China searching for a brand name

China may seem the ideal launchpad for luxury brands, but few local players have emerged to challenge Chanel, Armani, Gucci, Longines and the other fashion blue chips

China may seem the ideal launchpad for luxury brands, but few local players have emerged to challenge Chanel, Armani, Gucci, Longines and the rest. AFP
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Louis Vuitton handbags, Rolex watches and Burberry scarves are must-have accessories in modern-day China. But they are not cheap.

As the nation continues to power ahead, albeit with a slight tailing off in growth expected this year, the spending power of Chinese shoppers matches their enthusiasm for the world's best-established brands.

Yet, while China's newly minted middle class spends - the total outlay on luxury goods by mainland Chinese jumped more than a third in 2010 to 212 billion yuan (Dh123.3bn) - the goods they buy are overwhelmingly foreign. Despite the undoubted patriotism of the Chinese, they like nothing more than to buy Italian menswear, French perfume, Swiss watches and German cars, even though sometimes they are manufactured in China.

With its rich heritage and newly spendthrift shoppers, China may seem the ideal launchpad for luxury brands, but few local players have emerged to challenge Chanel, Armani, Gucci, Longines and the rest.

This paradox was the main topic at the 4th Prestige Brands Forum at the China Europe International Business School in Shanghai this month.

Few doubt that building a luxury brand is a slow process, as illustrated by the fact that names such as Cartier, Burberry and Longines date to the mid-19th century.

"To create a luxury brand you need years, decades, maybe centuries, so it's not going to happen [in China] overnight, but it's starting to happen," says Bruno Lannes, a partner in the Shanghai office of the management consultancy Bain and Company.

One view is that Chinese luxury brands are most likely to become global if they have a link to the country's own cultural heritage.

Francis Chen, the founder of Franz Collection, a Taiwanese-based company that makes most of its upmarket porcelain in China and sells it through more than 6,000 stores worldwide, has done just that.

"If Chinese companies are to go global, we must have Chinese elements and international elements," he says. "In China, we can build very strong and powerful [brands]. A strong brand must have its roots in its culture. If Americans didn't drink Coca-Cola, would you? If Americans didn't watch Hollywood movies, would you?"

The clothing brand Shanghai Tang, which was founded in Hong Kong in 1994 and has gained a following with its traditional designs, demonstrates the value of Chinese culture in building a luxury brand.

Top-quality craftsmanship is also vital. China's long history, in which being a scholar was prized over being a craftsman, is, says Edward Lu, the president of Lezare International and Montblanc's former China managing director, an obstacle to the development of high-level technical skills.

He believes Chinese companies can, however, overcome this. "Do Chinese companies have the best materials, the best techniques? If they do, I believe in the future there will be many global brands with Chinese ingredients," he says.

The global success of Chinese luxury brands may depend on issues that go beyond Chinese heritage and product quality.

Michel Gutsatz, a programme director at Euromed Management, a business school based in Marseille, and an adviser to The Scriptorium Company, a brand-strategy agency, says there are two obstacles to the development of Chinese luxury groups. "Number one is different business cultures … The other is different creative cultures."

He cites YC Yeh, the founder of the Hong Kong carpets company Tai Ping, who has said Chinese people are "very good at manufacturing, but the culture forbids marketing".

To revive its fortunes, in 2003 Tai Ping hired James Kaplan, an American, as chief executiveto "develop the brand globally".

When it comes to creative cultures, Mr Gutsatz says the key difference is that with European luxury brands, the "creative director is like a god". He sees this as offering many advantages.

"They manage quality, they manage public relations, they manage relationships with VIP customers, overall brand consistency … They have a power over the brand that's very difficult to understand in Chinese culture," he says. "We have designers [in China], people that create, that draw, but they're like the people in the studio are in Europe, because we have different creative cultures."

One way for Chinese companies to secure expertise is to buy international brands and transfer the management and creative cultures. Another route is to hire European brand consultancies.

Mr Gutsatz believes Chinese companies sometimes fall down because they may pay an expensive foreign designer to begin a project, then save money by reverting to a cheaper local specialist to complete it. This is a mistake as it dilutes brand value.

"You need to build in luxury brand competencies. That can only be done by buying expensive expertise. Everyone tells me how entrepreneurs don't like to buy expertise. But you need to buy it and pay for it. You must hire talent," says Mr Gutsatz.

Another drag on the development of China's luxury brands is a lack of trust by shoppers.

Last year, the China branch of the prestige furniture distributor Da Vinci was hit by claims that its supposedly foreign-made products were actually manufactured in China.

It was the latest consumer scandal to hit companies in the country and added to the scepticism consumers have about Chinese products.

So, when this is added to the fact that Chinese brands are competing against European companies with more than 150 years of history, it is perhaps no surprise that few prestige companies have emerged from the world's most populous nation.

"We have nothing close to Sony or Apple or Mercedes," says Elliott Yuen, a former chief executive of Shanghai Tang. "We still don't have a decent international Chinese brand."

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