Asia Expats Forum

Mike · Site Admin Joined: 07 Sep 2004 Posts: 4359 Location:

China is fast becoming the workshop of the world, renowned for its cheap labour and low-cost products. Beijing Times reporter Zhang Jin questions whether the rising Asian giant can make it in the more exclusive world of luxury goods.
"Don't waste your time, young man. I promise you won't find anything made in China here," says the owner of the fashionable Cesari clothing store.

This is London's New Bond Street - home to stores and boutiques selling some of the world's top luxury goods.

Bernini, Hugo Boss, D&G, Gucci and Velentino are all international brands you'll encounter on a shopping trip.

In the nearby Bernini store, a sales assistant patiently shows me a selection of expensive suits, all proudly labelled "Made in Italy".

The story is the same elsewhere, where the high prices are matched by exclusive 'country of origin' labels.

But where are the goods made in China - that emerging economic giant known for its booming textile industry?

Bargain basement

A short walk through the crowds brings you to the popular east side of Oxford Street, where luxury fades away and prices drop dramatically.

With many items costing just a few pounds, the stores here target mass market consumers, and many of the cheapest clothes are made in China.

But does the absence of "Made in China" labels at the high-end of the market suggest that people in China do not buy luxury goods ?

Definitely not.

Major foreign luxury brands such as Louis Vuitton, Prada and Giorgio Armani have staked their presence in China, and more ambitious plans are reportedly in the works.

"The first thing our Chinese customers ask us when they walk in is 'What's the most expensive thing in the store?'" one retailer told me at a conference in China recently.

Younger generation

According to the latest statistics by the China Brand Strategy Association, about 175 million Chinese people - or 13% of the entire population - can now afford high-end luxury goods.
By 2010, that number is estimated to reach 250 million, based on a 20% year-on-year growth rate expected for the coming five years.

"Undoubtedly China is a promising market, with a fast-growing GDP and a younger generation that is fast developing a taste for luxury goods," says Michele Norsa, chief executive of Valentino.

However, none of these brands are made in China.

And its seems companies have no intention in the near term of producing such luxury goods locally in China.

"Customers may perceive products made there are low-cost and low-quality. Clients still want something that says 'Made in Italy' or 'Made in France'," says Mr Norsa.

Luxury needs

I asked the owner of the Cesari store in New Bond Street if he would ever consider stocking his shelves with luxury items from China.

"Yes," he said. "The problem is, where are the goods?"
The urgency of adding more value to China's goods sold on the international market has become more evident recently.

"Just look at the backlog of Chinese textiles piling up in the ports of EU countries," says an official from Chinese Chamber of Commerce for the Import and Export of Textiles.

"If the products had greater value added and could not be produced by any other country, they would not have been as reluctant as they are now."

But many Chinese enterprises, which are still adapting to the government's drive for an increasingly market-oriented economy, are not yet fully aware of the critical importance of having their own international brand names, analysts say.

"Building such brand names needs lots of resources, including time, expertise and money," says Dennis Zhang, a Beijing-based researcher.

"The real problems is, even if they have the resources, they may not have the patience to pursue the idea for as long as it takes."

Status quo

Weak protection of global intellectual property rights - despite efforts by the Chinese government to toughen up related laws - remains a constraint on brand building.

Before a new brand becomes famous, its pirated versions - typically similar in appearance but inferior in quality - can make bigger fortunes.

That frustrates the confidence of China's entrepreneurs, both at home and abroad.

"Chinese companies need to work really hard to change the status quo," says Mr Zhang.

Some observers have suggested that budding Chinese luxury companies need to target international markets, rather than rely on China's domestic markets to develop their products.

The Chinese have a saying that home-grown flowers don't smell as good as those grown elsewhere, and there is a deep-rooted mindset that local brands are inferior.

But if overcoming this sounds like an uphill battle, some locally-established brands could make some headway.

Paris beckons

The highly regarded and expensive liquor Maotai, for example, could find itself among China's first luxury brands in foreign markets.

Shanghai Tang, the up-market seller of Chinese-inspired apparel is little known on the Chinese mainland, but is rapidly gaining popularity in Hong Kong.

Meanwhile, some international luxury goods makers are reportedly considering moving production of goods such as casual wear and certain leather goods to China.

Analysts have predicted that luxury goods made in China could grace the stylish boutiques of Paris in a few decades.

Expect the same in London's New Bond Street.
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