Why Brand China is poised for global dominance

Foreign brands are starting to lose out to enterprising local brands in the Chinese market. If they don’t adapt, they will become vulnerable in their home markets, too.

Foreign brands have long dominated the consumer market in China. From cars to sneakers, foreign imports have traditionally been seen as of better quality and have served as a marker of status. But according to a new report, foreign imported goods are now facing a serious challenge from local brands.

More than 60 per cent of foreign brands of fast-moving consumer goods lost market share last year, according to the latest China shopper report by Bain & Company and Kantar Worldpanel, a consumer research company.

The report, based on a private study of 40,000 households, showed slowing growth across the four largest consumer goods sectors -- packaged food, beverage, personal care and home care -- which account for more than 80 per cent of China's consumer goods market.

The trend is not limited to any particular location in China, either. Foreign brands lost share in all city tiers, including in more affluent major urban centres, where they have traditionally had a strong presence.

Chinese consumers are increasingly buying their products online with all of the 106 surveyed categories surveyed seeing online growth -- a 42 per cent jump overall. China is now the world’s number one digital retail market with shoppers there more willing to buy online than costumers in other markets.

Through e-commerce, foreign brands have the best opportunity to market their product directly to China’s rising middle class, but the challenge of dealing with local competitors is starting to show.

The rise of e-commerce has created a market opportunity for local players to not just compete with foreign companies, but to beat them.

Companies like Unilever are facing stiff competition from scrappy Chinese startups like Blue Moon, a local laundry detergent brand that started in 2008. The company used its local knowledge to target consumers who, unlike their Western counterparts, wash their clothes by hand.

The company launched an aggressive marketing campaign that saw it double their ad-spend to $500 million in 2011. When,it stopped spending on above-the-line media in 2012, its foreign competitors thought the worst of it was over. But as Blue Moon continued to eat into their market-share, it became clear something was up. The company had redirected its resources to an innovative in-store activation campaign.

In retail stores across the country, Blue Moon promotional girls were encouraging shoppers to smell the product as if it were a fine perfume. The company increased its market share from 14 per cent in 2007 to between 40 and 60 per cent of today.

As Chinese brands bring the fight to global brands on their home turf, those same global brands will become increasingly vulnerable in their home markets. Once a Chinese brand is able to build up its strength at home, the prospect of it making the leap out of the country into foreign markets becomes a lot more viable.

At the moment, only 20 percent of consumers around the world can name a Chinese brand, according to Millard Brown’s 2013 Going Global Study. However, awareness and consideration to purchase are highest in fast-growing markets like Brazil, India and South Africa.

Another way Brand China has been making the leap is through overseas mergers. By taking on the name of established Western brands, the poor “made in China” association of cheap, poor quality goods is neatly sidestepped. In addition to buying the brand, they’re also getting market share, technological know-how and the expertise into the bargain.

Overseas M&A activity involving Chinese companies reached US$61.9 billion, up 8.8 per cent year-on-year, according to China’s Ministry of Commerce.

Lenovo led the way in 2005 with its acquisition of IBM. Now, the Chinese PC-maker not only leads at home, it also derives 57 percent of its revenue from overseas. Chinese whitegoods giant Haier also bought iconic New Zealand brand Fisher & Paykel.

Increasingly, China is becoming the main battle-ground where global branding success is determined. Foreign brands will need to lift their game.