Is the appeal of foreignness wearing thin in China? It depends whom you ask. Some analysts say multinational brands still have a commanding power while others believe the gap between domestic and international goods is closing.
“In 95-98% of product categories, having a Chinese brand is definitely an asset,” said Ian St-Maurice, a Shanghai-based associate principal at McKinsey.
According to a recently released McKinsey survey of consumer behavior in China, confidence in non-Chinese products has taken a hit lately. The study found that 53% of respondents trust “only” domestic products, up from 46% in a similar poll taken two years ago. Meanwhile, trust in foreign goods, which stood at 21% in 2005, fell to 11% this year.
Even in the large “first-tier” cities, those supposed bastions of foreign-brand marketing, only 7% trust them exclusively. And 41% of those who trust foreign brands said they would give local brands a chance if quality and price were the same. McKinsey claims rising confidence in domestic product quality is one reason for the surge in support. But it also cites nationalism as a factor. St-Maurice said media campaigns against foreign brands or in supportive of domestic ones have an effect on consumer sentiment.
Even appeals to traditional values have an effect, he said, citing President Hu Jintao’s “eight virtues and eight shames” public morality campaign.
Waving the flag
While it is generally accepted that the quality of Chinese goods is improving, the nationalism claim is difficult to prove. Paul French, co-founder of research house Access Asia, puts more stock in a generational shift in outlook toward brands than a surge of nationalist fervor.
When Chinese born in the 1970s and most of the 1980s were growing up, international brands from McDonald’s to Starbucks were new, ubiquitous and “looked clearly a lot better than everything else,” said French. The new crop of youngsters, for whom foreign goods are a given, is simply less awed by them, and is finding comparable Chinese labels.
The fact that some brands promote their own Chineseness, he said, is more “a sign of maturation of the consumer and of the country.”
Others are skeptical that non-Chinese brands are becoming less trusted at all. "Because of heightened quality control issues, Chinese consumers are even more trusting of foreign brands, because they assume foreign [companies] will not cut corners," said Shaun Rein, founder of China Market Research Group.
Tom Doctoroff, Greater China head of advertising firm JWT, agrees, citing the huge price premium consumers are willing to pay for international brands. He stressed that this holds true for everyday goods as well as luxury items.
Where many international companies falter is in positioning themselves too close to their domestic counterparts. Those that seek to appeal to price-conscious shoppers are failing to spot what people like about foreign brands. It is a recipe for lost sales and a diminished brand image in the long term, according to Rein.
Therefore he believes that Dell is only hurting itself by focusing on optimizing its supply chain to compete on price with PC market leader Lenovo. “They are putting out ugly computers that are cheaper and cheaper. In reality, they should focus on producing better-looking computers, even if they are slightly more expensive.”
Foreign brands that don’t differentiate themselves risk being seen as too domestic. Indeed, the McKinsey survey found that many people mistook leading foreign brands as Chinese, and not just in the provincial cities: Half of respondents in first-tier cities guessed wrong.
However, differentiating from Chinese brands doesn’t necessarily mean flying one’s own flag. Doctoroff advocates promoting international standards rather than a specific country of origin, though Access Asia’s French argues that there is nothing wrong with emphasizing indigenous qualities.
In other words, a winemaker from Bordeaux can be proudly French, while it makes less sense for a scotch distiller from Saigon to play up its heritage.