By 2030, roughly two-thirds of the world’s middle class will be in the Asia Pacific region, largely in China, according to a report by Ernst & Young. Currently at around 150 million people, the Chinese middle class is expected to reach 1 billion.
Representing a $250 billion market for American companies today, according to the U.S.-China Business Council estimates the country, it’s worth noting the American companies that can take advantage of the enormous opportunity. Some of the nation’s biggest brands have already managed to be the Chinese market leaders in their particular segments. Apple sells more tablets than any competitor in China and Gillette more razors than any other brand. While some of these companies are facing increased competition internationally and from China-based firms, others appear to be pulling away from the pack.
Because China is not an open market, international companies cannot compete in some sectors. According to the U.S.-China Business Council, the Chinese government currently imposes restrictions on about 100 different sectors in both manufacturing and service industries, including much of the agriculture and food production, cloud computing, financial services, petrochemicals, and health insurance, among others.
In the sectors that remain more open to international competition, China represents an opportunity for companies to strengthen their brand and also move ahead of their closest competitors globally. One example of a company capitalizing on its leading position in China is Yum! Brands. The fast food company is behind global competitors like McDonald’s, which had roughly double Yum’s worldwide sales in 2012. Nevertheless, Yum! currently has a very strong foothold in China. Its leading chain, KFC, has more than 4,200 stores in the country, more than double that of McDonald’s, its closest competitor. What’s more, the company, despite setbacks, is growing its presence significantly there.
No doubt, the companies that entered the Chinese market planned their entry carefully. But it’s also clear that many managed to capitalize on their domestic and international brand dominance outside of China. Companies such as Starbucks, Apple, Nike, and Coca-Cola have thrived in the country — just as they do all over the world. Whether the companies can continue to leverage that value against up-and-coming Chinese brands remains to be seen.
These are the most popular American brands in China.
1. General Motors
> Market share: 14.7% (2012)
> Industry: Auto manufacturers
> Competition: Toyota, Volkswagen
General Motors has had the largest market share in China of any foreign auto manufacturer going back nearly a decade. The company has access to the Chinese auto market primarily through its multiple joint ventures. One of these is Shanghai GM, co-owned with the Shanghai Automotive Industry Corp. Group (SAIC). The venture, currently 50% owned by GM, sells Chevrolet, Buick, and Cadillac models. In all, according to GM China, the company and its partners sold a total of more than 2.8 million cars in 2012. By comparison, GM sold just under 2.6 million cars in the U.S. last year. Recently, GM announced it was building a $1.3 billion plant in China to produce Cadillacs in order to improve luxury sales.
> Market share: 83% (fourth quarter, 2012)
> Industry: Electronic Equipment
> Competition: Samsung, Microsoft
Apple dominates the tablet market in the world’s most populous country. Umeng Analytics Platform reported that in the last quarter of 2012 Apple’s iPad and iPad mini accounted for 83% of all tablet sales. Several of Apple’s major suppliers operate in China, including Foxconn, which has been criticized for its poor working conditions for years. The developments in the Chinese operations of the company’s suppliers are often used as fodder for speculation on future Apple product releases. Most recently, plans by Apple supplier Pegatron to ramp up hiring in China by 40% have fueled rumors about a low-cost iPhone.
> Market share: 12.1%
> Industry: Apparel footwear and accessories
> Competition: Adidas, Reebok
At the end of 2012, Nike still had the largest sportswear market share of any company in China, somewhat of a loose term at 12.1%. But recently, Germany’s Adidas has also emerged as a major player in China, picking up market share despite the efforts of Chinese brands such as Li-Ning — which recently signed NBA star Dwyane Wade as a representative. Nike’s sales and bottom line have benefitted from its popularity in China. In fiscal 2012, Nike’s revenue and earnings in its Greater China segment rose by 23% and 17%, respectively, from the year before, totalling over $2.5 billion and $900 million, respectively. Nike has also had to deal with the differences and problems of operating in China. Michael Jordan, who partners with Nike to market its Jordan Brand sneakers, has accused Chinese company Qiaodan Sports Co. of using his name without permission.
> Market share: 61%
> Industry: Specialty eateries
> Competition: McDonald’s, Pacific Coffee
The world’s largest coffee retailer opened its first store in mainland China in Beijing in 1998. At the last annual shareholders meeting, according to the China Post, the company had in excess of 800 locations in nearly 60 cities in the country. In the release of the company’s fiscal 2012, company CEO Howard Schultz said, “It’s no doubt that one day China will become our second-largest market after the U.S. and it’s possible that, over many years, potentially the largest one.” Starbucks plans to more than double its headcount in the Asia Pacific region as a whole in the next five years to more than 40,000. The company’s closest competitor by coffee sales is McDonald’s. According to the China Post, however, Starbucks’ company’s presence has diminished somewhat, and Chinese companies like the Pacific Coffee Company are setting their sights on the No. 1 slot.
5. Microsoft Windows
> Market share: 91% in desktop operating systems
> Industry: Application software
> Competition: Kylin (Canonical), Apple, Google
Microsoft has a commanding market share of more than 91% in desktop operating systems in China, according to NetMarketshare. However, the company may face competition in the future, threatening its massive lead in software sales. The Chinese government has worked on an operating system with software firm Canonical. The new OS, called Kylin, was released in April. The BBC noted that the move is regarded as “an attempt by China to wean its IT sector off Western software in favour of more home-grown alternatives.” Microsoft has pushed its Surface tablet hard in China, offering it there even before the U.S. However, the company has been criticized for not providing a two-year warranty for the tablet.
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