The 2016 International Exhibition Industry CEO Shanghai Summit, held from January 11 to 12, 2016, took market orientation and international competitiveness as its theme and set five discussion topics.
The fourth forum was held on the morning of January 12. Its topic was the development of the exhibition industry in China's second- and third-tier cities.
After decades of rapid growth, exhibition resources in China's first-tier cities have become increasingly saturated. Mainland China has more than 600 cities, and they differ in size, economic development level, culture, and history. Each has its own exhibition characteristics. Nearly 30 percent of exhibitions are held in second- and third-tier cities. Their broad consumer markets and newer and more abundant venue resources have become a blue ocean in the expansion of China's exhibition industry. Many second- and third-tier cities hope to use the exhibition industry as an opportunity to improve urban quality and create more points of economic growth.
This topic was moderated by Kai Hattendorf, managing director of UFI. Men Zhenchun, chairman of Qingdao Haiming International Exhibition Co., Ltd.; Bjoern Kempe, then general manager of Comexposium; Zhong Gang, general manager of VNU Exhibitions Asia; Roland Bleinroth, president of Messe Stuttgart; and David Audrain, chairman of the Society of Independent Show Organizers, were invited to share practical cases from non-first-tier exhibition cities in a panel discussion and to describe new ideas for regional development and industrial layout.
1. Key points from Men Zhenchun, Chairman of Qingdao Haiming International Exhibition Co., Ltd.
Second- and third-tier cities have a relatively low level of market brand awareness. It is difficult to form a brand in a short time, and some exhibitions still find it hard to become brands after more than ten years. Because resources are hard to gather, many major international companies are not optimistic about second-tier cities. Booth fees are relatively low, return on investment and operating profits are low, and project life cycles are relatively short. However, the exhibition management departments in second- and third-tier cities usually have more flexible management processes, which is an advantage.
When organizing exhibitions in second-tier cities, the first task is to define positioning clearly: is the project a seasonal exhibition, or is it based on a city or region? The organizer must identify and lock in its visitors and exhibitors. Most importantly, project operation must be localized. If the local government provides policy support, resources including exhibitors, associations, competent government departments, industry media, and others should be gathered through a locally registered company. Exhibitions in second-tier cities grow relatively slowly, so organizers must be patient and flexible. Many exhibitions in second-tier cities evolve gradually. There may be an initial plan and direction, but as various factors change during operation, continuous adjustment and flexibility are essential.
2. Key points from Bjoern Kempe, then General Manager of Comexposium
Before entering a new market, market research and analysis must be carried out. We need to think about why second- and third-tier cities are selected to host exhibitions. Taking wine exhibitions as an example, we chose Yinchuan in Ningxia and Penglai in Shandong. One is a smaller second-tier city and the other is a third-tier city. The first consideration was wine-producing areas. Both places are regions with very high wine output in China and a high degree of industrial concentration, so after communicating with the government and understanding industry demand, we received strong local support. The second consideration was convenient transportation. Both Yinchuan and Penglai have modern airports that connect to more destinations. The third was that the local areas had certain reception and service capabilities.
3. Discussion
1. Whether organizers care about launching projects in second- and third-tier cities
Bjoern Kempe: Venues are of course important, but organizers should pay more attention to the quality of visitors and the satisfaction of exhibitors. The most important factor is the overall experience.
David Audrain: In the United States, Chicago and Las Vegas are mainstream exhibition cities. Las Vegas has 400,000 square meters of exhibition space and Chicago has 250,000 square meters. Scale is important, but location is even more important. The United States also has other mainstream cities, such as New York. Its venues are not especially large, but it can attract a large number of international visitors and exhibitors. That is why some international exhibitions choose New York first. One difference from China is that two-thirds of exhibitions in the United States are still organized by local associations. I believe that, in terms of the number of association-run exhibitions, the United States exceeds any other country.
Zhong Gang: Regarding strategy in second- and third-tier cities, I think there are two future opportunities. One is that China's second-tier cities have greater development potential. The other is that China's Belt and Road strategy provides new momentum for internationalization. As a professional organizer from a first-tier city, we still face many obstacles when going to second-tier cities, mainly in how to connect with local governments. For example, we have our own methods, but second-tier city governments often have a very strong government-led approach, and there are many small consumer exhibitions. This conflicts with our previous strategy. But I believe there will be many future opportunities in second- and third-tier cities. As China develops, local markets will become more open and more advanced, and their scale will be sufficient to support our business model.
Roland Bleinroth: If placed in China, Stuttgart would be a second-tier city. But in Germany we do not use such a classification. Although Germany's exhibition market has become saturated, we still invest in and renovate new venues. The new venue is more than twice the size of the old one and has more advanced technology. As a result, we have gained better competitiveness and began to achieve double-digit growth last year.
2. Whether exhibitions in second- and third-tier cities need government subsidies
Audience question: I think China's second- and third-tier cities are overdeveloped. They have a lot of space for us to do business, and sometimes the supply area is even twice the exhibition area you have. Governments in second- and third-tier cities have set up large funds to pay organizers and subsidize their exhibitions. My question is how government subsidies can truly improve China's exhibition industry.
Roland Bleinroth: Our business model in China operates through a joint venture in Nanjing. If you bring a new exhibition to a new city, the local government will certainly support you. But this model, which resembles investment attraction, is not an effective or sustainable business model. A business model with financial support and incentives is of course good, but that is not the main reason for business growth. Many people believe success does not come from subsidies, but from finding the right venue, the right industry, very good market participants and visitors, and appearing at the right time and in the right place. All of these factors, plus incentives, lead to success.
Men Zhenchun: This policy should be viewed positively. First, China has so many second- and third-tier cities, and everyone in the exhibition industry starts from roughly the same point. At this stage, a city with good policies can attract more exhibition resources and develop its exhibition industry more quickly. Second, in many places, exhibitions are not only an industry matter. They can also enhance a city's image, drive real estate, promote rational layout, and guide standardized development. Third, government support policies can cultivate and expand local markets. Fundamentally, however, industry development should rely on market behavior and market value.
David Audrain: In the United States, people also criticize overdevelopment in some places, especially in some third-tier cities where venues have been built without much business. The hotels that support the venues may also have low utilization rates, and in some cities no venue is truly profitable. Even so, these hotels are still regarded as city landmarks and as elements for government investment promotion and convention industry development. Sometimes a city becomes attractive precisely because it has such hotels.
Zhong Gang: There is indeed overheating in venue construction across many places, and more venues are under construction or about to open. The problem of venue surplus will certainly have to be faced. Regarding government subsidies that attract and support exhibitions, the intention may be good, but government funding distorts the market for commercial professional exhibitions. Governments often subsidize their showcase exhibitions or annual regional exhibitions named after the locality. Such funding disrupts the entire business rule system. Some exhibitor resources and professional visitors could originally attend more commercial professional exhibitions, but because of government subsidies, they can only tend toward, or be forced to attend, government-sponsored regional exhibitions. This has a great impact on commercial and professional exhibitions.
The distortion is not only in the commercial market. Because there are too many venues, some exhibition companies formed under government subsidies are often keen on consumer goods exhibitions. When these two forces overlap, a group of exhibition opportunists emerges. Some exhibitors participate in regional trade fairs wherever there are government subsidies. They use platforms built with government resources to deliberately create incidents and obtain more non-exhibition business interests from governments and organizers. On the government side, because of official term limits and performance requirements, actions are often short-term. Officials pay more attention to bustle and appearance, while lacking overall planning and sustainable operation. For example, governments often give many subsidies to touring exhibitions, but officials often do not consider whether such exhibitions promote the local exhibition market or help genuine local development.
I believe everything will eventually return to its essence. Fortunately, the Chinese government has already seen these problems. From the central government to local governments, many regional official exhibitions have been greatly restricted, and even national-level exhibitions have clear restrictions. The industry is gradually returning to the essence of the exhibition market.
3. Cancelling government subsidies
Audience question: China's exhibition industry has an interesting phenomenon: the farther west one goes, and the more one goes to third-tier cities, the higher the rank of exhibition management bodies. For example, third-tier cities may have exposition bureaus, second-tier cities may have exhibition offices, while in first-tier cities, Beijing, Shanghai, Guangzhou, and Shenzhen only have exhibition associations. In the 13th Five-Year Plan for the exhibition industry, we are considering cancelling special government subsidies for exhibitions, or using those special funds for public services needed by exhibitions, such as public transport, public health, and security. My question is: if special exhibition subsidy funds are cancelled, how should second- and third-tier cities develop, and what specific suggestions are there?
Bjoern Kempe: I completely agree with Mr. Roland. Subsidies cannot be the main driver of the industry. In the early stage of development, subsidies may play a supporting role, but after two or three years they are no longer needed. In any case, the exhibition industry should have independence. Our exhibition has been held for two sessions and has received government subsidies. But we do not rely on such subsidies. The Penglai exhibition charges RMB 1,000 per square meter. From the organizer's perspective, what we need to do is build a complete business model, have a profit model, and improve quality.
David Audrain: The United States does not have this kind of government subsidy specifically for the exhibition industry. However, competition among some cities is very intense. Although there are no direct subsidies, governments may rent venues to organizers at discounted rates. For many people, the risk of venue rental costs must be considered when making plans. As for Chinese government subsidies, I think they are certainly closely related to the development stage and scale of the exhibition industry in second- and third-tier cities.
Zhong Gang: It is not difficult to obtain government subsidies. I once discussed a project with a local government, and they asked whether I wanted a RMB 2 million subsidy or a certain policy. I said I would of course choose the policy. We also receive government subsidies in Shanghai, several million yuan every year. For us, Shanghai's government subsidies are, first, open and transparent, and second, they encourage the best exhibitions. The main problem in second- and third-tier cities is that the government not only provides subsidies; it is also the organizer of the largest exhibitions.
Therefore, the first thing to do is not to cancel government subsidies, but for governments to stop organizing exhibitions. According to our research, in many second- and third-tier cities, most government subsidies go to exhibitions organized by the government, or to exhibitions related to the government. UBM has a hotel exhibition in Chengdu covering tens of thousands of square meters, and the government subsidy is RMB 100,000. Chengdu also has many very small exhibitions whose professional level cannot compare with the hotel exhibition, yet some receive subsidies of tens of millions.
Therefore, rather than immediately cancelling government subsidies, it would be better for the government to exit the commercial exhibition market and not compete with professional companies. Government subsidies should be transparent and fair. Like relief funds, if an exhibition meets the standards, it should be able to apply at the counter, and the rules should be the same for all exhibition companies.
Roland Bleinroth: Regarding subsidies, I think many factors need to be considered. When organizers consider site selection, subsidies are also a factor. In Germany, some local governments, like governments elsewhere in the world, also want to make exhibitions better and provide certain subsidies to exhibitions entering their cities. The form is similar to that in the United States, offering venue rental fees to organizers at discounted rates. Whether this is good or bad, I do not think it is harmful to exhibitors, and for organizers it is good to rent venues at lower prices. Government intervention may distort the market to some extent, but as long as subsidies are fair, just, and open, I think there is no problem.
4. Internationalization of the exhibition industry in second- and third-tier cities
Audience question: With the development of the exhibition industry, second- and third-tier cities will also have demand for internationalization. How can exhibitions become internationalized? What services should cities provide, or what conditions and challenges should they meet, in order to move toward exhibition internationalization?
Roland Bleinroth: A very important point in internationalization is whether you are attractive enough to your most critical and important customers. Messe Stuttgart is an international company. Compared with Hannover, we are relatively remote. But Stuttgart is supported by strong automotive, IT, and medical industries, so we can hold many large international exhibitions. This is not because our city is more beautiful or better located, but because of the strong development of diverse local industries. My suggestion is not to imitate others. Greater internationalization is not always better. Sometimes it is better to focus more deeply on a specific segment. If you focus on a highly specialized industry, it does not make much difference where you place the exhibition. The conclusion is that if you are in a smaller second- or third-tier city, you must focus on niche markets.
Bjoern Kempe: First, you must be close to the target market, and infrastructure is very important. If there is no airport or railway station near the venue, and the journey is more than 45 minutes, we will not consider choosing that location for an exhibition. Second, hotels are also very important. They must meet international hotel standards, and food and accommodation experiences must be good. The climate should also be suitable. In general, infrastructure, transport, hotels, lodging, and food are all important. China also has one strong advantage: safety, which is somewhat weaker in Europe and the United States. This is very important for international exhibitors. Shanghai is the best example. In addition to first-class venues, it has good shopping centers and hotels nearby and a highly developed public transport system. All of these are necessary factors for success.
David Audrain: At present, it is not very realistic to discuss the internationalization of third-tier cities, except for very special cities. Very few international exhibition organizations place exhibitions in third-tier cities, unless the industry is extremely specialized and the city happens to be very strong in that niche. Third-tier cities in the United States do not have international exhibitions at all. Their exhibitions and conferences are local events organized by local associations. This allows their venues to achieve decent rental rates. I think cities should adapt to local conditions and start from local strength, rather than simply talking about internationalization.
Men Zhenchun: China has a vast territory and broad coverage. If an exhibition is national in China, it is equivalent to an international exhibition in Europe. To hold an international exhibition in China, first, one must have good hardware and software; second, the city must have strong positioning. Whether a city has the conditions for internationalization is very important. The simplest, fastest, and most effective method is to rely on government strength.
Zhong Gang: Our company has done two things over the past 20 years. In the first decade, we were a professional Chinese exhibition company and focused on exhibitions in Shanghai. In the second decade, we used our own advantages to build an international team. Exhibitions are a people business, and human resources are the most important. We have seen that many second- and third-tier city governments are too eager for internationalization. In fact, they should first understand themselves: why internationalize, and what is internationalization? Then comes the question of how to internationalize. In the long run, cities need to build local enterprises, namely professional exhibition companies that are open and have an international vision. Only then will they have the opportunity to become international. Every city has its own characteristics. Even a small city like Penglai can have a very international conference because of its wine industry.