Retail trade in the Tibetan areas
Otto Kolbl
In the Tibetan culture, there seems to be no tradition of retail trade. The only traditional trade activity was caravan trading, generally consisting in exporting wool, furs and medical plants and importing tea and other products from India and the Chinese lowlands. This activity would nowadays be considered as wholesale trade. Even in past centuries, much of the retail trade in the Tibetan areas was in the hands of Han and Hui Chinese.
In the absence of such a tradition, Tibetans have not been able to benefit from the development in trade in the 1980s and 1990s. Shops owned by Han and Hui Chinese have flourished all over the Tibetan areas, leading at times to tensions with the local population.
The present situation
In recent years, Tibetans have started to compete successfully in retail trade. At first, some engaged in the traditional activities of collecting medicinal plants from farmers and selling them to Chinese pharmaceutical companies. More recently, some have opened small shops.
Small one-room food store in Langmusi, Sichuan province.
A typical scenario could be described in the following way: one or two members of the family have worked for a couple of years for a company, often as truck drivers or salesmen. When they decide to open a shop, they have got the necessary competence, but no own funds. If they can find nobody who is willing to guarantee a bank loan, they will take a loan from a wealthy Tibetan businessman, quite often with interest rates of 25-30% per year. The landlord of their shop often demands for the rent to be paid one or two years in advance; this increases the amount of the credit they need.
The picture above features a "one-room store". In China, the space on the first floor of street front buildings is structured into standard size segments. One segment is just enough to open a small store; larger shops have got two or three segments. In Tibetan areas, the rent for one segment ranges from RMB 7000.-/EUR 800.-/USD 1000.- per year to roughly double this amount.
Small food shops like the one in the picture above require less capital than other shops; they are a standard entry activity for people who are new in retail trade. However, such shops are dependent on small local wholesale companies. Their turnover is too small for them to order directly from producers or large wholesalers. The problem is of course that local wholesale traders have got their own retail shop in town; the benefit margin for other retailers is kept at a minimum, often below 10%. The problem with Chinese retail prices is that goods sell generally for a whole number of Renminbi, the Chinese currency. Wholesale companies can therefore decide the benefit margin of retailers: if for example they sell something for RMB 1.9 to retailers, the latter have to sell it for RMB 2.0. Any other price would be unacceptable to the clients.
Language is also an important aspect. Especially in villages and towns, most Tibetans do not speak Chinese. Quite often, Tibetans who are new in business have got problems communicating with wholesale traders. On the other hand, language is quite often the reason why Tibetans prefer going to Tibetan owned shops; communication is just that much easier.
The own funds necessary to open a small food shop like the one above is around RMB 20,000.-/EUR 2500.-/USD 3000.-. Three quarters are necessary to pay the rent for the shop in advance for two years, one quarter for buying the goods. This loan can be repaid within two years, even if the interest rate is quite high; however, after these two years, another smaller loan might be necessary to pay the rent for the next two years.
Capital need
The capital necessary for opening a small supermarket is higher; it might range from RMB 50,000.-/EUR 6000.-/USD 8000.- to RMB 100,000.-/EUR 12,000.-/USD 15,000.-. This allows the owners to propose goods with a higher benefit margin like alcoholic beverage and cigarettes, body care products, small household appliances and some clothing. The surface is two to three times larger, which allows the shop to welcome more clients at once. The expected monthly income is obviously much larger than with a small food shop.
The capital for opening a shop specialized in clothing, shoes, household appliances, drug stores or similar kinds of assortment ranges from RMB 100,000.-/EUR 12,000.-/USD 15,000.- to double that amount. The surface which is necessary is not larger than for a small supermarket, but the capital for the goods is much higher. The expected income is again higher than for a supermarket, but it might be spread more unevenly over the year. Food shops, supermarkets, drug stores and shops for household appliances target essentially the local population. Shops for clothing or shoes make most of their turnover with tourists; therefore, their income will be concentrated on the period from April or May to October.
Relationship with wholesale traders
For goods other than food, Tibetan shop owners will rely on wholesale traders in big cities. However, due to their limited Chinese knowledge, communication might be difficult at times. A website could probably help to solve many of these problems. Right now, communication between wholesale and retail traders in China relies extensively on regular meetings, phone communication and sometimes written communication through email and short messages. This is problematic for Tibetan retailers; misunderstandings might arise which could jeopardize the whole undertaking.
A website could work as organizer and translator of the wholesale-retail-relationship. Retailers could order their goods on a website in Tibetan language (or any other minority language in China or other countries in the world). An interface relying on symbols could allow people who can write neither Tibetan nor Chinese to use it too. Han Chinese retailers would get the information relating to the orders in Chinese. The information they enter relating to payment and delivery would again be displayed to the retailers in Tibetan.
Of course, the information about the various items including pictures would have to be entered into the database of the website. The work this requires could be compensated by the streamlined order process. In a first step, only a selection of articles with good sales potential in the Tibetan areas could be entered into the database.
As explained above, finding the necessary capital is a considerable problem for Tibetans who are new in business. Their assortment would therefore be quite limited, especially at the beginning. For their customers, such a website would have an additional advantage: if they do not find what they want in the shop, they can find and order it on this website.
On the main roads in the Tibetan areas, there is quite intense truck traffic; many of the drivers and even some of the owners of these trucks are Tibetans. Thanks to massive government investment into the infrastructure, roads are already quite good and quickly improving. Transporting the goods on a regular basis from the next major city to retail shops all over the Tibetan areas is therefore not a problem.
Such a website could also be used in order to group orders from many small food shops and supermarkets. This could allow them to bring transport cost down and to order from large wholesale companies in the cities. This would increase their benefit margin by avoiding the local wholesale traders.
3G Internet is available everywhere in the Tibetan areas. Tablet PCs with 2G or 3G capability are available for USD 100.- or a little more in China. Providing each new retailer with such a tool is therefore not much of a problem.
The competitive edge of the local population
Like in other countryside areas in China, the local population in the Tibetan areas has got a huge advantage over newcomers to the area. As explained above, language is an important factor. Especially herders have got an increased income due to the recent rise in meat prices; Tibetan yak and sheep meat is in great demand in China. However, their Chinese level is limited at best and quite often totally inexistent. They are grateful for everything they can buy from local traders.
Tibetan farmers and herders, like farmers all over China, generally have got an income which covers their basic needs: food, housing and basic healthcare. In addition, some family members might not be indispensable on the farm. Opening a small shop is a dream for many of them.
When selling to tourists, being a Tibetan might also be an advantage. Some Han Chinese tourists prefer buying from Han or Hui Chinese, which they are used to. Others and certainly a huge majority of foreigners prefer buying from Tibetans. Of course, some basic English knowledge would be very useful, even if now such interactions work reasonably well using sign language and other universal tools of communication.
These factors in combination can certainly compensate a series of negative factors which would tend to disadvantage Tibetan traders. Some of the factors mentioned above can be multiplied by taking adequate measures.