commerce advisor. Our answer? All of the above. As China’s leading brand accelerator, we are trusted by global brands to deliver outstanding results. We specialize in managing international brands in China, consistently exceeding expectations and driving syccesss in this dynamic market.
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