Foreign factories in China are increasingly turning their focus to the mainland’s huge domestic market given the considerable challenges posed by trying to relocate production out of China to avoid American tariffs.
And as government support and bigger personal incomes accelerate the shift to a consumption-based economy from one led by investment, companies are rethinking their business ideas about what Chinese consumers want.
It has been 27 years since Panasonic, the Japanese maker of consumer electronics, established a lighting factory in Beijing, joining General Electric, Bayer and Beijing Mercedes in the first batch of foreign firms investing in the Economic Technological Development Zone of the nation’s capital city. There, they enjoyed lower tax rates and other preferential treatment.
First, we are focusing more on China’s huge domestic market. Second, we are connecting our products together to create a wholesome scheme used in households, nursing homes and hospitals
Panasonic, which started in 1918 as a manufacturer of light bulb sockets and wiring instruments in the Japanese city of Osaka, is now shifting its attention to smart household technologies to address an ageing and increasingly health conscious Chinese population. It currently has 66 manufacturing plants in China’s eastern coastal regions for the production of products ranging from rice cookers to automatic subway doors to electric vehicle batteries.
“First, we are focusing more on China’s huge domestic market,” said Masayuki Fukazawa, senior manager of the company’s lighting global business planning division in Guangzhou. “Second, we are connecting our products together to create a wholesome scheme used in households, nursing homes and hospitals.”
Hurt badly by the ongoing trade war between China and the United States, Panasonic reported a 12 per cent drop in its second-quarter operating profit, although it posted higher-than-expected earnings of 83.9 billion yen (US$770 million), thanks to solid profits from its housing and home appliances businesses as well as its exclusive deal to supply batteries for Tesla electric vehicles.
The biggest opportunities in China’s domestic market of 1.4 billion people are likely to be for companies that can supply useful services and leisure activities in the future, said Rory Green, China economist at TS Lombard.
Rising incomes, better education, and greater mobility are already notable characteristics of the mainland’s increasingly urban population, so there is little room for further growth in sales of basic products that most consumers have already bought.
“As Chinese people are wealthier, they have already bought all the stuff they need. The next driver will be from consumption services and experiences,” Green said.
In China’s lighting market, smart companies such as Panasonic, Opple Lighting, and Xiaomi, are attaching Bluetooth beacons or other wireless modules to their products to allow consumers to use their mobile phones to adjust their brightness and colour, as well as control household appliances.
Wim Govaerts, marketing director of Lutec Europe, which makes outdoor lighting for houses and gardens at its factory in Zhejiang province, said exports to European countries – particularly Britain, Sweden and the Netherlands – still account for the major share of the company’s connected lighting production in China.
Despite China’s huge population, the connected lighting business is still at an early stage because of the proportionally lower use of other smart home features in the country, such as in heating and security systems, Govaerts said.
Factories in China have said US tariffs are having a significant impact on their businesses. While some have relocated part of their manufacturing bases to Southeast Asia, others have said they would prefer to simply switch businesses if a profit can no longer be made in an existing one.
“We have different solutions depending on the kind of customer. One solution is to shift part [of the production] but it depends if we really want to move out of China or not,” said Govaerts of Lutec, which sells products under its own brand to customers in Europe, Australia, South America, the Middle East and Africa.
“It is not so easy to make big changes to production just like that.”
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