China’s economic growth, though patterned after the principles of the West, is proving to be progress towards a different path (Boisot and Child, 1996, p.601). China started an economic reform, in 1979, which allowed it to liberalize its economic and political regulations. These changes have made consumers in China become increasingly wealthy.
The disposable income of urban households has grown steadily from 2004 to 2007 (PRC 2011). This domestic has a lot of potential, which in turn has attracted the interest of local and foreign corporations. This potential can be signified by the continual growth of retail sales of consumer goods, for instance retail sales figures increased by 3% in 2007 (PRC 2011).
China may be described as a large and homogenous developing market. The ‘huge population, the rapid industrialization and unprecedented economic growth’ provides manufacturers a great opportunity (Ewing et al., 2002). Multi-million Fast Moving Consumer Goods (FMCG) like Coca Cola, Uniliver and Mc-Donald’s have experienced a lot of success in this market. The consumer brand consciousness in china goes through four eras and steps into a post-industrialization era. The consumer’s attitude has seen a change from a supply-side orientation to a demand-side orientation (Schlevogt, 2000). Nolan (2002) once pointed out that china is moving rapidly to integrate with the world economy.
The Preference For Domestic Brands
There are still some issues which may act as an impendent for international companies. One such impediment, cited by many scholars, is local brand loyalty in china. Ayala and Lai (1996) claimed that foreign brands may find it hard to enter this market, due to the development of brand loyalty. “Foreign brands underestimate the power of domestic brands and the degree of brand loyalty to them” (Ewing et al, 2002). Consumer behavior will often vary from country to country, and in China’s case consumers tend to prefer local brands. After the economy opened up, local brands began to gain experience and marketing sensitive from multinational corporations. Chinese Local brands will often tend to have a better understanding of domestic consumer behavior and they are often more flexible in the adoption of a strategy that fits with the local market environment.
Other factors that internal brands have to contend with while competing with local brands are ethnocentrism and protectionism. According to Bates (1998) the idea that “west is best” is no longer the dominating factor for consumer’s first choice. Although, western culture still does influence consumption behaviors, it tends to benefit local brands more than their foreign competitors. For example, there has been a general trend among businessmen to wear formal business attire, rather than casual wear. But local brands like Youngor and Firs have been the main beneficiaries of this trend instead of foreign manufacturers. “European fashion was most aware by Chinese consumers, but consumers simply consider it as a source of choice rather than actually purchasing European fashion products” (Bates,1998).
According to Nolan (2002) when China joined the World Trade Organization, their local corporations needed to find a way to compete on a worldwide field. China’s industrial policy also faced many issues in the process of emerging into the global business arena. These limitations in turn, constrained the development of local brands. For instance, ‘policy inconsistency exists in the same industry, China’s weak economy based, and failures in China’s bureaucracy’ (Nolan, 2002).
The Growth of China’s Fashion Industry
The Vogue China Fashion Index (2006) (the National Bureau of Statistics) found that Chinese consumers associate fashion with modernization, innovation and personalization. According to the statistics, 18.7 % of Chinese consumers consider modernization as the highest factor while selecting fashion, and then followed by 17% who consider personalization more importantly, and then finally 15.7% consider innovation as the biggest factor in choice of fashion. This trend would be described by Chinese consumers as the emergence of the first impression and 77.4% of consumers consider fashion as represented by apparel.
Davies (1992) presented four criteria ‘differentiations, premium price, separate existence and psychic values’. Therefore, consumers require quality satisfaction, personalization and innovation in order to make a purchase. According to a projection done by O&L and a Global Investment Report done by Goldman Sachs (Ong, 2007) pointed out that apparel market was seeing a seven percent yearly increase which goes up to more than RMB 200 billion.
One of the other major stimulating factors for this industry is the high profit margin brought about by low labor and sourcing costs. This profit potential has attracted the interest of many foreign and local brands, to swarm the market. According to Ong (2007) consumers are becoming less price sensitive and are putting more focus on the quality, service as well as the innovation of the brand.
Fashion may be classified in different ways. There is the street wear, the haute couture, office wear, and others (Easey, 2002).China’s fashion industry can be subdivided into three sections. Firstly, there is the haute couture market, which is monopolized by foreign brands like Giorgio Armani, Christian Dior and Louis Vuitton. The consumers in this market target high quality, personalization and innovation (Ong, 2007). Then there is the designer wear market, which has experienced a lot of fierce competition between foreign and local brands. This competition has been led mainly by improving quality and service of local brands, like Giordano, Lining and Youngor, which have become market leaders in the production of business, leisure and sports apparel. As the dramatic growth of middle class consumers, this market requires more on quality and service (Ong, 2007). Finally, there is the street fashion category, which can be defined as a low priced and basic clothing market. This category has a huge following among Chinese consumers. Manufacturers under this category have the benefit of low entry barriers, which has seen many local brands flow into this market (Ong, 2007).
Local Celebrity Endorsement
Chinese local brands differ from western brands in the way they solicit brand loyalty. This section will cover those differences in terms of advertising, product performance, store ambience, country of origin effect and switching costs. Most Chinese local brands will advertise their products, through celebrity endorsements.
According to Erdogan (1999), celebrity endorsements in marketing communication are valuable because it is able to translate the credibility of the celebrity to the brand. The main difference between local brands and their foreign counterparts is their focus on improving brand awareness rather than brand image. The main fashion opinion leaders are young consumers who are easily influenced by their celebrity idols. These consumers will tend to trust the quality of the suits based on their idols testimony or amend their dressing style to fit in with one portrayed by their idol. Another important factor is the differentiation strategy used by manufacturers, that is, advertising will always focus on product category rather than image. Therefore, consumers will exhibit a preference when purchasing clothes, for instance a tailor jacket from septwolves or a formal suit from Youngor.