Already the world’s biggest production base for sporting footwear and apparel, China presents a vast opportunity in sporting goods and brand exploitation, according to a report published by SportBusiness Group. China is becoming a battleground for both foreign and domestic sporting goods, properties and brands. Chinese athletic footwear manufacturers accounted for a remarkable 76.4 per cent of the US market in 2001 worth US$2.92bn and a 20 per cent share in the EU. However, quite the reverse is occurring in their home markets.
Brands such as Nike, Adidas, Reebok, Fila, Mizuno and Asics have become established since the 1980s. Nike was the first to make a move, shifting manufacturing plants to southern China from South Korea, before deploying licensing and retail strategies in the early- to mid-1990s.
For the athletic footwear market, Dongguan in Guangdong province is the main manufacturing location, whether for domestic or foreign consumption. Joint ventures in region make the highest quality products worldwide, apart from patent leather football boots that are usually hand-made in Germany or Italy. The largest is a Taiwanese joint venture called Yi Yuan, employing 100,000 workers across Asia and 30,000 in Dongguan alone. All the major sports footwear companies use this supplier, though Nike also partners with local firm Da Feng Trading and several other small suppliers. Adidas has a production base in the Shanghai region.
Chinese brands have some prominence too, with Li Ning Sports Goods the best known, along with G-Weat and Xing Wei. According to Guy Horne, director of sports rights at IEC In Sports, Li Ning is the top sports brand in China. He says it sells 50 per cent more in revenue terms than Nike, which is number two, with Adidas a close third and other brands far behind. Li Ning is the retail model pioneer based on franchising, with more than 1,000 outlets across the country. This approach allows local businessmen to manage the franchise and undertake sales promotion and protect the brand through forging links with local government.
Horne notes that many former and current Chinese sports stars are following the example of Li Ning by launching their own brands, with table tennis players such as Deng Yaping, Kong Linghui and Liu Guoliang being examples. "However, Li Ning apart, most other Chinese sports brands are still B-grade image products in consumers’ eyes," he suggests.
Nene Leung, founder of Champion Projects sports consultancy, also regards Li Ning as the dominant local player. It is perceived by Chinese consumers as a down-toearth, value-for-money brand, with the likes of Nike and Adidas being regarded as premium designer labels.
"The market landscape is polarised between Li Ning as the volume leader, while Nike and Adidas are the value leaders," he says. "Naturally, these parties are trying to attack each other’s territories."
Horne adds that the extent to which firms expand their presence or decline, depends on the price point of products relative to what consumers can purchase. Nike as the premium brand retails its footwear at US$80-150, which represents a large percentage of an average white-collar worker’s monthly salary in most Chinese cities.
"On the other hand, Li Ning sells similar products at US$32," says Horne. "This is a significant discount, though Adidas has a slightly different strategy. Most of their footwear is US$80-150 but the classic or ‘superstar’ range – those retro 1970s-look products – has price parity with Li Ning."
Domestic pressures Given these competitive forces, most domestic sporting goods brands are under increasing pressure. Yu Zaiquin, vice-director of the sports equipment department at China’s State Sports General Administration, says that although the sector can expect unprecedented opportunities, domestic sports goods manufacturers will have to face severe challenges from overseas competitors.
Regarding China’s membership of the World Trade Organisation,Yu says that gaps between local and foreign brands have to be narrowed in terms of quality, technology and profits.
"Apart from larger domestic companies like Li Ning, world giants such as Nike and Adidas are too strong to compete with," Yu adds. "Though the advantage of Chinese sports goods is their lower cost, most fans would prefer to wear designer labels. A sizeable proportion of small to medium-sized enterprises, which make up client orders on demand from raw materials, may have to withdraw from the market."
That said, the China Sporting Goods Federation is keen to help member firms in the sports goods and equipment markets compete with more established brands. "We use trade shows at home and abroad, as well as advising and certificating domestic producers on quality standards, which will be the lifeblood of these companies," says Laura Yong, an administrator at the federation. "We 18also help members by providing connections with [sports] authorities and possible trading partners. In addition, the federation encourages successful sports stars to promote Chinese brands."
Yu Zaiquin takes up this point. "Sports goods are different to other commodities, so we should make full use of people’s admiration for those stars who have won trophies for the country to create our own brand names," he says.
Women’s soccer star and the former Chinese national team captain, Sun Wen, is a prime example. Now a player with Atlanta Beat in the Women’s United Soccer Association, launched in April 2001, Sun endorses Nanfu batteries and Adidas sportswear.
Sun was a pioneer in the field of star properties, which can still be rewarding without the trend towards big endorsements. Each of China’s Sydney gold medallists received around US$175,000 in state awards. Similar financial recognition at state or association level has been given to Xinhua news agency’s top 10 Chinese sports stars of 2000.
Chinese brands set to catch up
Taking an overview of domestic sports brands, Margaret Ogilvy-Stuart, Sport Unite Co’s Beijing director, has worked in Chinese sports markets for many years. She acknowledges that brands such as Nike have done "incredibly well", but believes Chinese competitors will catch up.
"Even though Chinese consumers want the real thing in sports apparel and footwear, local brands are becoming more professional in marketing and, through advertisements and sponsorship, are using huge television audiences to good effect," she notes.
Li Ning is a leader in this respect. During the Sydney Olympic Games, the firm spent a reported US$3.6m on Olympics-related advertising and US$1.1m sponsoring athletes and amateur teams – an outlay of around 6 per cent of annual revenues against Nike’s estimated 20 per cent expenditure. In addition, being research and quality led, Li Ning has opened a multi-million dollar sports shoes and clothing design centre in Guangdong province using experts from Taiwan, Korea and Japan. In one six-month period in 2001, six new shoe models were introduced to the market, selling at half the price of their Nike and Adidas equivalents.
Recent initiatives have included signing a five-year, renewable partnership deal with Italian sportswear brand, Basic Net. Li Ning will be the new licensee in China for Basic Net’s Kappa and Robe di Kappa brands. And, in terms of export potential, distributors in Italy, the Czech Republic, Greece, Romania and Russia are interested in marketing the firm’s products in those territories.
Key success factors for foreign and domestic brands include price, quality, design appeal, functionality, style and brand name. To these needs should be added presence in the minds of potential buyers, or on the high street, along with exposure of brands through popular media and events.
< br />Merchandising is an example – the means by which products are marketed and sold to consumers, from stadium concessions to point-of-sale displays in department stores or dedicated brand outlets. In relation to building brand awareness and presence, Eric Xu, general manager of public relations firm Hill & Knowlton in Beijing, says: "Any firm or brand, however large or small, foreign or Chinese, will win if it can create new concepts or innovations in merchandising."
Similarly, Ivan Brixi, vice president of sports agency Octagon Worldwide, believes there are great opportunities across the entire sporting goods industry in brand building, especially for foreign enterprises, following China’s WTO membership.
"Many overseas companies will be able to, or will desire, to enter these Chinese markets and sport is the best vehicle since it is both universally popular and is a part of the national culture," he advises. "However, it is crucially important to first establish a presence and encourage awareness before brand building can begin."
An example of this was shown with the first stores of Nike and Adidas in China. In 1993, Adidas opened outlets in Beijing and Shanghai followed by Nike in 1996, with both initiatives being designed as a marketing strategy and not a sales tool. They did so to understand what consumers purchased and how they reacted to international brands at twice the price of local brands.
"The stores were not profitable when measured in sales versus overheads, and a franchise operation would have been better," explains William Chong, formerly marketing manager at both Nike and Adidas. "But as a marketing exercise, it was invaluable in giving employees first-hand knowledge and observation of consumer responses."
These merchandising initiatives were part of a broadly similar retail strategy for both Nike and Adidas in focusing on a limited number of key retail outlets and concept stores – their own brand outlets – in prime locations. To support these stores and the value of their respective brands, both companies have pursued different initiatives.
Adidas has sought to extend its global brand message of being the authentic brand with football as the core sport. England football captain David Beckham is its top role model for footwear in this sport. It sponsors the Chinese national football teams at men’s, women’s, youth and junior levels and provide clothing, a performance bonus and a training budget if a team qualifies for FIFA championships.
"This has been a terrifically cost-effective investment with the enormous media exposure of all these teams in international competition in 2001," says Paul Pi, marketing director, Adidas China. "We have also exploited our relationships with international properties. For example, the media exposure following the French national team winning the 1998 World Cup was definitely beneficial to us in the Chinese market. That said, we sold only 500 French team replica shirts through our own retail outlets in China."
Strategic developments currently being considered at corporate level in Adidas are extending the brand into perfumes, glasses and watches – the global pioneer in this respect being Lacoste – and whether the brand should be taken into gymnasia, fitness equipment and sports bars. These potential shifts mirror developments in China that are aimed at more affluent sports consumers.
Identifying successful sports stars
On the other hand, Nike has followed its global strategy of identifying successful sports individuals who embody their brand values. For example, young Chinese football players such as Qi Hong and Li Weifeng have streetwise appeal and huge potential to succeed. Both are clothed by Nike and appear in point-of-sale material in stores and for outdoor advertising. Replica shirts, as with those for Division One team Beijing Guo An, generate around US$50,000 a year in gross licensing revenues.
Nike’s Hip Hoop campaign, run in Beijing, Shanghai and Guangzhou between June and November 2001, was the latest initiative in Nike’s street basketball efforts that began in China in 1996. Nike wanted to reinforce its leading role in the marketing and promotion of genuine street basketball, which includes three unique Hip Hoop elements – music, dance and fashion. The company also sought to promote its newly launched OB2 clothing series, which is tailor-made apparel for street basketball.
Explaining the rationale for the campaign organised by Octagon, Terry Rhoads, sports marketing director at Nike China, says the company wants to create a ‘street culture’ in China, where individuals can express themselves on and off the basketball court. "Basketball will not just be a game any more but more of an attitude and lifestyle," he adds.
From Nike’s point of view, street ball should be fun, challenging and expressive. Yet, in the past, most sponsored street ball events have tended to be fairly traditional and serious, thus failing to draw maximum target audiences among teenagers. In addition, games like these are considered to be a popular breeding ground for NBA basketball professionals in the US.
Almost 10,000 young people participated in the Hip Hoop games and they received 135 media news stories and 90 minutes of television clips. Further, for OB2 apparel, Octagon negotiated with the top five music and entertainment television programmes for their hosts to wear OB2 clothing. One arranged a Korean summer camp tour where all participating students wore the clothes.
Domestic brands have had their own priorities. Beijing-based Li Ning Sports Goods Co, arch-competitor and an outperformer of Nike and Adidas, has deliberately used athletes, major events and strategic relationships as a means of brand recognition and building. For example, millions of television viewers watched three-metre springboard diver, Fu Mingxia, receive her gold medal at the Sydney Olympic Games wearing Li Ning’s white, red and yellow sportswear with its distinctive Chinese dragon and the brand’s L-shaped logo.
The firm’s first sponsorship of athletes to promote its products occurred in the 1990 Asian Games in Beijing, the year the business was founded by Olympic gymnast Li Ning, who took three gold, two silver and one bronze medal at the 1984 Los Angeles Olympics. Tied to the use of athletes for promotional purposes, Li set up his own sports agency in 2001 called etosports.com to manage and promote professional athletes. Reports suggest that 20 have signed, including 2000 Sydney Olympic gold medal gymnast, Liu Xuan. Li authorised the US$3.6m advertising budget for Olympics-related advertising at the Sydney Games and his firm received further exposure by clothing the French gymnastics team under a fouryear contract to sponsor competitions and supply training kit. In addition, Li saw an opportunity connected to the Beijing 2008 bid and was one of the Olympic Committee’s corporate sponsors.
Sports clubs seek a foothold
However, brand building is becoming as much an issue at sports club level as it is among the industry’s producers and marketers. In this respect, there is also competition between foreign and domestic enterprises. For example, Manchester United’s 1999 Asia Tour was initiated as part of an expanding global marketing plan and as a forerunner to open Asian and Chinese stores, as well as signing a five-year merchandising deal with a Japanese company.
The tour was a brand-building exercise and not to sell merchandise around the China tour Shanghai match. English Premier League rivals Arsenal, Liverpool and Leeds United are taking similar initiatives to promote their broadband media, syndicated documentaries and merchandising respectively.
In this scenario, their main domestic competitor is Dalian Shide FC, the top club in China. More than any other domestic club, Dalian Shide is deliberately building relatio
nships across its fan base to exploit further licensing and other commercial opportunities. Dalian Shide initiatives include:
selling season tickets via club membership to maximise match-day incomes and improve match atmosphere;
a fans forum to which players are invited and which is sometimes presented in the form of a television talk show;
the use of cheer teams and special prematch football skill demonstrations to build match expectancy;
special match-day packages for high school students;
club merchandise, shops and club cafes.
"The department is dedicated to gauging the wants and needs of our supporters," explains club president, Xu Ming. "Away from Dalian Shide, we also enjoy a massive fan base, especially in Liaoning province, and several of our star players have also managed to create a national impact in terms of our popularity and support."
China: Opportunities in the Business of Sport is published by SportBusiness Group, telephone: +44 (0)20 7934 9286, website: www.sportbusiness.com.