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China’s Retail Industry: IT Market Trends and Opportunities, 2006 – 2010
Springboard Research , May 2007, Pages: 48
This study on IT in China’s retail industry assesses the opportunities the market presents for IT companies. This report examines eight key segments in the retail sector: Food/Grocery/Vegetables, Garments, Electronics/Electrical (White Goods), Cosmetics/Medicines, Home Furnishings and Furniture, Life Style products (Jewelry/Shoes/ Watches), Office Products and Multi-Product outlets.
For this study, our analysts surveyed IT decision makers at the major retail companies in China, as well as senior executives of leading IT vendors serving the retail industry. Also included is market data, including market size and growth forecasts, to provide insight into the retail sector for a big picture industry perspective.
The Chinese retail industry, estimated at US$850 billion in 2006, has recently emerged as a fast growth industry, thanks primarily to increased spending by Chinese consumers. The dynamic sector is also attracting huge investments from a variety of companies, including international giants such as Wal-mart, Carrefour and Tesco, who have made China a key part of their global retail market strategy. “The big bang market entry of large multinational corporation (MNC) retailers has fuelled intense competition. Local retailers realize that they have to upgrade quickly to robust IT systems to stay competitive and better serve their customers,” said Nilotpal Chakravarti, Research Analyst for Springboard Research. “Maintaining an advantage in the face of increasing competition requires retailers to improve facility flow-through, decrease the amount of inventory in their supply chain and meet escalating customer demands -- all while operating in an environment with high logistics costs and tight profit margins. Retailers now see that upgraded, integrated IT systems can streamline management of these increasingly complex operations,” Chakravarti added.
In its report, “China’s Retail Industry: IT Market Trends and Opportunities, 2006-2010,” Springboard estimates that after store expansion and brand development, IT is the largest investment area for large and mid-sized retailers in China. Springboard’s data shows that Chinese retail companies are eyeing a major overhaul of their IT infrastructure to boost sales and beat foreign competition. Guided by the competitive need to give their customers a better shopping experience and after-sales service, retailers’ IT spending is also influenced by challenges such as increasing brand awareness, raising profitability, ensuring high levels of customer satisfaction and improving quality of service.
In stark contrast to what is typically seen in other emerging markets, price was not the primary factor for choosing external vendors. Instead, 37% of surveyed retailers cited “Strength in the Industry” as the top vendor selection consideration, followed by “Strong Service & Support” with a 30% response rate. Price trailed in the third position with 11% of retail industry respondents naming it as the leading factor in choosing IT solutions.
“Chinese vendors with in-depth knowledge of the local retail environment are preferred by small Chinese retailers,” Chakravarti revealed. “Since MNC vendors focus mainly on providing high-end retail solutions, which come at a premium, local small retailers find it more affordable to go with regional IT vendors on an as-needed basis for billing applications, data management software and hardware implementation. However, this market dynamic is set to change once retailers realize the need for highend integrated solutions as they ramp up operations in China to tackle the competition”.
Overall, Springboard found that local vendors are still significant influencers for IT endusers in the retail market. Although Microsoft led the list of leading influencers, followed closely by IBM, the next four spots were taken by local vendors (E-Future, Chyangyi, Ufsoft, and Royalstone).
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