US Electronic Retailers Look for Bright 'Second Future' in China

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WASHINGTON/SHANGHAI - The Electronic Retail Association is urging members to put a "cautious" foot into the Chinese market despite the fact that many of them lost a "lot of money" the first time they tried in the mid-'90s.


The reassessment follows last month's ERA Asian conference in Hong Kong and Shanghai. An ERA trade show in Shanghai drew 41 exhibitors and more than 600 Chinese registrants from 197 companies.


"The show was so crowded that it was like being at FAO Schwarz," said Elissa Myers, the CEO of the Arlington, VA-based trade association. "The people who were with me felt like kids in a candy store."


The show was sponsored by ERA-China, a joint venture between the US association and CCTV, a semi-governmental body that oversees most television activities in the country, Myers said.


"Cautious initiatives definitely are in order," said Lee Fredericksen, the CEO of Fredericksen TV, who attended the conference. "People in our business ought to be out there collecting information, forming alliances and gaining experience.


"The changes I have seen are already significant and they are ongoing, and once the market has really turned the corner the people on the ground will reap the rewards, and they will be substantial."


But speakers and attendees agreed that the rewards are still three to four years away. Still, prospects for profits are much greater today than they were even two years ago.


Myers credits the change in outlook to the gradual changes that have been implemented into the Chinese economy over the last 20 years.


Market forces have been growing in China throughout the '90s, she noted, but it was not until 1997 that integration of market principles into the economy were pushed, while last year the switch to a market economy was completed.


Much, she and others on the trip said, is dependent on Chinese membership in the World Trade Organization, which will introduce rules and regulations into China for the first time.


Membership, noted Jamie Florcruz, Time's China bureau chief and a speaker at the conference, "will guarantee US merchants, bankers, factories and farmers safe and rule-based access to what will someday be the largest consumer market in the world."


Per capita income in China's major cities such as Shanghai and Beijing is $1,500 a year, a pittance by western standards but 500 percent higher than in 1998 and six times the country-wide average.


Electronic retailers stand to profit more than most others for several reasons, Myers said. For one thing the Chinese opted for cable rather than terrestrial TV so that today 80 percent of the country has access to cable, even if much of it is family cable in apartment buildings.


For another the Chinese, although making progress in PC growth, are more likely to leapfrog PC technology and pick up the Web through cable TV and mobile phones. Forty million are already out there.


"There is a passion for cellular phones that almost defies all logic," Fredericksen said. "If anyone can afford one, he has one even though people are paying 50-60 cents a minute to use them, which is an outrageous price."


Some people, he added, buy two and three new cell phones a year, snapping up a new model as soon as it hits the market. "That tells me the technology is fulfilling another function beyond the utilitarian."


Cell phones have become an urban sign of status. They think their use makes a fashion statement. Motorola, one of the major cell phone producers in China, is likely to make money there faster than others.


Electronic selling has made solid progress. Last year TV stations sold 3,000 cars directly to consumers off the screen and expects to sell another 5,000 this year. Still, problems abound.


"The principal issue in China," Fredericksen said, "is that TV is not organized along the same lines as in the US. TV stations are not grouped into networks so you have different players selling through their own outlets.


"What ERA China has been trying to do is set up a common regulatory environment so everybody knows what the rules are. They didn't in the past and some low quality goods were sold on the air that hurt consumer confidence.


"Today TV stations recognize the need for guidelines in electronic retailing and they are enthusiastically trying to implement them. But bottom line is that China is undergoing tremendous change at different levels at once."


With all these changes superimposed on top of one another - economic, business, regulatory, infrastructure changes, from telemarketing to fulfillment - the Chinese are being exposed to quite a few products.


As a result, Fredericksen said, "you have to look out over several years" to appreciate the full impact of WTO membership and the spread of the Internet and e-commerce.


Selling into China is not easy, given current regulations, selling price requirements and client concern about misused intellectual property rights.


"When you're looking at international distribution you should look at the rest of the world one way and China as a separate market requiring a separate approach.


"Yes, people got burned a few years ago and you don't want to be in the first wave that makes all the mistakes, but to learn from the mistakes of the first burned victims. China is an opportunity waiting to unfold." n
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