China’s economy has been in broader economic transformation over the past few years. China has for the past decade or so has relied on exporting and manufacturing to drive economic growth and development. The success of this policy has helped growth rates to soar, wages to flourish and millions of migrant workers to uproot their lives from rural areas to mega urban cities in East China.
Now, China is expanding globally and developing its 2nd and 3rd tier cities, often in the Western areas of China. Entering these 2nd tier cities early can mean longterm success for your company. China’s second tier cities are defined as cities with a GDP between $70 billion and $300 billion and with populations between 3 -5 Million people.
What are China’s Second Tier Cities?
Why Second Tier Chinese Cities are Booming
Opportunities and development have traditionally occurred in populous, prosperous Eastern urban areas. Because of these changes, inflation and competition for employment have soared. At the same time, other countries in the region such as Vietnam and Cambodia have become increasingly price competitive with China in manufacturing. For many manufacturers, consumer prices remained steady or fell due to rising competition, but costs tended to go up due to inflation and rising wages in Eastern Chinese coastal cities and urban areas.
Manufacturers are under more pressure than ever to turn a profit. Some believe that potential labor conflicts such as high profile ones at Foxconn, a leading manufacturer for Apple, may be examples illustrating how pressures in the Chinese Eastern coastal cities can impact returns and competitiveness.
Benefits of Entering 2nd Tier Cities
Second Tier cities have high levels of development, but are not considered global cities. They have amenities consistent with large cities, but may have less developed infrastructure and a few more hurdles in doing business. Below are the advantages in considering 2nd Tier cities.
- More opportunity for longterm Customer Loyalty
- Sizable consumer base
- More opportunity for growth
- Lower production cost
- Lower cost of living
- Less saturation of competition
- Less traffic and congestion
- Less competition for attracting and retaining talented employees
Western China Presents New Opportunities
China has launched measures to develop other parts of China through programs, policy, and Free Trade Zones. While it was largely glossed over in the West, the plan communicated in subtle terms China’s leadership’s vision for economic transforming to a new sustainable economic model. China’s economy is aiming to place a greater focus on jobs, development less developed areas of the country to help reduce inflationary pressure and lost exporting competitiveness, and to promote domestic consumption.
Policy measures suggest that China seeks to develop Western rural areas to reduce cost pressures on manufacturers while providing more opportunity for workers. The plan also suggests that domestic consumption is a way to make economic growth more sustainable.
About Market Research in China’s Second Tier Cities
Conducting Market Research in 2nd tier cities can be more challenging than in main cities like Beijing and Shanghai. Infrastructure is less developed, and finding targeted professionals can be challenging. Often times, recruiting participants for studies involves relationship building and educating respondents on why companies conduct Market Research. Face to Face research remains important. Focus Groups and Central Location tests can be effective in these cities.
