Consumer products business in 'disruptive innovation'

The consumer products industry is in the process of "disruptive innovation", according to Ira Kalish, director of Deloitte Institute for International Economics, following a report issued on Thursday by Deloitte Touche Tohmatsu Limited.

The report said that although emerging markets such as China offer major growth opportunities for global consumer products companies, they also face enormous pressures as intense price competition, wage inflation and rising real estate costs are squeezing their profitability.

As competition becomes fiercer, companies are looking beyond traditional models to develop business, according to Kalish in an interview with China Daily on Thursday.

"The traditional business model is dead," he said. "Now customers are buying online. They are buying from mobile commerce. They get information about products through social networks. Actually, they pay attention to the views of other consumers through social networks rather than TV commercials and newspaper."

For example, Kalish said, electronic products companies in the United States are suffering because consumers increasingly buy products online from websites such as Amazon. Consumers are also more likely to shop on the basis of price rather than brands, he said.

According to Lawrence Hutter, global leader of consumer business & transportation industry at Deloitte: "Consumer products companies whose business is based in the United States tend to look at China as a place that's easy (to make money), but it's not."

"The Chinese market is very competitive. Local consumer products companies produce very good quality products at a very keen price," he said.

Foreign corporations such as Samsung, Nestle, Procter & Gamble and Apple occupy the top spots of the consumer products companies ranking, according to the report, based on figures for fiscal year 2010, which ended on May 2011.

No Chinese companies were listed in the top 30, but are rising. Three Chinese companies - GD Midea Holding Co Ltd, Gree Electric Appliance Inc of Zhuhai and Sichuan Changhong Electric Co Ltd - are listed among the 15 fastest growing companies.

When asked to comment on recent media reports that electronics retailer Gome Electrical Appliances Holding Ltd may join hands with Dangdang Inc, a major Chinese online retailer, in light of increasing competition from other electronics retailers such as Suning Appliance Co Ltd, Hutter said the integration of the traditional retailer and e-commerce is a global trend.

However, he noted that the in-store experience is critical in terms of attracting customers to the brand. "As consumers become increasingly sophisticated, they will recognize the importance of service elements. We expect retailers to provide a much stronger service element as back up to the products they supply, deliver, store and maintain," he said.