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SCMP Reporter

CONSUMER nationalism is a growing phenomenon in China.

   Articles in the official press bemoan the loss of Chinese brand names, swept away by the tide of international competition.

  It is not enough that many foreign brands are now manufactured here, critics say, they should also bear Chinese names.

   Anxious for a new image and bowing to foreign marketing expertise, Chinese joint venture partners have agreed to shed long-standing brands in favour of new foreign ones.

  The Market Research Institute, under the State Council, found 12 out of 13 pharmaceutical companies and 49 out of 60 breweries that joined foreign partners had dropped their previous brand names.

  Such findings have prompted calls to defend mainland products.

   'We welcome foreign investment, but we can't just let our young national industry compete with century-old foreign counterparts without any protection,' Ren Xingzhou, deputy director at the institute, said.

  In reality, foreign firms are using overseas brand names while also investing heavily in local ones.

  Henkel, the German consumer goods manufacturer, is entering the market with its competitors and upgrading products.

  Dr Michael Zipp, the managing director of Henkel in Beijing, said: 'When Henkel first came to China, we relied entirely on local brands and then gradually began to introduce foreign brand names at the premium end of the market.'   International brands such as 'Persil' and 'Fa' are its top products. The German company, which has US$300 million invested in China, has retained its partner's brands, including the bestseller 'Tianjin Enzyme' washing powder.

  The majority of Henkel's turnover comes from local brands even though premium names can be up to five times more expensive.

   Henkel has three joint ventures manufacturing detergent. Its production - about 150,000 tonnes a year - increases by roughly 10 per cent per annum.

   Henkel also has three joint ventures that make cosmetics, one of which, based in Guangdong, produces Western products including the 'Fa' range of soaps and facial creams.

  The other two - in Shanghai and Beijing - so far produce only Chinese brand name goods including Kemeng facial cream and Guangming hair dye.

   However, it is not simply an issue of China versus the West. In the past, brand names were not important.

  'People were just given a box of washing powder or a bar of soap, they had no choice,' Dr Zipp said.

  With a leap in the range of consumer goods available, product identification is crucial in the new competitive environment.

   Many of these products have been around for years but rising incomes and urbanisation has vastly expanded the market.

  Millions of new apartments have sprung up in China's modern satellite cities.

  This year, central and local government have allocated more than US$2.3 billion for the construction of low and middle income apartment blocks.

  The knock-on effect of this urban consolidation is a staggering demand for consumer durables and associated products. To capitalise on this, mainland firms have taken on joint venture partners to provide technology, capital injection and marketing expertise.

  In the past, the first thing to go out the window in this marriage of convenience was the brand name products of the local partner.

  'In the late 1980s companies coming to China thought foreign brands would wipe out the local equivalent,' an industry source said.

  Since then, the novelty of having foreign goods has worn off and the quality of mainland brand names has improved. This is due to a combination of technology transfers and increased competition.

  Foreign companies are now more likely to divide the market with a local brand name.

    Two years ago Samsung formed a joint venture with the Chinese manufacturers of 'Beijing' brand television set.

  The mainland makers had a strong market share in Hebei province so the Korean giant supplied technical, design and sales knowledge to boost brand sales, while pushing its own brand elsewhere.

  The company also enlarged the sales area of its partner to include most big urban centres, except Guangdong, where an increase in smuggling has made it difficult to compete.

   Bosch-Siemens and Wuxi Little Swan began joint production late last year of a Siemens front-loading washing machine that retails for about 4,600 yuan (about HK$4,300).

  Wuxi Swan holds 40 per cent of the Chinese market with its top-loading appliances which sell for between 1,000 and 2,000 yuan, including its 'love your wife' model.

  In return for technical assistance, Wuxi Swan would co-operate on sales and when this is complete, on the Bosch-Siemens model. In this way the partners co-operate and share the market.

  Procter & Gamble, however, varies its strategy, producing detergents, including those it inherited from joint venture partners, in all price ranges but opting for one brand of toothpaste - Crest - which it introduced to China three months ago.

  Premium goods are, on average, 50 to 100 per cent more expensive than others.

    On occasions, depending on how much more the product costs to produce and how sophisticated it is in the eyes of consumers, this range can be much higher.

 'Whisper', the sanitary towel, initially sold at nine times the price of its local rival though this gap has been narrowed.

   Meanwhile, the consumer goods market looks set to continue its steady growth. Eight million washing machines are made annually in China and, while most Beijing and Shanghai residents have access to one, average detergent sales - per person - are still just 15 per cent of those in Europe.

   The market has recently expanded steadily at a rate of 5 per cent per annum, but its penetration, even in many urban areas, remains low, leaving plenty of room for expansion.

  As growth continues, Chinese brand names are likely to take up an even bigger proportion of the market.

  'It is an important issue in the consumer market right now,' Dr Zipp said.

   'We make a point of communicating our strategy in negotiations with Chinese partners and this definitely has a positive impact.' 



International rivals sweep away Chinese brand names