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A guide for retailers on expansion in China

Retail in China. A guide for retailers on expansion in China. Alvise Donà dalle Rose, Partner Eversheds Bianchini Milan, 8 April 2013. Topics. Macro Dynamic Legal Framework IP Protection Corporate Commercial contracts. Eversheds retail team.

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A guide for retailers on expansion in China

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  1. Retail in China A guide for retailers on expansion in China Alvise Donà dalle Rose, Partner Eversheds Bianchini Milan, 8 April 2013

  2. Topics Macro Dynamic Legal Framework IP Protection Corporate Commercial contracts

  3. Eversheds retail team • One of the largest full service law firms across Asia, Europe, the Middle East and Africa • Offer sector specific advice on the options for expansion • Extensive experience in advising regulatory environment, advertising and promotions, branding and competition Ranked in the top tier of retail practices and recommended for client service by Chambers and Partners every year from 2006-2012

  4. China offices key Areas of Practice M&A Litigation and Dispute Management Compliance and Regulatory Technology Debt and equity capital markets General Corporate IP Private Equity and Restructuring Commercial Contracts Insolvency Banking and Finance Employment Our clientele includes major MNCs, state-owned and private PRC companies, international banks and financial institutions, professional services companies, government and regulatory bodies. We service a wide range of sectors as detailed below

  5. China offices key Industry Sectors Energy Aerospace Industrial Engineering Food and Drink Financial Institutions Defence and Security Healthcare TMT Transport Education Retail

  6. Eversheds – The Facts Over 4,000 people, including more than 500 partners and 1900 legal advisers Service Ethos: Excellence in service delivery is our first commitment; a service which is tailored and guarantees to exceed your expectations 44 offices across 26 jurisdictions within Europe, the Middle East, Asia and Africa Polls show that Eversheds is the leading non-US law firm working with US clients Relationship lawyers – pioneers of partnering in the legal market Preferred law firms across 150 countries including Africa, India, Latin America, Russia, USA Providing control over costs Highly rated for corporate finance work Advocates of transparency, value based billing and closer working relationships – aiming to reflect value of work done; not the cost of providing it Practising proactive legal and risk management: prevention not cure One of two law firms to pass the 100 mark in number of rankings in the independent legal directory Chambers, leading the way with 128 firm rankings The most top tier rankings of any firm in the independent legal directory Chambers UK 2012 With one of the largest employment teams in the UK, we manage over 5.500 employment cases per year

  7. Global reach

  8. Global reach Asia

  9. Macro dynamics Setting the scene Alvise Donà dalle Rose, China desk Eversheds Bianchini

  10. China in one word Urbanisation

  11. China’s urban billion • China has more than 1,3 billion residents more than 500 million of which live in towns. McKinsey predicts near 400 million new urban residents by 2030 • The most important China towns are usually divided in four Tiers Tier 1: Beijing, Shanghai, Guangzhou, Shenzhen Tier 2: Chongqing, Xi’an, Changsha and other 40 towns Tier 3: Changzhou, Xining, Nanyang, Xuzhou and other 130/135 towns Tier 4: around 90 towns

  12. People/place Shanghai

  13. Shanghai too

  14. FYP 2011-2015 • China's 12th Five-Year Plan (FYP, 2011-15), is expected to continue funnelling major investments into Tier 2 cities • The plan focuses on seven strategic emerging industries: biotechnology, high-end equipment manufacturing, new energy, new-energy vehicles, new materials, and next-generation information technology • According to PRC state media reports, the government is considering a $738 billion 10-year energy plan that will develop clean energy sources

  15. Planned economy • 12th Five Year Plan • Investment Catalogue • Economic targets • GDP growth 7% annually on average • 45m+ jobs created in urban areas • Urban registered unemployment no higher than 5% • Prices to be kept generally stable

  16. 12th five year plan • Innovation • Environment and clean energy • Agriculture • Livelihood • Social management • Improved public service for both urban and rural residents • Better social management system for greater social harmony

  17. Innovation: e-tailing • 700 million Chinese registered with Alibaba.com* • Since 2003 e-tailing industry posted more than 100% compound annual growth** • In 2012 e-tailing produced sales of little less than 200 billion $ with a broadband penetration of 30%. • On 11 November 2012 through Taobao and • T-mall (B2B) 3 billion $ of products were sold (double of 2001 offline sales of Black Friday)* • In 2020 online sales could reach 700 billion $ * Corriere.it 30 November 2012 **MKI March 2013

  18. Tier 2 towns: a huge market • Chongqing:10 million residents (southern China) • Xi’an: more than 9 million residents only in the old town (at least 18 million within the city belt) • Changsha:7 million residents – head of Hunan province • In Tier 1 towns prevails the “brick and mortar” business • In Tier 2 towns prevails the e-commerce. Huge e-marketplaces allow small enterprises and individuals to sell products online without paying intermediation fees and distribution costs.

  19. Development of ancillary services • The e-tailing marked dimension entails the growth of ancillary services like: - Warehousing and delivery - Payment services - Online advertising and search engines - Software to manage the business (ERP) - Consulting services • The full value chain generated 13 million $ revenues in 2011* * MKI March 2013

  20. Environment and clean energy Pollution smog in Shenyang, (province of Liaoning) (Reuters)

  21. Treatments Wastewater treatment • Analysts expect that the country's total wastewater output will reach 79 billion tons by 2015 because of rapid urbanization and industrialization • The PRC government plans to build new facilities and upgrade existing ones, resulting in a large demand for technology and components. Solid-waste treatment • China is the world's largest producer of municipal solid waste (MSW). • To reduce the amount of MSW, the PRC government is making investments to improve its solid-waste treatment capabilities. • A very high per cent of China's landfills do not meet international standards because of capacity constraints and unsanitary conditions.

  22. China State Council Guidelines Feb 2013 • Change to the economic development strategy • Sustainable “scientific development” • Driving the economy by domestic demand • Moving to higher value-added and high-tech products • Higher wages • New cities to be built as population shift from rural to urban • Spending more for social services for the people

  23. China State Council Guidelines Feb 2013 • (continue) Aims • increase resident’s income • narrow income distribution disparity • regulate the distribution order Targets • state firms and government employees and officials • tax and financial sector • rural poor and social safety net

  24. China State Council Guidelines Feb 2013 • (continue) Wall Street Journal (February 5, 2013) Sweeping policy guidelines to narrow the growing gap between rich and poor…and pay for ambitious welfare programs The Guardian (February, 6, 2013) “China unveils major tax reforms to make rich pay more” But even before the changes were apparent Wall Street Journal (January 17, 2013) “A long-term trend of rising wages and other costs has made china less attractive, specially for basic manufacturing…total foreign direct investment flowing into China fell 3.7% in 2012”

  25. Costs are soaring • Coastal provinces • Labour • Land prices • Regulations • Taxes The end of cheap China (The Economist, 10 March 2012)

  26. What will replace cheap China? 5% annual rise in currency and shipping costs + 30% annual rise in wages = Cheaper to make in US than China (incl. shipping) by 2015

  27. Proverbs • 同床异梦Same bed, different dreams • 创业难 守业更难 To open a shop is difficult, to keep it open is the art of survival • 木秀於林 风必摧之 It is the beautiful bird that invariably gets caged • 不知则问 其惑一时 不知不问 惑其一生 He who asks a question is a fool for five minutes; he who does not ask a question remains a fool forever

  28. Questions & Answers

  29. Thank you ! Eversheds Bianchini www.eversheds.it

  30. Eversheds Bianchini contact details For further information please contact: Alvise Donà dalle Rose Partner, China Desk +39 02 89287 733 +39 335 5400631 alvisedona@eversheds.it

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