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In China, it’s not just factories

Services sector, for the patient, may prove to be a gold mine  PLAY AUDIO

Oct 16,2006

Eigenpost apparel from Korea’s SK Networks Co. on display at a department store in central Shanghai. By Seo Ji-eun

SHANGHAI ― Strolling through downtown Shanghai, a number of brands familiar to Korean visitors stand out. To name just a few, there is Paris Baguette, a bakery chain; Wa Bar, a bar franchise; E-mart, a discount chain; and BBQ, a fried chicken chain. Those Korean retailers, along with many others, are beefing up their presence in China, one of the world’s fastest-growing markets. As of late 2005, eight of 10 Korean businesses in China were manufacturers; retail and service firms accounted for just 12 percent, according to the Export-Import Bank of Korea. Analysts say the retailing and service sectors have doubled in size in the past three years and the prospect for growth is higher than in manufacturing. Meanwhile, Korean investment in manufacturing is predicted to wane in China. “China is accelerating its move to open up its service market and increase domestic demand,” said Chung Sang-eun, a senior researcher from the Samsung Economic Research Institute. The opportunities are there, it appears. The Chinese government recently announced plans, for example, to create 1,000 large international service enterprises. For Korean service industries faced with saturation at home, the move may be a golden opportunity in the world’s No. 4 economy. Korea’s geographic proximity and cultural similarity to China gives it a global edge, Mr. Chung added. Kim Heung-soo, president and chief executive of Oriental CJ, a joint venture between Shanghai Media Group and Korea’s CJ Homeshopping Co., said Korean service providers are unique. “The hospitality service level of Korean firms has naturally evolved to meet sophisticated customer demands,” Mr. Kim said. “There are no other consumers in the world as fastidious as Koreans. If anything goes wrong with the service, they tend to head directly to the Internet to complain.” Oriental CJ approached Chinese consumers by trying to build trust rather than to turn immediate profit. “Before our entry two years ago, the TV was overflowing with info-mercials for almost a decade that mostly delivered false and exaggerated information on products that failed to guarantee after-sales service. Accordingly, the majority of consumers had an extremely negative view of TV home shopping,” the CJ executive said. Unlike Korea, the Chinese branch of Korea’s leading homeshopping firm broadcast only taped programs, according to Mr. Kim. Live shows urge impulse buying by persistently reminding viewers how many goods have been ordered, and how many are left. Taped programs only convey accurate information about the product, which leads to less emotional spending. That different tactic meant that only 10 percent of goods were returned in China, which is 15 percentage points lower than the level in Korea. Another example of a corporate venture into the Chinese retail sector, but using different marketing tactics, is SK Network Co. The trading arm of SK Group currently operates a casual apparel chain, Eigenpost, thought of by Korea’s 20-somethings as a brand comparable to Giordano of Hong Kong and Gap of the United States. To promote Eigenpost in China as a premium female brand, SK Networks put higher price tags on its China line. It also refurbished garment design for the Chinese market after a year-long research effort. For Chinese shoppers, primary colors and showy patterns were adopted; in Korea, by contrast, clothes under the same brand are known for their simplicity. The new brand was well received by the target audience in China and by last month, within a year of its entry, there were 21 Eigenpost outlets in department stores across the country. “At first some industry insiders suspected that we were simply trying to lure the younger affluent females into buying Korean clothes that are currently considered the most fashionable here,” said Lee Kwan-soo, managing director of SK Networks’ China fashion division in Shanghai. “But if this brand is successful, we intend to foster it as an international brand, exporting to other Asian countries and to bigger markets. We may also consider launching second and third brands, using China as an outpost for forays into bigger markets.” Fashion can be a useful tool for understanding the minds of Chinese consumers, Mr. Lee noted. Consumer patterns in the fashion business may be useful sources of information for other businesses run by SK Networks in China, such as gas stations and automobile repair. Kim Eung-kwon, vice general manager at the China operation of CESCO Co., a vermin-extermination service company, agreed that patience is necessary to develop the market. “Even when you are skilled and competitive, what should be considered first is if the market is ready to accept you,” Mr. Kim said. “Despite the improvement of late, there are still many restaurants and food factories here wondering why stamping out noxious vermin is necessary.” He thinks expectations for enhanced sanitation will grow as the economy gallops forward, promising brighter prospects for his firm, which retains an 80-percent market share in Korea. by Seo Ji-eun


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