China Agenda -> Market Overview -> Culture Character

1   Consumer Awareness

1)  Health Consciousness
From “SARS” in 2003 to “Bird Flu.” in 2005, the immediate threat of death accelerated the shift of health consciousness of consumers from “remedial” to “preventive”. Thus the idea of healthy consumption has been built in the mind of the Chinese consumer over this period. That is, we should pay more attention to our health, including exercise, good sleep, balanced diet, and some health care products to improve our health condition when it is needed.

2) Improving Health Concept
Advertisers of health products have been cultivating the idea of “give presents is no better than give health” or ‘give health is good present’ . It has been widely accepted by consumers that consumption of functional foods will improve health and immunity from disease. But at the present, consumers in China, do not trust the health care industry and its products. They have begun to choose other healthy gifts such as physical examination card, body building card and so on.
Table 1: The Main Opinions of Consumers Regarding Health Care Products

3) Knowledge of Products
Consumers prefer health care foods and dietary supplements which have a clear and definite function. The market share of dietary supplement continues grow. Influenced by the media and advertisers, consumers are attaching importance to not only quality and brand, but function and scientific basis of health care products. In addition, because the regulatory policy on benefits of health foods is so rigid, consumers cannot learn easily how to choose health care products.

Table2: Results about Nutritional Knowledge of Health Products Questionnaire

4) Consumption Habits
For many reasons such as short period of products availability, most consumers don’t consume health care products on a regular basis. There are a few consumers who take the same brand of health care products for a long-time, but the faithfulness to one brand is rather low. But consumers also realize that some large enterprises which have high standards can be relied on, and the brand recognition and support is rather strong.

Table3: Research on Consumption of Health Care Products

2 Government Supervising
1) Supervising Department
Before 2003, the supervising department was MOH (Ministry of Health), which belongs to SFDA( State Food and Drug Administration). Other Departments also involved in the administration of health care products include the Administration Bureau for Industry and Commerce, the Administration of Quality Supervision, Inspection and Quarantine, and the Ministry of Commerce.  
 
      
2) Relevant Laws and Regulations
Laws and Regulations related to health care products include:

• Laws of Food Health
• Rules of Registration and Administration for Health Food (test)
• Regulation of Declare and Audit for Dietary Supplements (test)
• Temporary Regulation of Advertise Censor for Health Food
• Administrative Regulations of Direct Sale
• Regulations of forbidding Multi-layer Transit Sale
• Rules of Pre-packaging Special Dietary Food Label etc.

3) Supervising Status
By the special administration of health food rules and regulations, Government departments are making joint efforts to supervise the health food. Although the responsibility is begin to clarify, there are still some existing confusion and overlap. among departments.

The areas of responsibility are new and there is some lack of experience in the local Food and Drug Administration. From July 1 2005, State Food and Drug Administration began to assign the responsibility of health food registration to the provinces, but of the audit is rather slow.
There are also some deficiencies and gaps in the regulations. Under the Rules of Registration and Administration for Health Food (test), the development of herbal health food has been limited, with some products which have definite benefits and good quality not being covered. Although new benefits have been permitted, these will not be accepted for some time. There is also presently a lack of regulations for health care products and sexual health products.


3 Enterprises

• Marketing tendency
  1.1 Traditional Channel
  In recent years, sale achievements of large-scaled major enterprises have in general dropped, while their market share rise. Due to the implementation of Temporary Rules of Advertising Censor for Health Food, the advertising market has decreased for some single-product enterprises which depend on advertising propaganda; Sales of dietary supplements show a tendency of rising.
  
  1.2 Direct Sale Enterprises
  The regulation of direct sales has been forbidden by different departments after its introduction, and the upper limitation 30% for recompense also brings difficulties for reformation of enterprise. The potential for direct sale is high, and a large number of enterprises have applied for a direct sale certificate, causing a backlog (Except Avon), which has resulted in a significant drop in sales.

1.3 Instructing Sale Enterprises
The development of instructing sale stands is unclear. Beijing published firstly the rules of restricting to hold product instructing, and local governments have strengthened supervision to conference marketing consequently. Small companies are not doing well and facing the threat of bankruptcy and being swallowed up by larger companies. In addition, the market has reduced overall, and many professional managers have left large companies, and joined other companies.

1.4 Chain Company
Chain store pattern is the most competitive among all kinds of mature management. According to the experience of the international market and the special situation of China, Chain management is one of the major marketing channels for health care products in China. But at the present, it’s very hard for the development of chain stores of health care products, and many enterprises are closing one by one.

1.5 E-Business
The development of E-Business is limited by the development of the sector and the quality of products. Although it hasn’t taken shape, we should see the large impact of this technological reform to the business. A farseeing company represented by EYSKJ has increased their investment in E-Business again.

1.6 Other Marketing Pattern (direct sale on TV, direct sale by databases of magazines etc.)
These marketing channels are also developing into significant channels. But current limitations of technology, logistics, accounting etc., means there is a long way to go for development.

2) Developing Tendency
Since the introduction of regulations such as the Regulation of Registration Administration for Health Food, Regulation of Administration to Direct Sale and affiliated rules, the entrance is harder and supervision is more strict, which make a lot of middle and small sized company either exit or unite. There are three major shifts of investment in large enterprises:
2.1 Some large health care enterprises have invested in other areas- for example, Shi Yuzhu has invested in web game.
2.2 Some large pharmaceutical enterprises have begun to invest in health care products- for example, Merro of Dalian, Xiuzheng Health Products and Haoyao Group increased their investment in health care products.
2.3 Foreign companies have invested in China market- for example, ?Nu skin, which has business in China, has increased its investment by 100 million. Many mainstream American enterprises have opened business offices in Beijing , Shanghai and so on.

3) Major Problems
3.1 The funding for research and development is limited, for many reasons- ?company lack of fund for research and development, lack of intellectual property rights protection, and some enterprises’ short-sighted action by chasing over-profits.
3.2 Overcapacity and low technology - many health food enterprises used up their resources to acquire GMP. The number of enterprises is far beyond the demand of market. Due to the lack of resources, the enterprises have not been able to take advanatage of the new technology ?The expertise and knowledge required for the high tech manufacture is limited so quality has not improved greatly yet.

3.3 Lack of ?Human Resources and Marketing Expertise
The prime problem of human resources in the health care industry is that the overall quality of product is generally poor. At the present, the health care industry is not regarded as credible, and many with good expertise are reluctant to to enter into this field. Those with good skills, including marketing skills, who are well tained and innovative, prefer to work in other sectors.

4 Third party institution
1) Industrial Association
As an independent organization, the China Health Care Association has been established as a leading industry organisation in 2004, and has become a bridge between governments and enterprises. Since then, great contributions hve been made on aspects such as developing industry standards, implementing self-discipline and self regulation, developing building credibility and reputation, honesty and trust, promoting communication between enterprises, and assisting companies to become established.

2) Media
Media is always looking for breaking news and updates in the market trends, and so it has become the major channel for a company’s promotion strategy. At the same time, in the action of consolidation by relevant Governemnt departments, the media is watching closely. All in all, the media has played an important tole in getting consensus. 

3) Consulting Institutions
Because of the immature health care industry, consulting institutions have not included practical experience of this market in their consultation servcies. In addition, the investment and resources are limited, so development in this area is slow. But the Shuzheng Health Consulting Company, which consisted of expert in marketing and consulting, shows its great and fast development in this field, and it has become an invaluable force by helping the decision-making of government, enhancing the managing level of enterprises, and promoting the development of the health care industry.

4) Instructing and Training Institution
All kinds of educational and training courses have been developed with certificates in nutrition, and nutrition and health care director, to respond to the new market in health care. Before the industry criteria and standards came out, training institutions have taken advantage to snatch their share of market, so as to accumulate experience and capital in the initial stage of the market.  
 Source provided by SuZheng.