SALES AND DISTRIBUTIONIN CHINA’S RESIDENTIALWATER TREATMENT MARKET

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Sales and distribution in China’s Residential Water Sector

What you will learn

China has major water pollution problems

Of China’s 634 rivers, lakes and reservoirs: 40% are not potable part of the year, and 5% are not potable year round

Source: China Water Risk

Source: China Water Risk

Chinese groundwater

And it’s not just the water sources…

“The water leaves many municipal water treatment plants in good quality. The biggest problem is the distribution network, which is usually aging and not well maintained in some areas.”

Dr Li Lei, Assistant Professor at Tongji University, Shanghai

Source: China Water Risk

What is the government doing about it?

New Chinese Municipal water standard GB 5749 has raised the number of water quality parameters from 15 to 106

Drinking water safety is taking increasing precedence in legislation

90,000 kilometres of urban piping is being replaced

2016-2020: $300 billion worth of policy-driven investment in the water sector

The bottom line: municipal water remains undrinkable

Government action thus far has been largely ineffective, with little tangible improvement seen

Chinese residents still have no choice but to seek potable water independently

Government action and investment

Weak rule of law

Incoherent nationwide approach

Rapid urbanization

So, what now?

Boiled water

Bottled Water

Residential water

treatment

Finding an independent solution

Boiled water used to be the only choice. It remains popular and is deeply engrained in Chinese culture

As consumer trust is low, the tangibility of this process is one of it’s advantages

Ineffective at removing heavy metals

Requires much consumer education to raise awareness as to it’s ineffectiveness

Boiled water

Bottled Water

Residential water

treatment

Boiled water

Bottled Water

Residential water

treatment

Emerged in China in the 1990s and 2000s as an alternative to boiling water

In 2014 China overtook the USA as the world’s largest bottled water market

Despite this, the industry has been shaken by a number of high profile scandals

Market growth forecast to slow between 2014-2019

Boiled water

Bottled Water

Residential water

treatment

Residential water treatment has emerged as the solution of choice among groups that can afford it

Penetration rates remain low but are beginning to rise

The industry is growing rapidly, and attracting a lot of interest from both domestic and foreign companies

In 2015, China is forecast to become the largest residential water treatment market in the world

Have Residential Water Treatment; 4%

Do Not Yet Have Res-idential Water

Treatment, 96%

Have Residential Water Treatment; 5%

Do Not Yet Have Res-idential Water

Treatment; 95%

Penetration rates

China (Overall) Urban China

Source: TechSci Research

Rapidly Growing

Residential Water

Treatment Market

Lack of municipal drinking water

solution

Other options not

sustainable

Increasingly affluent urban

public

Increasingly aware urban

public

Source: Xylem Inc.

Urban residents are more educated and aware than ever before, and overwhelmingly categorize their country’s water problems as serious

Urban residents are more wealthy than ever before, and overwhelmingly respond ‘Yes’ to the question “Would you pay more to be able to drink potable water directly from the tap?”

2012 > 2013: 20% growth

2013: Residential water treatment market estimated at approximately $2.7 billion

2017: After-sales market alone forecast to reach $1.9 billion, total market nearly $15 billion.

2019: Market value forecast to reach $20 billion

China Residential Water Treatment Market Value ($bn)

A rapidly growing market

Market is highly fragmented

Consumers lack knowledge about different products available and how they work

Chinese consumers’ purchasing decision is driven by a lack of trust, so consumers are heavily reliant on a brand

Consumers tend not to be brand loyal

Source: TechSci Research

The residential water treatment market

Influx of foreign and domestic competitors, now over 3,000 companies in the market

Most companies in the market selling POU devices

Aquatech Shanghai has become the world’s largest water technology exhibition since its inception in 2008

‘Aquatech’ Shanghai Exhibitor Numbers

0

500

1000

1500

2000

291396

523

796921

1156

1376

2000

A market attracting much interest

*Projected

“Aquatech China has seen huge growth in the past seven years, from less than 300 exhibitors to over 1300 exhibitors in 2014. In 2015, we will

reach 2,000 exhibitors.”William Wang, Manager at CHC Expo (Supporting Partner of Aquatech China)

The focus has traditionally been on 1st tier cities as they have the highest purchasing power

Wealthy urban households were traditionally, and remain, the main growth drivers in the market, but this group are no longer confined merely to 1st tier cities

The spread of the internet, better delivery networks and development is opening up new markets for foreign residential water treatment products, particularly in 2nd and 3rd tier cities

Most foreign companies still consider 1st tier cities as the best starting point from which to enter the Chinese market

Geographical segmentation

Source: Huidian Research

Market by area

“I think if you start in the 1st tier cities then you begin to understand quite quickly whether you’ve got the branding, the pricing. You need to learn. This will be a long-term project.”

Andrew Dahl, Managing Director at KLT Filtration

1st Tier Cities 2nd and 3rd Tier Cities“We do not only focus on coastal provinces. We have requested our distributor to expand the market coverage to 2nd tier cities. The demand for good and reliable products in developing cities is larger than in developed cities.”

Sandy Tsai, Business Development Manager for Asia/Oceania at Oasis

…Further“The majority of our products can be found in the majority of provinces. We are also expanding further, for example, to Tibet. We cover, let’s say, 85% of China.”

Jeremy Liu, China Business Development Manager at Rainsoft

Breaking boundaries

Foreign products usually command a 300% or 400% price premium over their Chinese competition, although sometimes this is as high as 800%

Domestic companies are becoming increasingly competitive and innovative

Chinese companies will usually focus on competing on price

Chinese consumers are willing to pay a premium for peace of mind. They do not trust Chinese brands and automatically regard foreign products as both reliable and better quality

Foreign and domestic offerings

Focus should be on differentiating your product from domestic offerings as far as possible, leveraging your foreign brand name to its full extent and offering what domestic brands don’t

Differentiating from domestic offerings

“I would rather say we compete with our competitors on performance. We also always use the best materials and components.”

Laurence Dai, China Business Development Manager at Rainsoft

“The difference from product to product is so large so sometimes they [Chinese consumers] have to rely on brand.”

Laurence Dai, Chinese Business Development Manager at Bluewater

Branding is more important than ever as the market is increasingly confused, and smarter consumers are carrying out more extensive pre-purchase research

Online is becoming a more important sales channel

Emphasize the quality, performance and foreignness of your product

Focus on offering after-sales service, educating the consumer and building trust

Marketing your foreign product in China

Although some parts of the Chinese population are increasingly well-educated and aware, many consumers are not aware of:

The severity or extent of China’s water pollution

The effect that drinking polluted water has on their health

That some methods of making water potable are simply ineffective given the severity of China’s water pollution, such as boiling

The residential water treatment systems that are available and how they work

The importance of education

Some slight product modification may be necessary due to specific market requirements in China

Concerns of Chinese residents are centered on potability, whereas in developed markets reducing water hardness and odor/taste improvement is more relevant

Some choices may not be suitable for offering the Chinese market, such as the trade-off between removal capability and flow-rate

Product adaptation to local market

Distributing and selling your products in China

You can use distributors without needing to use a joint-venture or even have your own entity to sell in China

Having a local presence is essential to reach your sales potential

Before doing anything, ensure to manage your IPR “in China, for China”

Biggest cause of intellectual property infringement in China is negligence on behalf of foreign companies

The Madrid Protocol is not sufficient protection, you should work with a local law firm specialized in your industry

There are numerous things you can do to ensure optimal IPR protection. Examples include conducting due diligence on your distributors or manufacturing IPR-sensitive parts abroad whilst manufacturing basic components in China

Work with multiple trusted suppliers and assemble your final product in a secured assembly space

Intellectual property rights protection

Trade fairs

Chambers of Commerce

Service Providers

There are an increasing number of water related trade fairs in China Make sure to adequately protect intellectual property before attending Distributors are often looking for a final product rather than a single component

Host industry-related events and trade missions May be able to assist in the distributor search Organize events and trade missions Advice given may not be industry-specific

Using a service provider to find distributors provides the essential due diligence Often have extensive distributor databases and local expertise Use a service provider with specialist knowledge of your industry Find out more about our solutions here

Finding your distributors

Do not work with one exclusive distributor, to avoid transferring too much power and leverage

Work with a web of regional distributors who are each well grounded in their respective local markets

Ensure to conduct thorough due diligence on all your future partners in China

The largest distributor not necessarily the best, servicing too many clients and commanding too much leverage

Selecting your distributors

Distributors in China are unsophisticated, often focusing on price

Your product’s real selling points will often be overlooked if not managed properly

Chinese distributors are known to favor the company that offers the highest commission

Chinese distribution channels

Distributors need local support

Provide continuous training, support and management on the ground to avoid common mishaps and reach your sales potential in China

Essential if you want full control of your brand and direction

Constant management and supervision offers increased IPR protection

Benefit from first hand information and communication by having a presence in China

Gain more insights on how to successfully distribute your products in China.

Get in contact with us to learn how we can make you more competitive in the Chinese water technology market.

Visit our website: www.launchfactory88.comSend us an email: info@launchfactory88.com Give us a call: +86 21 6402 7352

Download our full report with case-studies of SMEs distributing in China here

Need to have local entity or Chinese representative to obtain certification, but we strongly advise you not to have your distributor register your products

All products entering China have to comply with standards set by the General Administration of Quality Supervision, Inspection and Quarantine

Residential water treatment products, of all types, must receive Ministry of Health approval

If equipped with an electrical supply, Chinese CCC (3C) certification is also required

Obtaining local product certification

Qualification Testing Permit Approval

Time and cost taken to successfully register your product varies widely, and is mainly dependent on your understanding of the system. Using a local contractor can significantly speed up the process

3 – 6 months* 2 months* 3 months*

Obtaining Ministry of Health approval

*Timeframes given are based on the use of a contractor

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Launch Factory 88 supports industrial SMEs in the water technology sector to increase their sales and become more competitive in the Chinese market. We do so by offering two core services; a distribution support platform and localized manufacturing and assembly.

Launch Factory 88 is part of the CHC Group which was established in 1998 by two Dutch entrepreneurs and has since then developed multiple market leading companies in diverse industries in China. We help your company succeed in China using the same careful methods we employed to build our own businesses.

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