Almost three months after China permitted foreign capital to enter the audio-visual distribution sector, peace and quiet has been maintained in the sector, although this will not last long, insiders say.
The world's top five music companies and eight US movie companies, including Warner Bros and EMI, have already started seeking partners in China, according to Zhang Xinjian, vice-director of the Marketing Department under the Ministry of Culture.
Music giant Sony, taking an even quicker step than its international competitors, formed the first Sino-foreign joint venture audio-visual distribution company shortly after the ban on foreign capital was lifted.
Sony Music International holds a 49 percent equity share in Shanghai Epic Music Entertainment Co, with Shanghai Synergy Multi-Media Group and Shanghai Jingwen Investment Co sharing the remaining shares.
Analysts predict that foreign companies will seize the market with their abundant programme resources, low distribution costs and advanced management.
However, domestic companies will not feel the impact immediately, said Zhang, adding that it will take some time for the foreign firms to familiarize themselves with the Chinese market and launch their business networks.
Safeguarding competitive edges
To compete with their foreign counterparts, domestic companies should make full use of this window of time to build up their strength through expanding their business scale and learning advanced management techniques, he said.
Zhang cited Shanghai Maya as an example for other domestic companies to follow.
Shanghai Maya Audio & Video Co, China's first chain store in the audio-visual industry, was founded in 1996 and has developed 198 chain stores and 570,000 members in Shanghai.
According to Zhu Jie, managing director of the company, the entry of foreign competitors will not result in big changes to the original strategy of his company and it will continue to expand its chain store network outside Shanghai through franchises.
"In this way, we invest with intangible capital, such as our brand, management pattern, staff training and external design of the store."
More than 1,600 retailers have approached Maya for consultation of the franchise, and more outlets are to be launched across the country.
Zhu told Business Weekly that it is important for audio-visual distributors to build up a strong sales network: "Our target consumers are generally fans of music or movies. They visit the stores regularly and buy the discs and tapes whenever they find something matching their interest. When they find a store is good, they will keep visiting it. Thus, the brand of the store is a major attraction to the target consumers."
Zhu also pointed out that Maya guarantees that its commodities are legitimate and not pirated, which also attracts customers. To avoid piracy, all of the commodities stocked by Maya are selected and bought uniformly by the company's headquarters.
In addition to expanding its network, developing sideline businesses is another strategy used by Maya. Customers can buy concert and lottery tickets and even pay their telephone fees at the store.
This results in customers spending more time in the store and increases the chance of them purchasing items, said Zhu.
Shanghai Maya, like other domestic firms, is also seeking international cooperation to improve its management expertise. It currently is discussing possible cooperation with US-based Blockbuster Inc, the world's top video chain.
First JV
Shanghai Epic Music Entertainment, founded by Sony and local partners, covers the businesses of production, replication and distribution of audio-visual products, according to Andrew Wu, managing director of the company.
"We certainly know how difficult it is to develop such businesses in China, as we face rampant piracy, but we are confident we will be able to clear up the piracy problem and make profits in the legitimate market with our business idea that profits follow input."
Wu further explained that his company will devote to "adding value" at every step of the operation to the legitimate products, including through better management of distribution.
He told Business Weekly that one of the reasons why legitimate products are weak in China is that audio-visual products are being traded as raw materials, thus putting them almost at the same level as pirated products. "Our audio-visual industry could learn from the fact that Chinese consumers progressed from buying raw vegetables in the street 10 years ago to now favouring shopping in supermarkets."
The company will focus on servicing the consumers, not merely "packaging" the products, said Wu.
He estimated that more than 90 percent of audio-visual commodities sold on the Chinese market are pirated.
Although the company is a foreign-invested one, Wu stressed the importance of local factors: "The audio-visual industry is different from other industries, as cultural tastes largely determine purchasing behaviour."
(Xinhua News Agency April 18, 2002)
