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The rise of domestic Chinese consumer brands to challenge their famous foreign counterparts has become a defining trend in China's industrial development. Anyone doubting this need only take a stroll down one of the main streets in Jinjiang, a small city in the southeastern province of Fujian.
Along one typical 100m stretch of one street, there are 34 shops all selling different domestic branded products. Laying down the challenge to Nike and Adidas – each of which is thought likely to make around $1bn in China sales this year – there are domestic rivals such as Anta, Tebu, 361, Li Ning, Xingquan, K-Bird, Deerway and Xtep. Taking aim at Giorgio Armani, Hugo Boss, Ermenegildo Zegna and others is Septwolves, Lilanz, Hongxing Baihuo,[link widoczny dla zalogowanych], 365+1,[link widoczny dla zalogowanych], Yashi and Cabeen.
The names may sound unfamiliar, even outlandish. But the reality is that in a reversal of the natural order of things, the little fish are starting to eat the big fish. The Chinese companies to which western brand holders outsourced their manufacturing a decade or more ago are now successfully rolling out their own branded products. Often, the items that they sell are indistinguishable in terms of quality from those they used to make for the foreign brand emporiums.
"It is made mostly of cashmere and a little wool, exactly like an Armani coat," said one shop assistant pointing out a stylishly cut grey coat in Lilanz, a branded shop run by China Lilang, a local Jinjiang company which raised HK$1.06bn (US$136m) in November through a Hong Kong stockmarket listing.
"But you can see from the price tag that it costs a fraction of the price of Armani," she added. "People won't see the label, so it will look like you are wearing Armani."
The role that imitation played in corporate development is something that several Jinjiang companies freely own up to. Zhou Shaoxiong, chairman of Septwolves, a Jinjiang company listed on the Shenzhen stockmarket, is quoted by the 21st Century Business Herald as saying that his company first imitated foreign brands, then learned how to innovate itself. Lacoste was an early model but these days when Zhou wanders around shopping malls in Hong Kong, he is more interested in Zara and H&M, the newspaper said.
Septwolves is now so successful that it has sired a whole lair of lupine copycats. Shops with names such as Dancing Wolves, Wolf Zone and Temptation of Wolves could be found just meters away from each other on streets in central Jinjiang. At some stage, such young pretenders may start to erode the brand equity of the company that inspired them, but for now Septwolves appears safe. Its sales this year have been doubling compared with 2008, allowing the company to expand its network of stores across the country.
Similarly successful are several Jinjiang-based sportswear manufacturers such as Anta, Xtep, Peak and 361 – all of which started out as OEM manufacturers for foreign brands but are now internationally-recognised in their own right and winning market share from Nike and Adidas in China. Their ascent up the value chain accelerated following decisions to sponsor stars in the US National Basketball Association (NBA), which has a huge following in China partly because of the participation of Chinese players Yao Ming and Yi Jianlian.
Peak and Anta, which are both listed in Hong Kong,[link widoczny dla zalogowanych], sponsor Mr Yao's teammates at the Houston Rockets, guaranteeing the companies millions of eyeballs when the NBA games are televised in China. Such marketing gambits have helped domestic sportswear brands expand sales rapidly this year in China even as Adidas' performance has slumped. Adidas' retail agents closed around 100 stores this year as business migrated to local competitors. Managers are also being lured away. Zhang Jie, general manager of Reebok China, a division of Adidas Group, left to join Anta in late 2008.
Having established the competitiveness of their brands versus foreign rivals, Chinese companies have several advantages. One is that they tend to rely less on franchise stores than their foreign counterparts, giving them greater control over quality and brand management. Another advantage is that local brands are generally more nimble in expanding into lower-tier cities,[link widoczny dla zalogowanych], a prime source of revenue this year. This ability to keep up as growth radiates from large conurbations to progressively smaller cities is key for sportswear manufacturers accessing a market in which some 340m people are estimated to take regular exercise.
In value terms,[link widoczny dla zalogowanych], China's sportswear market may grow from an estimated US$7.2bn in 2009 to around US$12.4bn in 2012. Such growth, if it materialises, would be likely to catapult some Chinese sportswear brands into powerful or even dominant positions in the industry worldwide. And this is true not only for sportswear but also for fashion garments and several other consumer industries as well. In Jinjiang, local entrepreneurs are well aware that some 15 years after they typically embarked on their careers by making shoes or clothes or light industrial products in tiny rural shacks, they now occupy positions of global importance.
Wang Anbang, president of Susino, one of the world's largest umbrella makers, plans to open several hundred branded stores nationwide over the next year to change his business from merely making umbrellas to selling branded fashion accessories. Susino will aim first at the domestic market, and then seek to build its brand overseas by forging partnerships with suitable foreign companies. Mr Wang is also keeping his eye open for suitable foreign acquisitions.
"It is no problem for us to make an acquisition overseas. China's capital markets have loads of money. It is easy for us to buy," he said. However, the focus would be on learning about overseas markets, fashions and consumer trends rather than charging ahead with acquisitions, Mr Wang said.