As the new generation of consumers on the Chinese mainland is pursuing home improvement and higher quality of life, it creates new demand and market opportunities. How can Hong Kong companies grasp these opportunities? What are the advantages of Hong Kong products and services?

The mainland housing market has been a consumer hot spot in recent years. Due to the Chinese traditional belief that land is the source of wealth and home is the physical symbol of a family, most Chinese people attach great importance to owning their homes. Since the abolishment of the welfare-based public housing allocation system by the mainland authority in 1998, the ratio of private-owned residential units has been on the rise. Currently, the average privatisation rate of residential units in mainland cities and towns reaches 80%, which is among the highest in the world.

As more and more people own their homes, and with the improvement in living standard and cultural accomplishment, mainland consumers are becoming more and more demanding where their living environment is concerned. This has in turn boosted the demand for home improvement products and services. According to estimates of the China Building Decoration Association, the total output value of the mainland building decoration industry amounted to around RMB 1,000 billion in 2005, of which the home decoration and renovation sector accounted for RMB 600 billion. By 2010, the annual output value of China's building decoration industry is projected to reach RMB 2,100 billion, 70% of which will come from the home decoration and renovation sector.

The new generation of middle-class mainland consumers not only wants a spacious and comfortable place to live in, they also attach great importance to home improvement, which can make the home more cosy and attractive, reflecting their tastes and personalities. In purchasing furniture and home decorative items, price is not the most important consideration of the mainland consumer. Rather, whether the products match the overall living environment (e.g. colour and style) is of paramount importance. Therefore, they are willing to pay more for the right product. The findings of TDC's survey on the new generation of mainland consumers show that 70% of the respondents are willing to spend on improving their living conditions, and find it worthwhile to do so. More than 40% of the respondents had carried out or planned to carry out home renovation work in the past year.

The home improvement sector can be divided into several sub-sectors according to the materials used (different from building materials used in the construction sector, such as cement), products and services. They include building ceramics and sanitary ware, soft decorations, furniture and lightings, and interior design and decoration services. In spending on home improvement products, while consumers do not always go after famous brands, they do place emphasis on brand, quality and style, and are increasingly favouring mid- to high-end products and services.

The mainland building ceramics market is largely dominated by domestic players. Mainland building ceramics enterprises are well-developed and many of them are listed companies with advanced production technologies. In order to increase their market share, these enterprises keep offering a great diversity of products. This, coupled with their low cost brought about by mass production, has made it difficult for foreign products to compete. In the sanitary ware market, foreign brands are leaders in the topmost and middle- to high-end segments. Foreign brands like American Standard and Kohler of the US and Toto of Japan made their entry into the mainland market in the 1990s and have by now established extensive sales networks across the country. As for domestic enterprises, while most of them dominate the low-end market attracting customers with extremely low prices, some have begun to break into the mid- to high-end market in recent years. Since sanitary ware is a rather high value-added sector, it requires more inputs in terms of production technology, R&D and marketing. In Hong Kong, building ceramics and sanitary ceramics production are not the strengths of its traditional light industries. Only a few Hong Kong companies are engaged in this business, and there is a shortage of personnel with practical experience or an apprentice background.

Soft decorations include household textiles and fabrics (such as curtains, cushions and beddings), and ornaments and utensils (such as photo frames, stationery, vases, ornaments and certain kitchenware). They are an extension of hard decorations and a medium of personal expression. As mainlanders attach more importance to decoration than renovation, the market potential for soft decorations is huge. Hong Kong, with its well-developed textile industry and a number of renowned household textiles brands, has established a strong presence on the mainland. Currently, competition in the mainland market is not too fierce. There are not that many outstanding home decorative items created by mainland designers, who are constrained by their limited exposure. And as consumers go after quality products, the low cost in the mainland does not offer any advantage. Meanwhile, for Hong Kong manufacturers, who have strong design capabilities and the ability to offer a great variety of innovative, trendy and personalised products at reasonable prices, opportunities abound.

Furniture is a relatively developed industry on the mainland, and market competition is steep. It is estimated that at present there are about 50,000 furniture manufacturing enterprises in the country. Consumers tend to be cautious in purchasing furniture. When making a purchase, consumers often have an idea on choosing what grade and quality of furniture but seldom specify a certain brand. Quality, design, workmanship, style and promotion, areas in which Hong Kong manufacturers excel, are the key to success in the furniture industry. However, Hong Kong suppliers should take note that mainland consumers of different age and income groups have different preferences for the grades and styles of furniture. Small furniture pieces that can match different home styles are expected to have greater market potential. However, gone are the days when mainland consumers blindly went after Hong Kong furniture. Hong Kong companies must understand the different needs of consumers in different regions and rely on their own strengths to stay ahead of their competitors.

In the home design and renovation services sector, traditional home renovation companies and new home renovation companies (which offer one-stop service including design, materials purchase/production and implementation) on the mainland can provide quality service at low prices to meet the demands of the majority of consumers. Opportunities for Hong Kong lie in providing high value-added design consultancy services to big clients such as luxury home owners and designing show flats for developers. These clients do not care much about the price and all they are after is top quality homes to boost their status. Hong Kong interior designs, incorporating sophisticated international elements, enjoy a good reputation on the mainland. They are superior to mainland designs which still have a long way to go to catch up. In developing the mainland market, Hong Kong designers can first build up their names by capitalising on the cheap labour on the mainland to provide supporting services such as customer relations, coordination and drafting, before expanding into major cities or second- and third-tier cities on the mainland.

Given the demands of different sectors in the mainland's home improvement market and the competition situation, Hong Kong has a better chance of success in the areas of soft decorations, furniture and interior design:

For Hong Kong companies selling products to the mainland, the choice of distribution channels is very important. Currently, building materials marts operating on a tenancy system and emerging building materials supermarkets are springing up in the more developed coastal cities. Hong Kong companies can also choose to sell at traditional department stores or their own retail stores. All these channels have their own positioning, advantages and drawbacks. For instance, they provide different grades of products, different services and have different requirements for their suppliers. Hong Kong companies can choose suitable distribution channels according to their product category and strategy. Also, it should be noted that the mainland implements different rules and regulations governing various home improvement products and services, covering such areas as company establishment, production processes, product specifications and certification. The environmental protection policies and regulations introduced by the mainland also have an impact on Hong Kong manufacturers, and are worth noting.

All in all, Hong Kong companies should consider the following factors when devising strategies to develop the mainland home improvement market:

• One characteristic of the home improvement industry is that it must meet local needs. As different regions on the mainland differ in terms of living habits, preferences, climate and living environment, the differences in their requirements for products/services, functions, appearances, etc may be great. Hong Kong companies should have a good understanding of the local conditions and may even have to educate the consumers.
  
  
• Since it is very difficult for Hong Kong companies to compete with mainland manufacturers on price, Hong Kong players should leverage on quality to stay ahead of their competitors. Although mainland consumers already have the impression that Hong Kong products are better in quality than mainland products, still the prices of Hong Kong products should not be set too high. In terms of pricing policy, Hong Kong companies should offer top quality products at reasonable or low prices.
  
  
• First-, second- and third-tier cities (inland provincial capitals and other economically developed cities) are markets with good potential. As Hong Kong companies seldom have their own retail channels and their relationships with mainland retailers are not too strong, they may consider opening stores in the form of franchise operation. It should be noted that they must select their mainland partners carefully or the reputation and image of their brands would be tarnished.
  
  
• To make an impression on mainland consumers, Hong Kong companies can open retail stores, place advertisements, conduct promotional and sponsorship activities at the retail level, and actively participate in well-known brand or top 100 enterprises contests. Moreover, they can conduct targeted promotions and participate in trade fairs and events to network with corporate clients.