For businesses aiming to access the vast potential of these swiftly expanding urban centers, conducting market research in China’s second-tier cities is becoming more and more essential.

The attention has now turned to the untapped potential that lies within China’s second-tier cities, as first-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen have reached their saturation points. Businesses are attracted to explore these emerging urban centers due to their rapid economic growth, infrastructure development, and expanding middle class.

Overview of China’s second-tier cities

Over the past few years, China has undergone a wider economic transformation. To drive economic growth and development, China has depended on manufacturing and exporting. The policy’s success has led to soaring growth rates, flourishing wages, and the uprooting of millions of migrant workers from rural areas to mega-urban cities in East China.

China is expanding globally and developing its second and third-tier cities, frequently in the western regions of the country. Your company can achieve long-term success by entering these second-tier cities early. Cities in China with populations between 3-5 million and a GDP ranging from $70 billion to $300 billion are considered second-tier cities.

Hangzhou, Chengdu, Wuhan, Tianjin, Nanjing, among others, are some of China’s second-tier cities that are well-known. Although not having the same level of global recognition as their first-tier counterparts, these cities are experiencing tremendous growth in areas such as GDP, population, and infrastructure development.

Businesses seeking to take advantage of the distinctive opportunities offered by these emerging markets must conduct market research in China’s second-tier cities. Foreign and domestic companies are finding these cities more attractive due to rising disposable incomes, increasing consumer demand, and improved infrastructure. In addition, businesses can potentially achieve higher profit margins by operating in second-tier cities, which typically have lower operating costs and less competition than first-tier cities.

What are China’s Second Tier Cities?

  • Wuhan

  • Chongqing

  • Chengdu

  • Changchun

  • Changsha

  • Dalian

  • Fuzhou

  • Harbin

  • Hefei

  • Jinan

  • Kumming

  • Nanchang

  • Nanjing

  • Nanning

  • Ningbo

  • Qingdao

  • Shenyang

  • Shijiazhuang

  • Suzhou

  • Taiyuan

  • Wenzhou

  • Wuhan

  • Wuxi

  • Xiamen

  • Xi’an

  • Zhengzhou

Understanding China’s second-tier cities

Market research in China’s second-tier cities provides valuable insights into the local market landscape, consumer preferences, and potential growth sectors. Here are some key aspects to consider when seeking to understand China’s second-tier cities:

  • Second-tier cities often have lower operating costs, less competition, and untapped market potential than first-tier cities. They also serve as regional hubs, connecting businesses to the broader market within their respective provinces or regions. Moreover, these cities are witnessing rising disposable incomes, expanding middle-class populations, and improved infrastructure, making them increasingly attractive markets for foreign and domestic companies.
  • While second-tier cities are experiencing rapid growth, they may not yet possess the same level of global recognition, infrastructure development, or economic clout as first-tier cities. Additionally, consumer preferences and market dynamics can differ significantly from those in first-tier cities, requiring businesses to tailor their strategies accordingly.
  • Second-tier cities present unique challenges, such as data availability and reliability, linguistic and cultural barriers, and rapidly changing market conditions. However, businesses that successfully navigate these challenges can capitalize on the vast opportunities offered by these emerging markets.

Why are second tier Chinese cities 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 second 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 opportunities 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, policies, 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 promote domestic consumption.

Policy measures suggest that China seeks to develop Western rural areas to reduce cost pressures on manufacturers while providing more opportunities for workers.  The plan also suggests that domestic consumption is a way to make economic growth more sustainable.

Key industries and opportunities in China’s second-tier cities

Market research in China’s second-tier cities provide invaluable insights into the key industries and opportunities that these emerging urban centers offer. As these cities continue to develop rapidly and their middle-class populations expand, several industries are expected to grow, attracting both domestic and international businesses. Here are some key industries and opportunities in China’s second-tier cities:

  • Retail and e-commerce: With rising disposable incomes and increasing consumer demand, the retail and e-commerce sectors are experiencing substantial growth in second-tier cities. Market research can help businesses identify specific consumer preferences, popular product categories, and the most effective distribution channels to capitalize on this expanding market.
  • Real estate: As second-tier cities undergo rapid urbanization, there is a growing demand for residential and commercial properties, as well as infrastructure projects. Market research can help investors and developers identify emerging real estate hotspots, analyze market trends, and assess the potential risks and returns associated with various projects.
  • Manufacturing and logistics: Second-tier cities often serve as regional hubs for manufacturing and logistics due to their strategic locations and improving transportation infrastructure. Market research can help businesses identify suitable locations for manufacturing facilities, evaluate the local workforce, and optimize their supply chain operations.
  • Technology and innovation: As the Chinese government continues to promote innovation and technological advancements, second-tier cities are emerging as centers for research and development, startups, and tech companies. Market research can help businesses identify local talent, partnership opportunities, and potential investment targets in these thriving innovation ecosystems.
  • Tourism: With their rich cultural heritage, natural attractions, and improved tourism infrastructure, second-tier cities are becoming increasingly popular tourist destinations. Market research can provide insights into visitor preferences, popular attractions, and potential gaps in the market for new hospitality and tourism businesses.

Challenges in conducting market research in second-tier cities

  • Data availability: In comparison to first-tier cities, second-tier cities may have less available and reliable data, making it more difficult for businesses to conduct accurate market research. In some cases, official data sources may be outdated or incomplete, requiring businesses to rely on alternative sources of information or conduct primary research to fill in the gaps.
  • Linguistic and cultural barriers: Second-tier cities often have more distinct regional languages and dialects, as well as unique cultural practices and traditions, compared to first-tier cities. These differences can create challenges for market researchers in understanding local preferences, conducting interviews, and interpreting data.
  • Regulatory constraints and government policies: Businesses conducting market research in China’s second-tier cities may face different regulations and government policies compared to first-tier cities. These may include restrictions on data collection, reporting, or the use of certain research methodologies.
  • Rapidly changing market conditions: The fast-paced growth and development of second-tier cities can lead to rapidly changing market conditions and consumer preferences. This can make it challenging for businesses to stay up-to-date with the latest trends, requiring continuous monitoring and adaptation of their market research strategies.

Future outlook for market research in China’s second-tier cities

The future outlook for market research in China’s second-tier cities remains promising as these urban centers continue to experience rapid growth and development. As more businesses recognize the immense potential of these emerging markets, the demand for market research is expected to increase, providing valuable insights to help companies make informed decisions and capitalize on opportunities. Here are some key factors shaping the future outlook for market research in China’s second-tier cities:

  • Population growth: The ongoing urbanization and population growth in second-tier cities will continue to drive demand for goods and services, fueling the need for market research to better understand local consumer preferences and identify growth opportunities.
  • Government support: The Chinese government has been actively promoting the development of second-tier cities through favorable policies, infrastructure investments, and initiatives to attract businesses and talent. These efforts will likely lead to increased interest from both domestic and foreign companies, further boosting the need for market research.
  • Technological advancements: The adoption of advanced technologies such as big data, artificial intelligence, and the internet of things will enable more sophisticated and accurate market research methodologies in second-tier cities. This will help businesses gain deeper insights into local markets, identify trends, and make more informed decisions.
  • Increasing competition: As more businesses enter second-tier cities, competition will intensify across various industries. Market research will become even more critical for companies to stay ahead of competitors and adapt to the rapidly changing market landscape.
  • Growing middle class: The expanding middle class in second-tier cities will lead to increased demand for higher quality products and services, creating new opportunities for businesses. Market research will play a crucial role in helping companies identify these opportunities and develop targeted strategies to cater to this growing consumer segment.

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.  Oftentimes, 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.

About SIS International

SIS International offers Quantitative, Qualitative, and Strategy Research. We provide data, tools, strategies, reports and insights for decision-making. We conduct interviews, surveys, focus groups and many other Market Research methods and approaches. Contact us for your next Market Research project.