Rabobank report outlines complexity of the China export challenge
Bulls in a China Shop, authored by analyst Chenjun Pan, looks at how Western meat exporters can navigate the market in China.
However, the picture it paints is far from simple. The report predicts that there will a relentless focus on adding value to the supply chain, and that success may lie with teaming up with "better positioned local partners". It also says there will be a continued need to invest in improving relationships with local governments.
Pan says: "Western companies have struggled to make sustainable profit and to compete in China’s animal protein industry, due to infrastructural and cultural challenges.
"However, as the industry accelerates the consolidation and modernisation process that is under way, more opportunities are opening and this is likely to continue."
She tells GlobalMeatNews that some of the keys to success for Western companies include differentiating themselves from others in the marketplace, bringing new and innovative products to the market, and providing better services, for example.
While the protein market is established in China, it is mostly made up of fresh products, with only 15% of meat being further processed. However, Pan says there may well be opportunities for companies producing high-quality processed products – for example processed pork – for niche markets. A key trend being noticed is a gradual shift from low value-added, to higher value-added products, she notes.
Pan explains that the key reason why the meat sector, in particular, faces greater challenges than other Western companies is the fact that "meat consumption in China is very traditional", with a lot of smaller producers supplying local markets. "It is not a new market, so it is not easy for foreign investors to bring in new products," she says. However, local companies are keen to work with foreign businesses to develop innovative products – something that she says is lacking in the local market.
"It is also not sophisticated in terms of product structure," she says of the current market. Due to the underdeveloped nature of the Chinese animal protein industry, and the fact the supply chain can be inefficient and difficult to access, Pan explains that some Western companies choose to established vertically integrated (VI) operations, in order to isolate their businesses from this structure. However, she says this model will only work temporarily, as its requires a much higher capital investment.
A number of companies have established their presence in sub-segments – for example ham or further processing poultry products – for quick-service restaurants (QSR). Companies such as Cargill, Tyson and OSI supply QSRs through VI operations, but have a limited presence in the retail market, according to the report. However, in comparison, a number of local players, such as Fujian Sunner and Henan Yongda have established themselves in both markets.
Meanwhile, Thai company CP has had success in China since it was approved for export in 1979. Pan says this could be down to a number of factors, such as the fact they follow local government policy closely, and also "act as a local company". CP employs many local cultural elements in its marketing, with its brand perceived as being ‘local’ in China.
Culture is an important factor in the way the Chinese do business, so having that inside knowledge can be a distinct advantage. Pan tells GlobalMeatNews she believes it is important that Western companies looking to expand in China have a local base in the country, and work with local people with the right knowledge and experience.
"If you don’t understand the local market, there is no way to be successful here," she warns.