News & Views
Foreign brand, local brand: The race for relevance in China

The Financial Times reported recently that “Chinese consumers want foreign goods. Whether sports shoes or cars, televisions or mobile phones, cosmetics or nappies, surveys show that foreign brands predominate.”

The paper goes on to warn that this preference for foreign brands threatens China’s attempt to boost domestic profits, as its burgeoning middle class increasingly sends its money into the coffers of foreign companies.

Will Chinese consumers continue to prefer foreign brands in the future? For both China and the companies – domestic and international – that depends on Chinese consumers, that’s the billion-renmenbi question.

We don’t think there’s a decisive answer at this point: It could go either way. Really, it’s a race to relevance. The winners will be the brands that can best address the fragmenting and increasingly sophisticated needs of Chinese consumers.

International brands have had the advantage to date because of two factors:

  1. Chinese consumers trust them to be of better – or at least less adulterated – quality, and
  2. They also signify status better than their local counterparts.

But The Futures Company’s research shows that these advantages may be declining. Since 2009, the percentage of Chinese consumers who agree that they “like products that few people have and are not easy to get” has dropped from 49% to 42%.

At the same time, the percentage of Chinese consumers who seek out style and design has increased from 65% to 70%, while the percentage who seek out personalization has increased slightly, from 47% to 49%, suggesting an increasing level of sophistication in Chinese consumers’ demands and expectations.

On top of this, as China matures into a middle class market, consumers’ needs will fragment – in terms both of product function and emotional and image benefits – as freedom from budgetary constraints enables a greater exploration of different ways of living life.

So while foreign brands hold the advantage in China today, the future is still up for grabs. The brands – whether local or foreign — that can best come to grips with the increasing complexity of Chinese consumers’ needs, will be the victors.

Jeremy Sy is Head of Consulting at The Futures Company’s Asia office.

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