Over the past few years, China has become the most coveted retail market in the world. Brands from across the globe are trying to connect with Chinese consumers, who have emerged as strong consumers and are looking to spend their money on quality products from abroad.
Cross-border eCommerce opened the door for many global retailers and brands, after a big scandal around baby milk powder enraged the entire nation. Having lost trust in their own domestic brands, Chinese consumers began to purchase imported products from abroad.
But now there is a shift happening. Domestic Chinese brands have improved their own products and are learning how to build an attractive brand. They’re winning back Chinese consumers and Western brands are now on the defensive.
In the following, I would like to discuss how the market environment is changing and what foreign brands should know.
Chinese competition is catching up – Here’s what foreign brands should know.
Chinese brands are getting better at branding In the past, only foreign brands had the know-how and “creativity” to build a long-term brand. Now, Chinese brands are smartening up and young marketing talent are leaving big brands to join local Chinese companies.
Chinese brands are well-funded now
Before, Chinese brands could not obtain enough funding to invest in long-term branding initiatives. Now, China’s venture capital ecosystem is robust and investing hundreds of millions of dollars in direct-to-consumer brands. What’s more, these brands are willing to lose money for extended periods of time while building out their market share.
Chinese brands know the market better
They can use their local knowledge to customize products specifically for Chinese consumers.
Chinese brands have large distribution & retail networks and can reach deep into smaller-tier cities
Many Chinese companies are even buying foreign brands outright and leveraging their distribution networks to scale sales rapidly.
Chinese brands can provide quality goods at fair prices
Their shipping fees are lower because the products are made in China and shipped from Chinese warehouses. Chinese consumers feel like they are getting good value for their money when purchasing Chinese brands now.
Chinese brands are 100% committed to the market and can move faster
This is a big challenge for foreign brands, who oftentimes have several layers of management and have to wait for management overseas to make decisions. Chinese companies tend to have less layers of management, are 100% dedicated to the China market, and are also backed by local Chinese investors that understand what’s needed to succeed in the market.
And Yet Foreign Brands Remain in High Demand…
The rise of domestic Chinese brands does not automatically mean that international brands are suddenly out of the game. On the contrary, foreign brands still have a strong reputation for quality, premium goods.
Looking back at Singles Day 2018, there were 19,000 foreign brands participating, and more than 40% of consumers purchased from international brands. Around 7.1% of Tmall’s sales came from its cross-border e-commerce arm Tmall Global, up from 5.4% in 2017.
Data from Syntun also shows that 13.7% of beauty and personal care items sold on Singles Day were cross-border goods. This figure was 12.1% for the mom and baby category and 6.6% for the food and beverage category. Of the popular brands, Swisse, Moony, Chemist Warehouse, and Aptamil each sold over 100 million RMB in merchandise.
This data shows that for certain categories, Chinese consumers with money will continue to buy international products rather than local ones.
Foreign brands should focus on what they can do better than local brands – such as quality, superior ingredients, safer products, etc. This is why Chinese consumers turn to foreign brands for things like health supplements, cruelty-free cosmetics, luxury handbags, and organic food.