Markets to watch: Blooming China
, January 31, 2013
With a fast growing middle class and a government keen to promote foreign business partnerships, there are countless opportunities for European AV vendors to expand their operations in China – but only those who take the right approach will succeed, says Jonathan Tustain.
Iconic London store Harrods has just unveiled its newly refurbished Escalator Hall 3 as owners, Qatar Holding, continue to invest in the customer experience. The concept celebrates the store’s rich heritage and architectural history while integrating the latest in digital media technology, including 16 new escalators over seven floors that feature super-high definition video-walls – providing Harrods brands optimum advertising opportunities.
The new brew cinema at Stiegl Brauwelt features a panorama film in five languages with a floor projection on a surface of about 200 sqm. The visitors are able to enjoy an exceptional visual beer experience. The walk-in cinema which is designed as a multi-dimensional projection space offers an unrivalled and unique insight into the world of beer and its origins.
The Comédie Française in Paris is one of the most important and historic performing arts institutions in the world, and since 2013, is now operating with Tannoy’s innovative QFlex beam-steering technology in its main theatre.
Many industries are booming in China and the AV sector is no exception. The world’s fastest growing economy currently represents 11 per cent of the total global market which is expected to grow at a rate of 20 per cent a year between 2012 and 2015.
Pro-AV markets within airport expansion, entertainment, education and urbanisation are set to benefit from the country’s 12th Five-Year Plan (2011-2015) and whilst locally-developed technology is advancing rapidly, the country still relies on internationally acquired technology and skills.
The main driver of China’s AV market growth is infrastructure development. There are 75 airports currently in construction or planned for construction in China between 2012 and 2020. The growth is expected to provide significant digital signage and entertainment opportunities.
This is being boosted by increasing average salaries. According to the UN, China’s middle class will be four times greater than the US by 2030.
“Infrastructure has to keep pace with the growing affluence of the Chinese,” says Richard Tan, general manager, InfoCommAsia. “The need for efficient transportation systems, theme parks, shopping malls, industrial parks and sustainable cities cannot be underestimated. And this has been and will continue to drive the expansion of the AV market in China.”
London-based communications agency Knifedge is one company that has successfully capitalised on China’s urban growth. This has led to the opening of a Shanghai office following a series of IVCA and UKTI trade
Jonathan Brigden, managing director of Knifedge says: “In China, every time there is a new building development, urban planning exhibition centres are set up to give people an idea of what the finished proposal will be like. They are like mini theme parks. We go out and consult how best to present them.”
Knifedge’s first urban planning exhibition project involved the installation of a giant 40m x 14m x 40m CAVE-style environment for an exhibition centre in the Lanzhou New Area where 52 Panasonic projectors were deployed to simulate a flyover of the new city. Visitors experienced a 10-minute promotional film which featured animation from the artists of Crystal CG, the Chinese company responsible for the rhythmic in-seat LED effects at the recent London Games.
Knifedge partnered with Huakai Creative, one of the leaders in urban planning exhibition centres in China which has opened the door to further joint ventures. Such a mutually beneficial partnership is a text book model of how a European AV company can find relevance in China. With roots in theatrical production, Knifedge appealed to Huakai Creative with its ability to weave a narrative thread into live
“What they are coming to us for is UK creativity and skills, storytelling, narrative and high quality concepts. They have the high level technology. It’s how you use it in a creative and appropriate way,” says Brigden.
Richard Tan agrees that forming local partnerships is essential for successful AV applications: “We would normally advise an exhibitor entering the Chinese market for the first time to identify a good partner to work with.
Chinese buyers have a greater than average respect for highly recognised brands, regardless of whether they are local or foreign. But getting them specified requires local connection and know-how, and this could be where foreign manufacturers lose out when the bridges have not been built.”
Since joining the WTO in 2001, China’s market has opened significantly to foreign trade, something that has dramatically impacted on the growth forecasts of specialist digital display systems integrator HoloVis International. This year, the company expects 30 per cent of its total business to be generated in China, compared with just five per cent in 2012.
“So far we have been pleasantly surprised at the co-operative and professional nature of our clients in China.” says Stuart Hetherington, HoloVis’ managing director. “There is clearly an ‘awakening’ from Chinese clients to the major problems they have faced in the past in trying to do similar solutions themselves or copy western systems with inferior technology and build quality. This is refreshing as clients are now looking to companies such as ours to work in a more open and trustworthy way to access our expertise and knowledge.”
But with opportunities comes challenges, especially surrounding the cultural differences. The adoption and commoditisation of consumer-grade products is a trend that is impacting the pro-AV market in terms of price. The result is rapidly thinning margins and the growing perception that consumer-grade products are sufficient for pro-AV.
This had led to AV vendors to bundle products with services, a trend affected by another cultural difference: Chinese customers are less inclined to pay for services. Local pro-AV buyers expect to get services cheaply and they are offered at a much lower cost in order to obtain or retain business.
As product margins fall, the difference between the real and perceived value of services are expected to become a significant issue, since AV vendors will no longer be able to mask the true cost through bundling or subsidising the cost with product margins.
Terry Friesenborg, senior vp, international development at InfoComm agrees: “There is a need to grow services, especially in the light of falling margins, but this is difficult because of customers’ current temperament. The bundling of services with products has created a false impression about the real cost of quality services.”
Customers are typically charged between five and 20 per cent of a project for services when the actual cost is more like 20-40 per cent.
Vendors are trying to build strong technical teams offering quality services, but cost is still covered by hardware margins. “As the cost of manpower increases, product margins reduce and as a result, it is becoming difficult to bundle services with products,” adds Friesenborg
One company returning to InfoCommAsia 2013 is projector manufacturer projectiondesign, which opened a Beijing office in early 2012.
However, the company’s vp of sales, Thierry Ollivier, advises that it pays to expect the unexpected: “Protectionism can be a challenge as video projectors made outside the market can suffer from heavy import duties. The power of government is strong, and the rules can change faster than we are used to in Western Europe. You just have to be mentally prepared, agile and able to adapt and adjust to new realities together with your trusted local partners.”
According to Futuresource Consulting, the Chinese projector market has been the largest in the world since the second quarter of 2011, forecasting annual sales of 2,231,782 by 2014. Sales of projectors are expected to increase in demand thanks to the government’s focus on education.
China’s universities are old establishments that have relied mainly on their own curriculum and knowledge base, but this will change as they tap into the global education network, exposing their students to international practices. Increasingly, AV will be harnessed for the purposes of international communication and knowledge exchange under a billion dollar investment programme known as Bang Bang Tong. The bidding process in the Chinese education market is complex. Tenders are typically issued at local level so vendors require huge nationwide channel coverage in order to benefit.
These are exciting times for the Chinese AV industry. A perfect mix of a requirement for expertise and creativity, a welcome for foreign vendors and a technology-demanding Five Year Plan, offers new growth avenues for European vendors. But entering the huge market requires patience, a degree of ‘guanxi’ and perhaps a little luck.
British clothing brand Alfred Dunhill used Musion’s Pepper’s Ghost technology to launch its Autumn/Winter 2012 collection in Shanghai.
Using a dual foil set-up, Dunhill’s installation featured a canvas area of 28m x 8m where a HD holographic video projection system projected 64 male models on to a virtual catwalk. A 1,000-strong crowd watched the weather shift from season to season, beginning with a dawn and culminating in a gigantic virtual snow globe.
Supporting the visual sequence was pre-recorded music from composer Tan Dun and violinist Charlie Siem who played live on stage, accompanied by a nine-piece Chinese orchestra.