Summary
A new, 40 billion square meter floor covering market is expected to emerge in China between now and 2025. The urbanization of China continues and is expected to increase its cities’ population by another 350 million people, creating demand for as many as five million new buildings. Every square meter of new construction will require floor covering. Ultimately China may be the world's largest floor covering market; Mohawk Industries, Shaw, Armstrong World Industries and Tarkett should take heed.
Analysis
Over, 50,000 skyscrapers – the equivalent of constructing ten New York Cities - will be needed in China’s cities to meet the demand of an additional 350 million urban dwellers that are expected to migrate there over the next fifteen years, according to McKinsey Global Institute’s study on the effects of China’s rapid urbanization. Every square meter of new construction will need floor covering.
The construction boom today is due in large part to China’s continuing urbanization. In the world’s largest migration ever, over 400 million people have already moved from rural to urban locations where they are now among a growing middle class. An additional 350 million people are expected to migrate to cities where the total urban population will create a market that is twice the size of Germany’s currently. By then, China is expected to be the world’s second largest economy.
The construction boom today is due in large part to China’s continuing urbanization. In the world’s largest migration ever, over 400 million people have already moved from rural to urban locations where they are now among a growing middle class. An additional 350 million people are expected to migrate to cities where the total urban population will create a market that is twice the size of Germany’s currently. By then, China is expected to be the world’s second largest economy.
Despite the world’s economic downturn, China’s economy is expected to grow 8.4 percent in 2009, according to the World Bank’s most recent forecast. China knows that to sustain this growth they must increase consumer spending inside China - a top priority and focus of the country’s leadership.
Despite its 3rd position in size of economy it is only fifth in terms of consumer markets (behind the U.S., Japan, the UK and Germany). As a share of GDP, consumption is a mere 36%, half of the U.S. However, if the government is able to increase GDP to only 39%, it’s purchasing power parity will create a middle class about double the size of the U.S. today. As the rural population migrates to the cities, their earning power will rise along with demand for floor covering and ultimately China will be the world’s largest floor covering market.
Despite its 3rd position in size of economy it is only fifth in terms of consumer markets (behind the U.S., Japan, the UK and Germany). As a share of GDP, consumption is a mere 36%, half of the U.S. However, if the government is able to increase GDP to only 39%, it’s purchasing power parity will create a middle class about double the size of the U.S. today. As the rural population migrates to the cities, their earning power will rise along with demand for floor covering and ultimately China will be the world’s largest floor covering market.
Approaching the Asian Market.
The Asian floor covering market differs greatly from North America and Europe; product preferences and target customers bear little similarity. Flooring segments in China are 90% ceramic, laminate and wood, 7% vinyl and 3% broadloom carpet. Broadloom’s market is primarily the hospitality and office industries. Residences in urban China are generally apartments - a bare shell with electrical outlets making it the buyer’s responsibility to install flooring, doors and fixtures. In the USA, “new construction” purchases of floor covering accounts for about 20% of the market; in China it is more than 50%.
While touring eleven Chinese flooring factories in September this year, I saw changes in focus and attitudes toward energy and water conservation and new flooring products that incorporated innovations with green and sustainable attributes. China's largest construction projects are increasingly LEED certified, primarily because they are multinational projects that bring LEED principles with them. As a result of its continuing urbanization, China's energy demands may double by 2025. Its construction standards will continue to change to address this issue. This means that China's urbanization will not only create the largest floor covering market but may well end up being the largest market for sustainable flooring.
How will all of this growth in China's consumption and production of floor covering impact international manufacturers such as Tarkett, Mohawk Industries, Shaw Industries and Armstrong World Industries? Most of these companies are already involved in the Chinese market through manufacturing joint ventures or supply agreements. As China becomes a consuming giant, these companies need to redirect their existing Asian relationships to enter into the domestic Chinese market. At the same time, they need to recognize that Chinese manufacturers with global aspirations could become tomorrow's competitors.
While touring eleven Chinese flooring factories in September this year, I saw changes in focus and attitudes toward energy and water conservation and new flooring products that incorporated innovations with green and sustainable attributes. China's largest construction projects are increasingly LEED certified, primarily because they are multinational projects that bring LEED principles with them. As a result of its continuing urbanization, China's energy demands may double by 2025. Its construction standards will continue to change to address this issue. This means that China's urbanization will not only create the largest floor covering market but may well end up being the largest market for sustainable flooring.
Pursuing China’s market potential must be done methodically most often through partnerships with Chinese owned businesses. One easy way to become acquainted with the Chinese flooring market is through the giant, annual industry trade show DOMOTEX asia CHINAFLOOR, March 23-25, 2010 in Shanghai.
How will all of this growth in China's consumption and production of floor covering impact international manufacturers such as Tarkett, Mohawk Industries, Shaw Industries and Armstrong World Industries? Most of these companies are already involved in the Chinese market through manufacturing joint ventures or supply agreements. As China becomes a consuming giant, these companies need to redirect their existing Asian relationships to enter into the domestic Chinese market. At the same time, they need to recognize that Chinese manufacturers with global aspirations could become tomorrow's competitors.
James Gould consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
