Chinese enterprises have started to expand their understanding of the weather, and the magnitude of influence it has on business.
"In summer, a one-degree increase in temperature means the sale of about 2.3 million bottles of beer..."
"An increase of one day over the period of temperatures 30 degrees Centigrade or higher can increase the sales volume of air-conditioners by 40,000..."
These observations and statistics are not from a Chinese brewery or air-conditioner manufacturer. The first is from Germany, and the second from Japan. The power of the weather over commodity sales is, however, beginning to be acknowledged by Chinese enterprises.
Indexes are also available on the relationship between the weather and passenger volume, foodstuff/beverage consumption, and sales of ice cream and swimwear. Data like this have introduced to China the "meteorological economy" concept. Certain enterprises now consult a meteorological service before setting their levels of production.
Yet compared with overseas companies, where a meteorological service is an indispensable facet in the course of their product research, development, manufacture and marketing, China's meteorological economy is very much in its infancy. Not all business decisions take climatic vagaries into account, so when a change in the weather does occur, numerous Chinese enterprises suffer losses.
Meteorological Mischief
The influence of the monsoon climate means that the weather in China is not necessarily predictable. Summer one year may be swelteringly hot; the following year it may be temperate. This is a major headache for air-conditioner manufacturers and the garment industry. For instance, an unfounded expectation of high temperatures last summer had disastrous repercussions for air-conditioner producers, as output greatly outnumbered sales, and substantial losses were incurred.
In the hot summer of 2001, sales of air-conditioners on the domestic market rose to 14 million -- an increase of nearly 40 percent over the previous year. Another sizzling summer was, therefore, expected for 2002, and a sales volume of 15-18 million air-conditioners was anticipated. In April and May 2002, temperatures corresponded to those forecast, and trading in air-conditioners was brisker than had been expected. Manufacturers consequently increased their production.
In June -- when air-conditioners are normally at peak demand, it was mostly rainy and cloudy, and far cooler than in past years, to the extent that some places experienced record low temperatures. Sales consequently took a dive. According to statistics, from January to June 2002, a total of 6 million air-conditioners were sold on the domestic market -- 1 million less than the same period the previous year. Production of air-conditioners is normally reduced in August, but in 2002, it was in June, almost two months earlier than usual. Most of the 5 million air-conditioners produced in anticipation of a sustained consumer demand gathered dust in various stock rooms.
In July, the sun shone once more, and in most places temperatures reverted to their normal scorching level. Sales of air-conditioners rallied reassuringly, but not for long, as August brought with it the coolest weather for years. Manufacturers consequently lost out again.
This was not the first time the weather had played havoc with business. China's air-conditioner producers had failed to learn from their previous mistakes. Fierce competition on the market lured them into expanding production in order to gain a greater market share. Their stock consequently reached unrealistically high levels.
At the end of 2001, a total of 5 million air-conditioners were being held in stock, and by the end of 2002, this figure is expected to rise to 10 million. Working on the premise that the production cost of an air-conditioner is 500 yuan, this meant that 5 billion yuan worth of goods was laying idle. The only way companies could hope to stay afloat was by ruthlessly slashing their prices and under-cutting their competitors.
Air-conditioner producers are not alone in suffering losses as a result of inclement weather. The Chinese garment industry was also its victim by courtesy of the warm winter of 2001, when 32 million down jackets and coats remained unsold.
Progress Imminent
As the market economy develops, consumers become increasingly discriminating and expect more for their money, yet the majority of Chinese enterprises still focus on production, rather than sales. To them, market research is an unknown quantity. As they have no idea of consumer demands or preferences, it is little wonder that sales of their products are often disappointing.
The influence of the weather on the market is undeniable, and it has now become obvious to Chinese enterprises that they must pay more heed to it. After analyzing the situation, experts conclude that 2002's unprecedented air-conditioner "mountain" might force enterprises to take measures that will avoid cut-throat competition, and reduce "blind" production.
The meteorological economy, whereby losses are avoided and profits made through observing climatic changes, is largely unacknowledged by Chinese enterprises, which need to familiarize themselves with the concept and all its ramifications.
Meanwhile, the immaturity of the current meteorological service is an obstacle to commercial success. Most weather information in China comes from government meteorological stations. Some of these do provide a service to enterprises, but their scope cannot compare to that of developed countries, and earnings from such services are negligible.
The Beijing Meteorological Station has established a special organization to provide meteorological information for enterprises on a trial basis, but its results are far short of satisfactory. The station mainly supplies information for television weather forecasts, and provision of a direct service to enterprises is on a very small scale. The income from it is equivalent to just one percent of that earned by a Japanese meteorological information provider.
The Central Meteorological Station also provides services, and has set up the Global Meteorological Navigation Co., Ltd., for ships at sea, but the revenue it generates is, again, miniscule. Six months' marine navigation guidance for one ship brings in just 7,000-8,000 yuan, as users of the service balk at paying any more. According to the company general manager, it is only this year that the service has begun to make a profit of 100,000 yuan or so.
Very few commercial meteorological services have been established in China. Owing to a lack of the capital necessary to be able to offer a variety of services, existing meteorological stations have little experience in the commercial field.
Great Potential
One aspect of China that sets it apart from other countries is that weather forecasting and dissemination of meteorological information are regarded as part of the public domain. They are government funded and free of charge. To most enterprises, paying for meteorological services is unacceptable, an attitude that hinders commercial utilization of meteorology.
There are, however, those who believe that economic development in China will encourage enterprises to operate in a more scientific manner. Meteorological expertise will, therefore, be consulted as a matter of course in order to avoid financial disaster.
The need to be aware of weather conditions is gradually being accepted by Chinese enterprises. Patrons of the Central Meteorological Station include hundreds of enterprises, and this area of the market is sure to expand.
The telephone weather forecast service is gaining popularity in Chinese cities. In Guangzhou, for example, 20,000 weather forecast inquiries are received every day -- a figure that sometimes doubles. Urban mobile phone users that subscribe to a meteorological service currently number 190,000. In Chaohu County, Anhui Province, thousands of calls come in requesting weather information every day from farmers, whose livelihood depends on accurate forecasts of rain and shine.
Meteorological stations in various localities also give information according to the needs of different enterprises. Short, middle, and long-term forecasts, as well as those on an hourly basis, are available. In some cities aspects of the weather relating to everyday life, such as indexes on the intensity of ultraviolet rays, degree of humidity, and the pollen count, are reported. Certain enterprises, particularly pharmaceutical plants and drugstores, promote medicine for asthma, colds and high blood pressure according to information provided by these stations. They need no convincing of the wisdom of arranging their production and marketing on the basis of the prevailing weather.
Foreign meteorological services have set their sights on China. The United States Meteorological Guidance Company, for one, has set up a representative office in Shanghai. This is a positive sign for China's meteorological economy, and bodes well for its establishment of a commercial meteorological service mode.
(China Today October 22, 2002)
