The first ever CES Asia highlights growing consumer base in China

By Steve Brachmann
June 2, 2015

View of Shanghai World Financial Center from the Bund

View of Shanghai from the Bund

The Consumer Electronics Show that takes place annually during the month of January in Las Vegas has been a great opportunity for us here at IPWatchdog to get a sense of global technological trends in the consumer world. 2014’s version showcased a maturing Internet of Things market while this year’s event featured a bevy of self-driving vehicles, cluing us into a number of interesting developments in this year’s autonomous car sector that we’ve been following. The diverse scope of consumer technologies displayed every year at this event covered just about each sector of high-tech development that is soon to be released in the American market.

The United States might be the world’s largest market for consumer goods, valued at about $419.4 billion USD as of 2012, but there are other large markets that technology developers are trying to break into without a great deal of success. As of February 2014, The Economist reported that China had finally usurped Japan’s place as the second-largest consuming nation in the world. Retail sales throughout 2014 rose 12 percent over the previous year’s numbers, up to a total retail sales volume of $4.28 trillion. We’ve discussed the amazing levels of consumption and goods production that goes on within the country of China. We’ve also noted some troubling regulations applied to foreign business entering the Chinese market by that country’s government, including joint venture rules and indigenous innovation goals that might encourage Chinese firms to co-opt intellectual properties developed by foreigners.

There are signs that the Chinese government is interested in reducing its own interventions in the domestic marketplace, although it’s expected that state-run oligopolies in banking and telecommunications will remain intact. This government action could be prompted by the fact that Chinese consumers are taking to foreign goods, especially digital ones, much more in recent years. The Chinese consumer culture is much different than America’s but Western brands like Starbucks, Nike, Buick and Pizza Hut have been able to infiltrate the country with some success.

It’s against this backdrop that the first ever CES Asia took place between May 25th and 27th in Shanghai, China. The inaugural industry event showcased the many different technologies that will be entering China’s consumer market in the coming months and years. The three-day exposition was the first Chinese technology trade show coordinated with the Consumer Electronics Association since 2012. More than 200 companies came from 15 countries to display emerging consumer technologies from knockoff versions of Google Glass to home cinema technologies.

The forecasts for the Chinese consumer market for emerging technologies would give any technology developer reason to believe that nothing but fair weather awaits them in that country. By the end of 2015, sales of consumer electronics are expected to reach $281 billion, which would mark the first time that the country saw more sales than the American consumer electronics market. A June 2011 presentation on economies in developing countries prepared by Brookings Institution predicted that 70 percent of China’s population could enter the middle class by the year 2030.

China has already established itself as a stronghold for consumer electronics in certain respects. During the first quarter of 2015’s calendar year, Apple sold more iPhone units to Chinese consumers than Americans for the first time ever. Chinese tastes for luxury goods show that consumers in that country are willing to spend their cash for premium products, even when young migrant workers have to spend the equivalent of one month’s pay to buy an iPhone. Major home appliances have also been making headway within this country; between 1998 and 2008, the percentage of urban households owning a refrigerator increased from 72 percent up to 91 percent, but it’s unclear how many of those are from domestic manufacturers and how many were developed by Western companies.

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Besides the joint venture rules put in place by the Chinese government which require risky foreign tech transfers in order to enter the country’s marketplace, there are important aspects of Chinese culture and geography to understand before assuming that success in consumer sales is inevitable. Almost half of China’s 650 cities have populations of at least one million people but those urban centers are spread out across a land that measures 3.7 million square miles, adding to the difficulties and cost of product distribution. As of the end of May, the U.S. Census Bureau reported that there were a total of ten American cities with populations greater than 1 million based on annual estimates devised since the last major U.S. census in 2010, just to provide context on the differences in urban populations between those two countries.

Third-party intermediary distribution schemes, in which foreign firms sell their products to Chinese distributors, had been helpful in enabling producers of electronics and fast-moving consumer goods establish footholds in major Chinese cities. However, a higher percentage of foreign goods are now permeating the country so manufacturers from outside the country cannot be promised the same exclusivity in distribution from these firms. As we’ve already pointed out, China’s tendency to promote joint ventures between foreign manufacturers and Chinese domestic companies make it difficult for direct distribution of goods within the country directly from a foreign manufacturer.

There are some who have accused the Asian version of CES of being a lukewarm representation of the American trade show but there were imaginative technologies, from robotic chefs to 3D-printed dresses with robotic spider arms to protect a wearer’s personal space, that were on display by vendors attending the event. Recognizable Western brands from Intel to Audi were present in Shanghai. In particular, the Audi R8 electric vehicle was able to attract quite a bit of attention thanks to its ability to reach 62 miles per hour in four seconds as well as its robust self-navigational system which utilizes laser scanners, ultrasonic sensors, radar and multiple video cameras which allow the car to safely plot its own course of travel on the road.

The Strategy& global consulting group affiliated with the professional network PricewaterhouseCoopers has developed a series of steps to take prior to entering the Chinese market which are designed to help foreign firms compete successfully in that nation. Companies can build a favorable market position by crafting optimal value propositions which recognize differences in China’s geographical centers; for example, East Chinese cities have shown more of a propensity towards Westernized products and services while rural markets in West China prefer to patronize traditional “mom and pop” style stores. The plans also call for developing a “mosaic” of delivery channels like geographically-based route sales, in-store merchandising and telephone-based sales after a company determines which channels are optimal for reaching the audience intended for their product. Upgrading a company’s distribution model to improve their vertical business coverage and building a talented internal team from a pool of Chinese employees who are becoming more talented are other important considerations prior to entering into business within China.

Recently here on IPWatchdog, we provided some coverage of Best Buy’s second quarter earnings report which indicates that traditional brick-and-mortar retail might be able to somewhat survive the onslaught of Amazon.com and electronic commerce. The Chinese consumer culture offers an interesting lens through which to view this battle between real-world and online sales. A 2014 KPMG study on China’s consumers found that 70 percent of respondents use a desktop computer to either shop or research products for later purchase. However, improved shopping experiences through the use of in-store assets has been crucial for a couple of successful Chinese brands over the past decade offering products as diverse as anti-inflammatory medicines and instant noodles.

The chance to experience new technologies firsthand is what has made the Consumer Electronics Show a large draw on either sides of the Pacific Ocean. The start of CES Asia this year marks a significant influx of foreign products into a country which has pushed back against free market economies in some significant ways. Even if the consumer tech offerings available at CES Asia may not have been as eye-opening as those on display at Las Vegas this year, it’s clear that the Chinese consumer base for electronics will likely encourage tech companies to find ways of entering that market.

The Author

Steve Brachmann

Steve Brachmann is a freelance journalist located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He writes about technology and innovation. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients and is available for research projects and freelance work.

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