Made for China; soon made for the world. Beware!
The front page masthead on today’s Financial Times (October 23, 2013, Asia Edition) screams out “Made for China: Why foreign brands are beating the locals.” The headline is misleading as it neither fits the facts of the China market, nor does it fit the content of the article!
The fact is that in some categories, Chinese consumers prefer to buy foreign brands and the reasons are pretty obvious. In mobile phones, watches, perfume, autos Chinese consumers overwhelmingly prefer foreign brands. In other categories, like bottled water, spirits, beer, cigarettes, dairy, and jewellery they overwhelmingly prefer Chinese brands. In categories like sportswear, leather goods, and apparel, the preferences appear to be evenly distributed between domestic and foreign brands, according to the data reported in the FT article. The data are not surprising in some ways and surprising in others, both of which have important implications.
First, in categories that are high tech like mobile handsets, watches, and autos, the preference is clearly for foreign brands. In handsets, for example, Samsung and Apple collectively control some 67% of the Chinese market and Chinese players like Huawei and others account for less than 10%. This is to be expected as the Chinese companies are late entrants in the category and have a lot of catching up to do in terms of technology. The same can be said of the auto business. In categories like watches, or for that matter perfume there is a huge cachet with “Swiss Made” and “French” not just in China but worldwide. As such, it would be unusual to expect dominance of home grown Chinese brands.
Second, for products that are consumed in a manner that all can see, as in apparel or sportswear, for example, they can be used to signal one’s self-concept (e.g., modern, global citizen, traditional, or proudly Chinese) or in the case of mobile handsets, cars, and watches, one’s status, for example. Thus publicly consumed goods allow the coexistence of local and international brands as both have signaling value to consumers, and the diversity that exists allows for the different players to co-exist. It is noteworthy that the Beijing Watch Factory manufactures sophisticated mechanical movements and watches that capture the Chinese aesthetic, selling timepieces that cost over one millon RMB! And, Lining, the local sportswear brand accounts for 16% of the Chinese market, second only to Nike, and ahead of global behemoth, Adidas!
Third, in categories where technology is not an issue and where culture and the local aesthetic and taste are crucial, as in the case of spirits, beer, cigarettes, dairy, and jewellery, clearly Chinese brands dominate, as one would expect. Interestingly, notwithstanding the dairy scare due to contaminated infant food with melamine that sickened thousands of children, even killing several, 92% of Chinese consumers have bought domestic dairy brands in the last 12 months, according to the data reported in the FT, suggesting that local culture and taste override even safety fears, which one might have expected would have influenced purchase of foreign brands in this category.
Thus, Chinese brands exist and within China are holding their own in many categories and even flourishing. Some are making in-roads internationally. The likes of Haier and Lenovo are already well known outside of China. Brands like Lining (sportswear), Oppo and TCL (consumer electronics) are beginning to establish themselves internationally. And, in the B2B space, Huawei, ZTE, and Mindray, are brands in their own right on the international stage going toe to toe with GE, Philips, Siemens, Toshiba, and Ericsson. These are early days and we can expect many more Chinese brands to leap on to the world stage in the coming years. Complacency from reading the FT headline may be a prelude to a rude awakening!