Market insights lead to the right China distribution strategy, deliver fast growth for high-end furniture brand

A global company that provides products (high-end furniture) and services for efficient workspace solutions wants to expand their market presence in China. Until now, they’ve been selling their products in China by using only one independent distributor.

To enjoy the advantage from China’s high market growth trend, the client wants to decide whether to and how to expand their market presence.

ARC Consulting was asked to lead a project to help them make the right strategic decision and further more to assist with the implementation. The project was divided into several parts and this is a summary of the first part: Business Plan Development.

Workers in office space

China’s economic growth and large population make it the biggest furniture market in the world. But due to its enormous size, the market is very fragmented with only a few players in the high-end furniture space.  A significant market trend is that there are increasing consumer demands for ergonomically designed, quality and environmental friendly products. The sum of these factors represents an attractive market potential to our customer.

However, to enter the China market was not an easy task: the value chain is complicated due to the large geography, China’s provincial economic development is not homogeneous, and purchasing decision making is complex with many stakeholders involved including real estate developers, project management (PM) companies, turnkey/design companies, and end-users. These challenges proved that to reach Chinese customers and achieve sufficient business scale required careful evaluation and planning. ARC Consulting was contracted to help the customer understand the complexities of the market and make the right decisions for their business.

The overall project was split into 4 phases as follows:

This summarizes the first part of the project, Business Plan Development, which consists the following steps to answer the questions “Why, How and Where” to expand market presence:

  • Step 1: Research Preparation
    • Prepare the research scope and focus together with the Client
    • Liaise with current resources and leverage past in-house experiences
    • Develop a research framework and assign team responsibilities
  • Step 2: Data Gathering
    • Qualitative and quantitative research and data gathering within the outlined focus areas
    • Data sources: Competitor analysis/best practices, Government departments and organizations, academics, field research, previous in-house China retail/franchise knowledge database, published reports, ARC Consulting network
  • Step 3: Analysis and Reporting
    • Analyze collected data to gain fact-based input and conclusions
      1. Market segmentation and stakeholder analysis
      2. Value chain analysis
      3. Potential analysis (cost/benefit)
      4. Brand positioning analysis
      5. Lead time analysis- what are the customers’ expectations?
      6. Price analysis
      7. Mapping of potential obstacles and barriers
      8. Evaluation of legal set-up options
      9. Resource requirements and internal support
      10. SWOT analysis
    • Review analysis output with the client
    • Prepare a market expansion plan for the client

The outcome of the project was a coherent and fact-based business plan tailored according to the client’s internal capabilities and adequate to serve the market under existing characteristics.

The service sector in China is growing beyond Tier 1 cities (Beijing, Shanghai, Guangzhou) and this fuels the market growth for new and modern office buildings (14.5% CAGR from 2003-2013).  Emerging focus on sustainability has brought along new environmental regulations that have driven a steady stock increase to 3-Star and LEED certified buildings. The total furniture market in China is estimated to be 15 billion euros in 2013 with 12.5% (1.9 billion euros) in office furniture.

To give more granularity to the market potential in China, individual provinces were rated by the following criteria:  Amount of LEED buildings, Growth of LEED buildings, Amount of Grade A buildings, Growth of Grade A buildings, Number of HQs of China “Fortune 500” companies, Competitive presence and Degree of Service Industry.  The ratings showed that 22 provinces had the fundamental requirements for an attractive market and the highest potentials were found in Guangdong, Shanghai, Beijing, Jiangsu and Zhejiang.  It is recommended to first concentrate efforts on these 6 territories.

The analysis of stakeholders in the value chain showed that, although every participant had influence to some degrees, the final decision was heavily weighted on the end-user.  Target end-user groups for high-end furniture in China can be divided in 4 groups:  large SOEs, large private companies, private SMEs, and Sino-foreign cooperative schools.  Doing a deep-dive into the end-user groups with face-to-face meetings, interviews and surveys indicated that the highest potential groups are SOEs and large private companies.

The competitive panorama showed that the low and mid-range furniture categories were most crowded with many local suppliers in these segments.  But since the client’s main target segment is high-end furniture, only 7 key competitors were identified to be relevant. The ARC Consulting team detailed out each competitor’s compiling information like: general information, number of sales offices, number of distributors, global and China geographical coverage, key value selling propositions to the market, and historical turnover data.

With the completion of phase 1 of the project by ARC Consulting, the customer gained a comprehensive understanding of the market and had the necessary information to make a decision. After several meetings and discussions, they ultimately decided to proceed market penetration plans and asked ARC Consulting to continue supporting with phase 2. Phase 2 of the project is the implementation phase and clear action plans were drafted to make the expansion plans a reality for our customer.

Read about our market entry and expansion consulting services and our experience in the retail sector.

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