18 Jun Matthew Plowright on how ‘Western brands are losing their advantage in China’
An expert on China as a consultant, researcher, analyst, editor and journalist, Matthew Plowright brings us his views on how the dynamics of western brands in China have shifted and outlines the key factors that are behind this shifting cultural tide…
From luxury fashion to cars, cosmetics to fast food, Western brands have established a stranglehold over a wide range of consumer goods sectors in China over the past two decades.
This dominance has been built on the widely held perception among Chinese consumers that Western-brand goods are better quality, more stylish and more desirable than their local-brand counterparts.
However, there are signs that European and American brands are having an increasingly tough time of it in China. Many leading European and American consumer-sector firms – from Volkswagen to Prada, Yum Brands to Apple – have reported slow or even negative sales growth in China over the past year.
While the companies have attributed these slowdowns either to specific one-off challenges or an overall softening of demand in China, both official statistics and third-party surveys suggest that, despite the negative headlines, Chinese consumer spending and confidence remain resilient.
Moreover, even as leading Western brands have floundered, a number of local and regional consumer brands have enjoyed strong sales and market share gains across a range of sectors, from smartphones to SUVs, casualwear to cosmetics.
All of which point to a more existential challenge facing Western brands in China, namely that the assumption that Western equals desirable is gradually being eroded.
I see several factors behind this:
1. Persistent negative publicity takes its toll
Foreign – in particular European and American – brands have been the focus of a growing number of high-profile domestic media exposes. While some, such as an ‘investigation’ into Starbucks’ pricing policy by state broadcaster CCTV, were spurious, nakedly protectionist and widely derided on social media; others, especially those uncovering health and safety violations, have eroded consumer trust.
A steady drip of bad news stories affecting foreign brands, both at home (such as allegations of malpractice by suppliers to KFC and McDonald’s among others) and overseas (such as the Volkswagen emissions testing scandal, widely reported in China), have been particularly damaging for foreign brands that had previously benefited from the perception that they upheld higher standards than their domestic counterparts.
2. Domestic brands come of age
Domestic-brand goods have long been derided by Chinese consumers, many of whom, if anything, have held a more negative view of the ‘Made in China’ brand than their counterparts overseas.
However, both the quality and branding of leading domestic products have improved in recent years, supported by stricter regulations, heavy investment and a growing pool of talent with both domestic and international experience.
The spec and performance of leading domestic-brand smartphones now compare favourably with international-brand devices. Chinese-brand SUVs are rating increasingly highly in international safety tests – in turn a major selling point for safety-obsessed domestic car buyers. Even though local food and pharmaceuticals firms still have work to do to convince consumers of their safety and quality, heavily publicised state-led attempts to consolidate these industries and enforce stricter safety standards are beginning to have the desired effect.
The emergence of increasingly powerful Chinese brands is by no means just a domestic phenomenon either. Leading Chinese smartphone and appliance makers have already made startlingly rapid inroads into south and south-east Asian markets, and are now making concerted pushes into Europe and the US, as well as the Middle East and Sub-Saharan Africa. This increased international standing plays well at home, as well as abroad.
3. The Korean wave and shifting cultural tides
It’s not just domestic rivals that are posing a growing challenge. Although Korean music, film and dramas have long exerted a strong cultural influence over younger Chinese urban consumers in particular, this has only recently begun to translate into strong sales for Korean consumer goods firms in China.
This trend has, to date, been most evident in the cosmetics and fashion sectors. Amorepacific, has enjoyed high-double-digit sales growth in China in recent years, seizing market share from long-standing European and American cosmetics market leaders by emphasising its products’ suitability for east Asian skin types, capitalising on fast-growing online sales channels and recruiting a roster of Korean stars as celebrity endorsers. “Korean style” clothing and accessories are among the most searched for items on Alibaba’s B2C and C2C sites Tmall and Taobao. Korean, not Hollywood, stars now dominate billboards in cities across China, from Shenzhen to Shenyang.
The significance and impact of the ‘Korean wave’ on Western brands should not be underestimated. By recasting the sphere of cultural influence eastwards, Korea mania poses a challenge for brands that have previously relied on selling themselves as the embodiment of the American or European lifestyle ideal.
Facing up to the challenge
All of which is not to suggest that the days of Western brand dominance in China are over. Products made by European and US brands are still most popular and coveted across a wide range of product categories in consumer surveys, while the millions of Chinese tourists flocking to Europe in particular point to the continuing allure of “the West” in the popular imagination.
But, at the same time, recent sales slowdowns by European and US brands are not solely attributable to stiffening macroeconomic headwinds. Spheres of cultural influence are shifting and the inherent perception advantage that Western brands have enjoyed in China is being challenged at the same time as credible local and regional brands are emerging.
These concurrent trends potentially have much further to run and raise significant questions for the future development of consumer goods sectors globally. European and American brands face a growing challenge to redefine their positioning in China, while the rapid expansion of genuinely competitive Chinese brands will continue to shake up the market landscape across many sectors in emerging Asian, Middle Eastern, African and Latin American markets – and may soon do so in Western Europe and the US.
Matthew Plowright is a China-focused researcher and consultant, offering advice and running research and communications projects for companies and investors. Matthew was previously Principal of China Confidential, a premium research service from the Financial Times, and has spent much of the past decade living and working in China.