Surprising progress on climate change highlights the opportunity offered by a new, incremental approach to emissions reductions. On January 11, 2016, The GailFosler Group (GFG) convened a private, high level group of select CEOs, Chairmen, and top policy leaders from around the world in New York City. This report analyzes the impact of trade, credit, commodity prices and China on the global growth outlook through 2018. The extraordinary monetary policies applied by European central banks are working at cross purposes.
This report ranks the top 30 emerging markets by prime working-age urban market opportunity and risk out to 2050. Early stage urbanization in emerging markets requires effective governance and polices that establish necessary infrastructure. This report focuses on the impact of the global trade slowdown, improving credit growth, exchange rate fluctuations, volatile commodity prices and their impact on emerging market growth. American incomes are down while the costs of housing, health and other necessities are rising. This article was adapted and extended from an International Economic Bulletin of the Carnegie Foundation for International Peace dated 26 July 2012.
Thanks to: (1) a mild relaxation of monetary policy, (2) a resumption of modest government-sponsored stimulus spending, (3) increased bank lending and (4) the expectation that commercial housing construction in big cities will soon revive, the economy is likely to stabilize soon. Although China’s stimulus program was effective in quickly restoring growth and employment, it also created inflation headwinds for the Chinese consumer and a potentially dangerous housing bubble in major cities. Household consumption is rising fast — indeed, for the first time in many years exceeding the GDP growth rate. Further growth in China’s consumer markets is not only supported by rapid wage growth and tight labor markets (except for university graduates), but also by the success of China’s “Go West” policies. However, the rise in the consumer share of the economy is as much due to the weakness in other previously important sectors of the economy as to the growth in consumer spending itself.
Widely reported excess investment in basic infrastructure (roads, bridges, airports, etc.) will probably turn out to be less of a problem than excess investment in manufacturing and urban real estate. Whilst the economy appears to be headed in the right direction, the greatest risks facing China are social inequality and the lack of political reform: Can China’s leadership transition in October take place smoothly and set the stage for political reform, including promotion of rule-of-law, in the future? Sign up for our newsletter to receive a monthly brief of The GailFosler Group’s new articles, reports and events on important economic, financial and public policy issues.
Going to market in China is a complex undertaking, particularly given the vast size and population of the nation itself.
This report was originally published before March 31, 2014, when Booz & Company became Strategy&, part of the PwC network of firms. HIGHLIGHTS • Go-to-market strategies in China can no longer rely solely on “arms-length” wholesalers. Although this third-party model initially proved valuable in achieving rapid and relatively extensive coverage in many cities and in navigating the political, social, and infrastructure eccentricities of China, it is no longer optimal for most companies. Further, the evolution of retail channels and the emergence of new retail formats are creating a greater need for segmented service levels and models that cater to multiple customer segments. Finally, with more money to spend, Chinese consumers are becoming more sophisticated, demanding a greater variety of products and better quality at affordable prices. With more money to spend, Chinese consumers are becoming more sophisticated, demanding a greater variety of products and better quality at affordable prices.
In our experience, there are five strategic go-to-market concepts that a successful consumer goods company must embrace in China. Moreover, order sizes in Tier One may be sufficiently large and deliveries sufficiently frequent that serving these outlets directly (rather than through a wholesaler) is a much more profitable approach—and provides for much more control.
DIRECT COSTS (INTERNAL) ? COST TO SERVE ? ? Sales force Sales office Warehouse, freight, etc.
EXTERNAL COSTS (DISCOUNTS) ? PROFIT TO SERVE ? ? Third-party delivery fees Wholesaler margin Trade spend (discount), etc. First, the cost to serve: This includes, for each channel, such variables as direct costs (the costs of distribution from plant to wholesaler or plant to retailer and sales force budgets) and external costs (promotions and discounts). Establishing a successful go-to-market strategy in China is fraught with complexity and difficult decisions, which is probably why many FMCG companies have ignored the problem rather than address it head-on. Booz & Company is a leading global management consulting firm, helping the world’s top businesses, governments, and organizations.
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I lecture on Global Branding, Chinese Brands abroad, Foreign Brands in China and core belief based identity design. Talking heads continue to debate the short-term macro-economic outlook: Will real GDP growth fall below 6%? Media reports focused on the low quarterly growth rate rather than on evidence of economic rebalancing, suggesting a better outlook for the second half of the year and greater economic stability with still robust growth in the years ahead.
While the heady double-digit growth rates of the past decade are a thing of the past, the long-term trend suggests that, while slower than in the past, China’s growth will remain high relative to advanced and many emerging market economies. If current trends continue, China’s economy will eventually look more “normal,” with growth stabilizing at 7 to 8 percent for the next few years.

Apart from the clouds hanging over political succession later this year, conflicting assessments of the economy are related to doubts about the reliability of China’s national accounts and the different methods used to gauge performance and outlook in various sectors of the economy. However, now it appears that the various domestic tightening moves, combined with a global slowdown, while producing a rocky path over the past two years, have solved the inflation problem (Chart 2) while triggering a gradual drop in real estate prices.
In the first half of 2012, the contribution of consumption (including government consumption) to economic growth was almost 60 percent — more than 10 percentage points higher than in the first half of 2011.
These policies have succeeded in opening up new consumer markets in central and western parts of the country at the same time that coastal provinces are growing more slowly relative to some interior provinces. Modern China has often created new basic infrastructure ahead of needs as part of a strategy to open up new development opportunities. The current political system has generated much social inequality and perceived unfairness. Most fast-moving consumer goods (FMCG) companies, in an effort to enter China and expand rapidly with minimal up-front financial investment, defaulted to a wholesaler distribution strategy. To go to market in such a limitless and diverse territory, many consumer goods companies have historically adopted third-party sales and distribution models to reach retail customers.
And consumers are being bombarded with products and promotions by any number of domestic and multinational companies. For example, convenience stores and eateries are increasingly popular venues for sales of consumer goods—and they couldn’t be more different from traditional mom-andpop grocery stores.
To respond quickly to changing customer preferences and stay a step ahead of competitors, FMCG companies must have access to valuable and targeted point-of-sale information that will enable them to make intelligent decisions about pricing, assortment, promotions, and shelf space—in virtually real time.
The main reason: As purchasing power in China for everyday goods from toothpaste to soap to snacks to beverages grows rapidly—not just in the mature, large Tier One and Two cities but also in the fast-growing Tier Three and Four cities and rural areas—FMCG companies are faced with a greater GTM opportunity than ever before. Very few companies have succeeded in realizing all five, but there is huge upside for those organizations that do so. In developing optimal value propositions, FMCG companies must, for example, contrast the needs of traditional trade (mom and pop) stores in a Tier Three city and a Tier One city. Emerging mini-markets in lower-tier cities illustrate another fresh set of assessments that FMCG companies must make. Second, the sales uplift: This involves estimating potential revenue and sales gains or losses of different distribution model scenarios, focusing specifically on the impact of varied point-of-sale approaches, increased number of SKUs, and out-of-stock reductions.
Create a mosaic of models and channels Once these analyses are complete, what does an FMCG company do with the results? An ongoing effort to capture consumer information and identify marketplace changes is a must. Build the talent Last, but by no means least, is the urgency of building internal talent— from front-line salespeople to local leadership. He specializes in go-to-market strategies and operating model design for multinational consumer goods companies around the world. Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914.
We do that by working alongside you to solve your toughest problems and helping you capture your greatest opportunities. What monetary policy tools does China have at its disposal to continue its unprecedented rate of economic expansion? In particular, the often-conflicting monthly PMI readings by the government and several private organizations have added to the confusion. Though this model served companies well initially, it has outlived its usefulness—at least in many markets across China.
Though this model served companies well initially, it has outlived its usefulness—at least in many markets across China. Although there are many variants of these models, they generally share a set of characteristics: • They use wholesalers and intermediaries to reach target customer segments throughout the country.
For one thing, although wholesalers and other third parties served as the perfect ticket for FMCG companies to cover a broad geography quickly and (presumably) cheaply, their distribution networks are rarely exclusive, typically distributing multiple competitive products. Convenience outlets require more frequent service, a greater number of promotions, and a much wider range of SKUs than the old-fashioned grocery stores.
But to take advantage of this opportunity in China’s rapidly evolving and potentially lucrative consumer environment, FMCG companies must be nimbler, gain better control of their distribution channels, and emphasize product and sales innovation.
In Tier Three, where consumers are less flush than in the bigger urban areas, the store may prefer a narrower product line with smaller (and cheaper) packages that are presorted and can be “dropped” onto shelves easily. These outlets typically follow open-shelf supermarket-style formats but are stand-alone stores like mom-and-pop operations, not the organized chains usually found in more developed regions.
In this profit-to-serve model, it is the sales uplift less the cost to serve that is a truer indicator of a GTM model’s attractiveness. In short, the challenge is to create a mosaic of models and channels appropriate for the company’s product line and profit needs across China. A strong brand enjoys a great deal of consumer and retailer loyalty and demand and could be distributed by either wholesalers or DSD—in other words, the cheapest route.
Indeed, the first four steps for succeeding in China can be realized only if the FMCG company has the talent and capabilities to implement and sustain these new strategic approaches. Today, with more than 3,300 people in 60 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact.

We bring 100 years of strategy consulting experience and the unrivaled industry and functional capabilities of the PwC network to the task. Overall, despite the drama surrounding much of the reporting about China’s economy, trends suggest a steady but stable path toward lower growth (Chart 1). More important from the consumer perspective, labor markets tightened such that real wages rose sharply in both years, with reports that they continue to rise 5 to 10 percent today, in spite of the economic slowdown.
Almost half of the 70 largest cities reported stable or marginally rising property prices and stable or increasing sales in June. Meanwhile, service sectors — in the aggregate accounting for a larger share of GDP than manufacturing — continue to expand very rapidly, which will further enhance economic rebalancing. Indeed, the current debate about China’s future is legitimately more about its political path than its economic fundamentals, which are reasonably strong.
To capture the economic potential of China, leading FMCG companies will have to consider both more direct distribution and more exclusive third-party distribution approaches. By leveraging strong wholesaler networks in China, companies seek to avoid the costs and complexities of selling and distributing products directly to many small and mediumsized outlets.
That was OK when China’s markets themselves were relatively limited, with money and buying power concentrated in a few big cities and less to be gained from the smaller cities and rural markets. What’s more, appliance penetration outside the cities recently got a boost when the Chinese government launched an initiative that gives rural consumers a subsidy of as much as 13 percent for purchasing a major appliance.
Similarly, point-of-sale materials in eateries are very different from those used in a retail site.
The same store located next to an Internet bar in a Tier One city would more likely support a wider range of product SKUs with much larger package sizes. However, a weaker brand, with a lot of SKUs, would need to rely more on directsales models.
Can we strengthen training by rotating our future leaders to geographies outside China for a period of time?
It’s just the beginning of an in-depth analysis that must be conducted, but the answers will provide a road map for what ultimately will be a potentially lucrative GTM model. She specializes in sales and operational improvement for consumer industries globally, including consumer foods, financial, and health sectors. We are part of the PwC network of firms in 157 countries with more than 208,000 people committed to delivering quality in assurance, tax, and advisory services. Underlying demographic factors and financial reforms are contributing to a slow increase in China’s unusually low share of household income in GDP. For the moment, China has controlled its housing bubble without triggering a financial crisis or a recession. There are any number of considerations that companies must take into account when creating a go-to-market (GTM) strategy for China—and each company’s analysis of the distribution formats that are in its best interest will be different.
In such a pressurized and crowded sales environment, distributing through a non-exclusive intermediary is tantamount to a company simply throwing its products into the market with no control over how they are displayed and sold. While the talent pool in China is improving, with more and more individuals studying and developing the skill sets demanded by Western companies, the number of people needed to fill the most critical jobs at FMCG companies is simply not yet within reach.
But more than anything, a GTM model, based on segmented point-of-sale approaches, is imperative. For example, can the company adopt a DSD approach and match customer expectations about frequency and size of the drop? He specializes in developing sales and distribution strategy and operating models for consumer goods companies. This is important, as it should allow current savings rates for average Chinese to come down and free up disposable income for consumption. The precise segmentation will depend on a careful analysis of such critical elements as the types of products being offered, brand strength, consumer preferences, competitive environments, complexity of SKUs, retail channels, location of consumer markets (rural, urban, or anything in between), and profitability expectations. Front-line salespeople are evaluated by their skill in “pushing” products or taking orders, rather than their knowledge of the needs and preferences of retail customers or consumers. If such an assessment is done well, an FMCG company can anticipate significant growth and profit upside in the Chinese market. Given the emphasis on taking orders, the use of sales capabilities and account management tools is limited. Currently, China is the world’s second largest luxury goods market, but longer term a strong middle class will be needed to serve as the engine of growth. With an aging population and a rapidly growing and modernizing economy, the number of skilled workers in China will be critical if it wants to effectively transition to a more consumption led economy.Want to get our latest investing research and trading ideas? The ability to responsibly finance large ticket purchases for an emerging middle class will be a key element to increasing the purchasing power of the Chinese population and critical to the economic transition.If China is able to effectively navigate what will certainly be a turbulent growth path toward a consumption driven economy, I will begin to look more closely at consumer staples and retail sectors and less at the industrials and materials that have benefitted from recent Chinese stimulus directed at infrastructure and residential investment.

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