Posted On 2015/08/13 By In Behavior, Business, News, Face, Luxury, Shopping With 773 Views

Rich Mainlanders reaching for Made-in-China Luxury Labels

Mr Akio Toyoda has China on his mind. On the day he announced record earnings, the Toyota Motors president warned of a sharp slowdown in the world’s biggest market, echoing concerns already aired by BMW. But another development in China may spell even more trouble for global automakers: A US$21,700 (S$30,000) Land Rover lookalike manufactured domestically.

A sport utility vehicle bearing an uncanny resemblance to the Evoque model went on sale last week at a third of the sticker price of the original, and it is already racking up thousands of pre-orders.

Jaguar Land Rover’s Mr Ralf Speth has railed at the rise of China’s “copy-and-paste” auto industry. But complaining is all the chief executive and his peers can do as China continues churning out ever more clones of cars, electronics, appliances and clothes originally designed in other countries.

The prevailing opinion in boardrooms from New York to Frankfurt to Tokyo has long been that China, which is minting new millionaires at the fastest rate in history and creating a massive middle class, will be easy prey for established brands with an expertise in hawking goods to higher-income consumers.

The richer mainlanders get, multinational companies presumed, the more they will want Burberry in the closet, Rolex on the wrist, and Lexus in the driveway. What CEOs did not anticipate is mainland Chinese consumers’ penchant for labels saying “Made by China” (if not “Made in China”).

As analyst Thomas Gatley of GaveKal Dragonomics argues in a new report, multinationals may already be losing Chinese consumers they thought were theirs for the taking. “There are now signs that local Chinese companies are capturing much of the gains from this new stage of consumer spending — a worrying development for multinationals counting on China growth,” said Mr Gatley.

The all-important automobile market is emblematic of the trend. Many of China’s nouveau riche aspire to own an SUV, which should be great news for the Toyotas, Daimlers and Fords of the world.

But in the early phases of China’s SUV boom, the companies that flourished were foreign manufacturers with local joint ventures. Sales for those companies jumped more than 70 per cent in 2013 alone. Shanghai Volkswagen’s Tiguan, for example, remains the second-best-selling SUV on the mainland.

Meanwhile, domestic companies are beginning to catch up. In the first half of this year, sales of Chinese-branded SUVs rose roughly 30 per cent versus 12 per cent for foreign names. From January to June, six of China’s 10 best-selling SUVs were domestic.

Domestic Brands gaining Market Share

One can debate why mainland consumers are flocking to names such as Great Wall Motors, JAC Motors, Chang’An Automobile Group and Landwind (maker of the Land Rover lookalike). Value? Familiarity? Nationalist instincts? There is probably no single answer — just as with the many Americans who only buy American-made cars.

“What’s even more surprising,” Mr Gatley pointed out, “is that the domestic brands seem to have gained market share without cutting their margins to the bone in a ruinous zero-sum game.”

If corporate China has indeed cracked the code of offering the right mix of style, quality and price, multinational executives such as Akio Toyoda are in for a bumpy decade.

Are there other sectors at such a tipping point? Recent sales figures from Japan’s Shiseido and Anglo-Dutch Unilever bear out the findings of a July 1 Bain report that “local brands gained share over foreign competitors for the third year in a row.”

Last year, local brands gained shares in 18 of the 26 market-access categories Bain studies, growing an average 10 per cent versus 3 per cent by foreign brands that gained ground in only eight categories. CEOs at multinational giants are quite skilled at hyping the China-potential scenario to shareholders: 1.3 billion people who want to live like Americans are getting richer and savvier by the day.

But if local Chinese companies repeat the success of domestic SUV makers in other industries, international CEOs will have some serious explaining to do. They will also have to quickly remodel their business strategies.

The rapid inroads made in China by domestic smartphone makers such as Xiaomi, for example, suggest danger ahead for international brands. There is a very real risk that the emergence of Chinese consumers will be more of a local story than a global one. Overseas companies that take them for granted do so at their own peril.


Learn more in our Global Ready China Seminars


Sources:

Article: Today Online / Image: Vladimir Yaitskiy

Tags : , , ,

About

Stefan

Stefan (from Austria, Europe) has been living, studying and working in China since 2010. Stefan has worked on several research, publication and consulting projects focusing on the China Travel Market. He holds three Masters degrees and is an expert on China Outbound Tourism, Marketing and Social Media in China. Stefan works with BMG on the Global Ready China Seminars as well as the Global Ready China News and related projects. He also has teaching engagements in the areas of eMarketing and Tourism Strategy.

Leave a Reply

Your email address will not be published. Required fields are marked *