China: big market, big challenges

China is one of the biggest importers and exporters worldwide, and companies within the pet segment see it as a potential trading partner for their business.

Industry survey findings

A survey conducted by GlobalPETS among almost 200 industry players revealed that more than 60% of companies are doing some kind of business in China. 4 out of 10 respondents said they are importing Chinese products, while 2 out of 10 are exporting their pet products to the country. But some 40% of respondents are still not present in the Asian market. 27% of them would like to start doing business in China, while 13% admit to not having plans to do so in the near future.

Local sourcing versus import

“Most companies are looking for ways to serve the domestic market in China, given its potential. While import is a viable option, in the long term there are advantages to being locally sourced in China, with cost benefits and a quicker response to market developments, as well as meeting the regulatory requirements,” highlights Waldemar Jap, consumer market deals lead partner at PwC in Hong Kong. According to Jap, there is increasing demand for high-quality foreign-branded pet products (either locally produced or imported) and foreign companies are exporting their products to Chinese pet owners, mostly via online e-commerce platforms.

Approvals for pet food imports

The General Administration of Customs of the People’s Republic of China (GACC) implements market access controls on foreign pet food. Until March 2021, 32 exporting companies from 19 countries were able to export pet food to China. In the first 6 months of 2021, a total of 202 pet food imports were approved, of which 102 were cat food and 97 were dog food.

What are the problems?

Behind every big economy, there are always sizeable problems too. Nearly 24% of respondents who are not doing business with China at the moment admitted their companies had tried to do business in the country in the past, but without success.

Nearly 4 out of 10 consider administrative and regulatory issues the biggest challenges, followed by finding local representatives and agents (25.7%), and marketing effectively to Chinese consumers (19.6%).

“Much of the information is only available on Chinese language websites or in Chinese language documents,” admits Ina Enting from DMFC, a consultancy firm for Dutch agricultural companies eyeing the Chinese market. The language barrier is mentioned by 12% of the respondents as one of the most critical challenges.

Face-to-face is vital

Most European pet companies ask DMFC for assistance with registering their products with the GACC and the Ministry of Agriculture and Rural Affairs (MARA). Even after all the bureaucratic issues have been overcome, finding reliable local agents to sell the product can become a mission impossible. “You need to visit them often and meet them face-to-face. It’s the smaller agents who don’t speak English, and will not reply to emails,” adds Enting.

Younger consumers

PwC’s Waldemar Jap points out that pet companies who want to enter the Chinese market need to make sure they understand consumer needs, which can be different from other markets.

“Chinese pet owners are much younger, with less pet-owning experience, and are very keen to look for information, shared either by other pet owners or by key opinion leaders on the internet.”

Marketing is also one of the most sensitive topics. “Lately, there have been several issues involving failures of marketing by big brands (in all industries), forcing them to withdraw their campaigns and apologize,” adds Enting. Linked to this, there is also a cultural gap and therefore a “non-fit of the usual business models applied by foreign companies with the Chinese market.” Plus, consumer patterns and trends differ between bigger cities and rural areas.

Online matching

When asked about meeting potential Chinese partners through ‘online matching’, the pet industry seems to be a bit reluctant to do business this way. For 36% of respondents, it is not an effective way to reach the right people, while 31% would be open to trying it, despite not being sure whether it would work. Only 13% of companies would like to try it.

Half of the respondents would like to meet Chinese buyers in person to offer them their products, followed by meeting accessories manufacturers (32.9%), local representatives (28.6%) and other pet food and snacks manufacturers (27.3%).

For DMFC’s Ina Enting, online matching is a good way to have the first contact. But she emphasizes: “China is a market of relationships and trust. You cannot build that market from your chair in another country.”

The future

Despite all the challenges, the majority of respondents believe that China will remain a valuable sourcing origin. 46% of respondents who currently import products from the country consider China to be a valuable partner for their respective companies now and in the foreseeable future. 39% are looking for local suppliers to do less business with China. And 15% are looking for suppliers closer to home with the aim of stopping to import from the Asian country.

The reality is that China still has potential in terms of size and growth opportunities. According to PwC estimations, the retail value of China’s pet market will reach $40-47 billion in 2024. And the premium segment will grow at double speed. “Going forward, we expect pet population growth to slow down, but the per capita spend to continue to increase, driven by the pet owner’s desire to provide their pets with high- quality products,” says Waldemar Jap.

Business insiders also see China as a sourcing hub for export. “But market players will need to look at the supply chain advantage (e.g. raw material cost) in China versus other export sourcing locations,” Jap concludes.

You can find an overview of the pet industry in China, including the latest data and trends, here.