Venture Sprout

TravelDaily.cn published an article that highlights the growth potential of the China market, but cautions that foreign businesses will have challenges penetrating this market. Read the article here at ChinaTravelTrends. The article was largely based on speeches and interviews conducted at the 2009 China Travel Distribution Summit in Shenzhen, which I attended.

Here’s a quote from Cyril Ranque, Expedia VP of partner services group at Expedia Asia-Pacific:

“It’s all about making it relevant for the local market,” he said. “For multinationals like us that’s hard to do, because we’ve been successful by rolling out processes and systems. And whatever we know from the outside that has worked to expand in the western world is not going to work here.”

Winning in China is “a pure execution game” rendering many of the advantages foreign brands have secondary to raw execution, claims Fritz Demopolous, founder and CEO of Qunar.com:

“Look at Expedia’s failure,” Demopolous says. Expedia owns online travel agency eLong.com, but has only been able to corner 10 percent of the market, compared to 57 percent for Ctrip, according to iResearch. “I don’t think there’s one company that has done well, but that’s not to say that looking forward, a foreign company may not do well.”

As Demopolous explains it, a successful online venture requires capital, technical knowledge and local expertise. Chinese companies have access to as much capital as a foreign competitor, he says, and the proliferation of open source technology lowers that barrier to entry.

“In the consumer internet space, knowledge and capital are free flowing,” Demopolous says. “Domestic companies aren’t at any disadvantage at all online. It’s a pure execution game, a numbers game.”

Some of the stats quoted in the story:

Market Growth:

• Travel bookings in China: $65 billion by 2011 (source: PhoCusWright)
• Online % of total Travel bookings in China: 20% (source: PhoCusWright)
• Growth in tourism revenue, 2009: 8% (of course, the magic 8%!) (source: CNTA)
• Growth in travel bookings, 2009: -4% (PhoCusWright)
• Growth in travel bookings, 2010: 5% (PhoCusWright)

Outbound Tourism:

• Outbound trips from Chinese mainland travelers: 50 mm in 2009 (source: Chinese National Tourism Administration CNTA)

Online Travel Agency (OTA) Market Share:

• OTA market share: 57% Ctrip, 10% eLong (source: iResearch)

My opinion:
Its indeed true that most large Internet players have not succeeded in China. However, many other operational businesses and branded businesses have: Yum Brands, General Motors, NBA, Starbucks, Dell Computer, even Microsoft. I think pure local market businesses that facilitate sales of domestic products and services to domestic customers will be difficult for foreign companies to compete and win. But cross-border businesses where there is an international brand or international services *can* be arenas which foreign companies can compete and win.

Source: PhoCusWright 2009 “Emerging Online Travel Marketplace in China”