I am fascinated by China’s consumer market, mostly because it is so damn unpredictable, at least by me. I have seen Western products go into China that I thought had zero chance of attaining success, only to see them succeed even beyond the crazy expectations of my client. I have two clients who make very different ultra high end and expensive products that I thought would be suited only for a few idle rich in New York or London sell the socks off their products in China by pricing them even higher there than here.  Both of these companies have seen their China sales outstrip their U.S. sales within a year of entering China.

Now I know luxury goods have a definite place in China, but the products I am talking about above (especially one of them) are not even remotely show-off material.

Then I have seen other products go into China that made complete sense to me and flop horribly. You mean to tell me the Chinese consumer won’t spend an additional 10% to get a clearly better product?

At a China seminar at which I spoke earlier this week, IP lawyer, Skip Fisher, spoke on China trademarks. Skip talked of how it can make sense for American brands to register a Chinese version of their brand name. He then very briefly talked of how important it is to choose the right name and of how in choosing that name one might want to consider how it sounds in various regions throughout greater China. I could not agree more.

Creating a product or brand name for China is not for lawyers. Not even for lawyers completely fluent in Chinese. Why? Because creating a brand or product name in China is no different from creating a brand or product name in the United States and who would even think of using their lawyer for that?

I thought of all this today when I read the Enovate China post, “Is Your Global Brand Ready to Compete with Local Chinese Brands?” [link no longer exists]

The post starts out citing to a recent Harvard Business Review article, “From Made in China to Made For China,” by Max Magni and Yuval Atsmon, both of whom are with McKinsey & Company’s China consumer practice group.  This HBR article highlighted how foreign brands are spending more to launch China only brands catering to China’s consumers.

The Enovate post states that “Chinese consumers love foreign brands and products a lot more than local ones” but posits that a shift towards locally made products is occurring. Interestingly, however, Chinese consumers are not well-versed regarding the country of origin of the products they buy.

McKinsey researchers were right to point out that the confusion among Chinese consumers about brand origin is at its peak. According to their research 90% of respondents believe Metersbonwe, the Chinese fast fashion company is foreign, while 70% of them think Danone is a local company.

So when local brands all bear an ambiguously foreign name, the name is not much of an edge any more. Consumers are more confused than ever and turn to the actual product themselves to try and discover its origin.

(Just as an aside, I not that long ago broke the hearts of some good friends by disabusing them of the notion that their ultra expensive LG Brand washer and dryer were Swedish)

China’s consumers traditionally associate foreign brands with “high quality” and, like consumers everywhere, China’s consumers prefer high quality when they can afford it. This has not changed, but what has changed is that the quality of products from Chinese brands is catching up fast and that the Chinese consumer is focusing on not just where the brand is from but where the product was actually made:

Chinese consumers are even more conscious about product origin than brand origin, as imported goods always bear a much higher price tag and are perceived as higher quality. But now it’s almost common knowledge that most of the foreign brands are manufactured in China as well. Therefore the association is weakened.

In a section entitled, “Local Knowledge is the New Differentiator,” the post goes on to emphasize the need for foreign companies selling in China to know the local market:

Local brands have a huge competitive edge with their deep knowledge of the market and local connections. Especially in the fashion industry, local brands are expanding much faster than foreign ones in tier 2-4 cities. They are not only catching up on product design and quality, but also on branding. Recently we have seen creative viral videos produced for local brands like “Semir” and “Metersbonwe”, both drawing in a strong youth interest.

Localized versions of foreign brands like “Shang Xia” [Hermes] and “Denizen” [Levi Strauss] are most likely to fill the gap between the low-end and luxury market. They will battle head-to-head with local brands targeting the same market segment. For foreign brands the immediate challenge is to internalize the knowledge of local market and to move more decision making responsibilities from HQ to the team on the ground here. For local brands, the challenge is to create an integrated branding message that’s cohesive from inside out. Whichever side is able to accomplish these two things first, will win this market.

In layman’s terms, China’s consumer market has arrived and to succeed in it requires expertise. For more on selling into China’s consumer market, check out the following:

On a very related note, I just saw that China now has 833 million mobile phone users.

What does it take to sell in China?

  • Very good entry, once again. But isn’t LG Korean and not Swedish? http://en.wikipedia.org/wiki/LG

  • simon watkins

    I don’t think we’re saying anything very new here in this piece to be frank, but yes, Dan did indicate that LG were not Swedish (“Disabuse” – To free from a falsehood or misconception). However he didn’t follow through and say where they were from; and his grammar could’ve been better I agree. Some editing and attention to detail is needed. But then this is a blog I guess and not a thesaurus.
    Simon Watkins
    Tsinghua University
    English Language Dept, Beijing

  • Sarah

    Thanks for the information. I too never cease to be amazed at what sells in China and what doesn’t and in the end, for many products, the only test is to try. The marketing surveys and reports are nice, but China is so big and so diverse that i sometimes even wonder if those reports have any value at all. Do you think they do?

  • Twofish

    This is part of a general rule which is not to let lawyers run your business. Lawyers are experts at the law, but they aren’t experts in your business.
    One thing that happens is that lawyers tend to enjoy extremely complicated legal problems and situations. These are both intellectually fascinating and result in a lot of billable hours. The trouble is that if you are a business person, you want to avoid complicated legal problems and situations.
    Also lawyers often have an different perspective on things because they get called in when things go bad. There are a lot of stories in this blog about people that signed away everything with no legal documentation, got taken to the cleaners, and then the lawyer gets called in. Because lawyers see these bad situations, the natural reaction of a lawyer is to demand a thousand pages of paperwork if you want to borrow a pen.
    Of course, if you did trust the right person, signed everything over on a handshake and everything worked out, then no one would call in the lawyers at all. The other thing is that law firms don’t get hit by the costs of documentation. It takes time and effort to draft a contract, and if the deal falls through because you can’t draft the contract in time, the law firm doesn’t get hit by the cost of this. Also, law firms are in a bad position to assess risks. If something goes bad with the contract, you might lose a $5m investment. Is this a bad thing? Maybe not.
    As far as marketing goes…….
    Most Chinese consumers don’t know the country of origin of a brand, but that’s because most consumers anywhere don’t know the country of origin of a brand, and that’s because in almost all cases the company that owns the brand doesn’t *want* you to know or care what the country of origin of the brand is.
    If you are a multi-national corporation and you are identified as a US brand or a British brand or a Chinese brand, then you are going to find it difficult to sell to consumers that don’t like US or British or Chinese foreign policy, and you get pulled into all sort of foreign policy issues that you can’t control. So with some rare exceptions, multi-national corporations try to “de-nationalize” their identity.
    There is an exception in China, because Chinese tend to assume that Chinese products are crap, and so when you have a brand that’s extremely well made, Chinese will tend to assume that it is foreign rather local since it’s believed that a local company couldn’t possibly have made something that good.
    Dan: Like consumers everywhere, China’s consumers prefer high quality when they can afford it.
    One other difference between marketing people and lawyers is that lawyers tend to look for general abstract principles, whereas marketing people are in a world in which abstract principles just don’t work.
    This is something that you have to be careful about since it’s not always true. There are lots of situations in which consumers prefer low quality, and there are situations where you want to make a high quality product appear to be low quality. Just to give an example, people will take perfectly good jeans and tear holes and beat rocks on it, to lower the quality. Also, there is an small community of artists that like taking pictures with extremely low quality cameras because those cameras act in unpredictable ways producing a lot of interesting artistic effects.
    The thing that I find fascinating about fashion and marketing is that you end up learning a lot about history and psychology. For example, I’ve noticed that luxury brands do a lot better in China than the United States, because China never had the “60’s counter culture” in the US where it was fashionable to dress up in beat up clothes and do everything you can to avoid looking “corporate.”
    Outside of the major cities, people in the US tend to think that it is rude and stupid to want to look rich, so what you have is people that try to do their best not to look rich, even if they are. Also Americans tend to be a lot more uncomfortable than Chinese admitting to themselves that they are rich. If you tell an American that he is a member of the “elite” or the “establishment” they tend to be extremely offended by it. This means that you have less of a market for Rolex watches.

  • Epperson

    Wow. This is my first time here and this really is a great article and I now have read your other articles on China business and law and I am going to become a regular. Thanks.

  • looney

    It takes hard work, localized knowledge and a lot of time to sell into China. My company started the process two years ago and it has taken until now for us to really get it. I will say though that the opportunities here are as limitless as they are made out to be.

  • Thanks for quoting the article!
    I totally agree that building brand in China now is no different from doing it elsewhere. Companies used to get by low quality product with foreign brand names but not any more. You definitely need to bring your full game if you are trying to sell to China. Market products with strategies just like in any other markets. Of cause local knowledge is essential.

  • Charles L.

    Every country is different from every other, not just China. China, however, is so big that companies must adjust. The interesting thing is finding out how.

  • China is GROWING! They’re spending the ridiculous sums of money they’re owed. Their spending is becoming addicting. Just like it does for those idle rich in New York. Just like the idle rich in New York, they buy things because they’re expensive, not because they’re nice.