The primary reason, it is often argued, that China is an important market for many large U.S. companies is that its population has doubled since the early 1960s. But the whole picture is actually more complex than that. China’s real appeal to American corporations is that the huge population growth has been coupled with a sharp expansion of the middle class. As a result, the Chinese market probably will become more important to consumer goods and technology companies in the next few decades than the U.S. is today.
China’s population in 1960 was 667 million, more than double that of the United States in 2010. China now has 1.34 billion residents. The increase would not matter much to companies if the population was still largely rural and poor, as it was half a century ago. But, in fact, the manufacturing industry that has become the engine of China’s GDP growth also has rapidly built a huge middle class, one made up primarily of factory workers. And this middle class continues to grow. The United Nations Population Division and Goldman Sachs (NYSE: GS) predict that China will have 1.4 billion middle-class consumers by 2030, compared to a forecast of 365 million in the U.S. The stakes for American companies in China are rising.
The most important consumer target markets for companies in China largely mirror those in the U.S. American companies find themselves competing with foreign multinationals for these sales.
Retailers, led by American companies like Walmart (NYSE: WMT), have begun to open thousands of locations across China. Much of the competition for the retail market there comes from corporations based outside America, particularly France’s Carrefour. The situation in the athletic gear market is similar. Nike (NYSE: NKE) has a strong sales base in China, but so does Germany’s Adidas. Li Ning, a Chinese company, is the second largest market share in terms of sales. General Motors (NYSE: GM) is the leader in the Chinese light truck and car market. Volkswagen sells nearly as many vehicles as GM. Several large local car companies are owned and operated, in part, by Chinese government-controlled entities.
American companies that need strong sales in China to maintain their positions as global leaders will face challenges unique to the People’s Republic. The level of piracy of Western goods is remarkably high. Microsoft (NASDAQ: MSFT) estimates that four-fifths of Windows OS software in China is pirated. Apple (NASDAQ: AAPL) iPhone knockoffs are widely available there as well. American corporations will have to fight the problem, but accept that it cannot be entirely conquered, or, in some cases, even significantly reduced. Even manufacturers like Boeing (NYSE: BA) and GM have to contend with the fact that their Chinese partners may “borrow” some of their expertise and patent-protected knowledge.
24/7 Wall St. has identified the American companies that have done the best job of tapping into this growing market. We reviewed America’s most iconic brands that are top sellers in the U.S. and abroad and reflect a cross-section of the economy. We then selected 10 companies with the largest market share in China by industry and product category to identify the most popular American brands with the most to gain — and the most to lose.