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CONFIDENTIALJanuary10,2008ChinaMarketEntry1TODAY’SOBJECTIVES•OverviewofChinamacroeconomy•UnderstandingChineseconsumers•Chinapersonalhygienemarketdevelopmentandtrends•WhatittakestowininChina•Questionsandanswers2KEYMESSAGES•Chineseeconomyhasbeenthefastestgrowingeconomy(9.6%CAGR)intheworldforthepast15yearsandisnowthe4thlargest•GDPisprojectedatcontinuedgrowthwithamediumterm“soft-landing”andurbanizationisoneofthedrivingforcesforcontinuedeconomicdevelopment•Chinaconsumermarketisthe7thlargestintheworldandisexpectedtobethe4thby2015•Chinaisnotahomogeneousmarket,butrathermultiplemarketsbytiersandregions3CHINA’SGDPHASBEENGROWINGRAPIDLYDURINGTHELAST26YEARSANDCHINAISNOWTHE4thLARGESTECONOMYINTHEWORLD01,0002,0003,0004,0005,0006,0007,0008,000198019851990199520002005RealGDPgrowthPPPadjusted**USDbillionsChinaCAGR=9.8%(1990-2006)InflectioninChinaGDPUSJapanGermanyFranceChinaUKItalyCanadaSpain12346578910*Baseyear:2002Source:ChinaStatisticalyearbooks;GlobalInsight;BloombergandWorldbank2006nominalGDPUSDbillions13,1944,3662,9152,6442,3992,2521,8531,2751,231874India4OLDSHANGHAIPUDONG5NEWSHANGHAI-PUDONG6OLDSHENZHEN7NEWSHENZHEN8Note:AllfiguresareroundedtothenearestfirstdecimalSource:GlobalInsight;MGICAUmodelv2.5GDPISPROJECTEDATCONTINUEDGROWTHWITHAMEDIUMTERM“SOFT-LANDING”GrowthofrealGDPPercentHistoryForecast024681012141618198519901995200020052010201520202025CAGR1985-200610.2%CAGR2006-257.2%9ShareofrealGDPRMB2000,trillions,percentCONSUMPTIONSHAREOFGDPWILLRISEOVERTHELONGTERMSource:NationalBureauofStatisticsofChina;MGICAUModelv.2.5424641141415Consumption38611.9200537329.82015F43260.72025FInvestmentNetTrade100%=Governmentconsumption10RealGDPbysectorTHEINDUSTRIALSECTORWILLREMAINAKEYGROWTHDRIVER,BUTSERVICESWILLBECOMEMOREIMPORTANT51494664311,928200544729,802201535160,6852025AgricultureIndustryService100%=Source:NationalBureauofStatisticsofChina;MGICAUModelv.2.5CAGRPercent2005-152015-2510.59.64.15.16.69.28.310.511URBANIZATIONISONEOFTHEDRIVINGFORCESFORCONTINUEDECONOMICDEVELOPMENTSource:Demographia;China-All-Citymodeloutput,McKinseyGlobalInstituteanalysisInthelast10yearsalmost50%ofChina’sGDPgrowthcamefromurbanfixedinvestments……withanannualexpenditureofupto$900billionOverthenext20years,Chinesecitieswilladdmorethan300millionpeople……thepopulationoftheentireUnitedStatesTherewillbemorethan200Chinesecitieswithmorethanamillioninhabitants……inEuropetodaythereareonly35citiesofthatsizeBy2025,two-thirdsofChina’scitizenswillliveincities……that’snearly1billionpeople121billion1and0.5billion0.5and0.1billion0.1billionFORCOMPANIES,THISMEANSMAJORMARKETOPPORTUNITIESWILLEXPANDFROMCURRENTCITIES…2006marketsizebycityCONSUMERGOODSEXAMPLE13…TOMANYMORECITIES2015marketsizebycity1billion1and0.5billion0.5and0.1billion0.1billionCONSUMERGOODSEXAMPLE14CAGR95-05Percent6,0602,3401,4901,0309608904604504403502908,7002,6001,7001,0009006506005004901,2001,400CHINAWILLBECOMETHENO.4CONSUMERMARKETGLOBALLYBY201512,0003,2001,8901,8801,8501,4701,0008201,20080041132244719953213223348CAGR05-15Percent20052015ERankSource:GlobalInsightNov.2006;MGI12345678910U.S.JapanGermanyFranceU.K.ItalySpainChinaCanadaU.S.JapanU.S.JapanGermanyGermanyU.K.U.K.FranceFranceItalyItalyChinaChinaSpainSpainCanadaMexicoIndiaPrivateconsumption,USDbillions,real2005India113IndiaMexico67Canada15ATTHESAMETIME,ITISIMPORTANTTOUNDERSTANDTHATCHINAISNOTAHOMOGENEOUSMARKETConsumptionlevelsvarybyregionHHconsumptionpercapitaUSD1000HHconsumptionpercapitaUSD800-1000HHconsumptionpercapitaUSD800XinjiangTibetQinghaiSichuanYunnanGuizhouGansuNingxiaInnerMongoliaLiaoningGuangxiHebeiHeilongjiangBeijingShandongShaanxiShanghaiTaiwanJiangxiGuangdongShanxiHenanAnhuiTianjinJilinJiangsuZhe-jiangHunanFujianHubeiHainanMostmarketersinChinadistinguishbetween3-4citytiersRMBp.a.percapita,millionsSource:McKinseyanalysisRuralareas(~20,000counties,towns&villages)Tier2“Niche”(10cities)Tier2“Main-stream”(16cities)Tier2“Climbers”(11cities)Tier1“Big4”Tier3“leftbehind”(136cities)Tier3“poorcousins”(484cities)•Disposableincome:18,199•Population:35.8•Disposableincome:10,703•Population:61.2•Disposableincome:9,626•Population:39.9•Disposableincome:8,254•Population:87.8•Disposableincome:8,067•Population:98.4•Disposableincome:2,251•Population:959.5•Disposableincome:15,735•Population:17.416TODAY’SOBJECTIVES•OverviewofChinamacroeconomy•UnderstandingChineseconsumers•Chinapersonalhygienemarketdevelopmentandtrends•WhatittakestowininChina•Questionsandanswers17CONSUMERSYESTERDAY…TODAY18FIVETHINGSYOUMUSTKNOWABOUTCHINESECONSUMERS1•TraditionalOrientation:Despitefacinganincreasingnumberofwesternlifestylechoices,Chineseconsumersarebecomingevenmoretraditionalintheirmindsetsandbehaviors,whichrequiresmarketerstobemoresensitiveintheirgo-to-marketapproaches2•Reluctanttobuynewproducts:ChineseconsumersarelesswillingtobuynewproductscomparedwiththoseinU.S./U.K.orneighboringAsiancountries.Andmoreout-of-storeeducation/informationabouttheproductisneededtoattractChineseconsumerstoconsiderbuyinganewproductinstore3•Branddriven:Chineseconsumersarestronglyattractedtofamousbrandsandshowstrong