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Eddie Lam, CEO, Onlen Fairyland Company, has found success on the mainland with his Onlen Kids brand
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The Chinese mainland economy is surging again, growing 8.9 per cent in the third quarter – back on track to reach the government’s target of eight per cent annual growth, despite the prolonged global export slump.
Among the myriad opportunities for small and medium-sized enterprises (SMEs) is the tantalising mass of mainland consumers, whose spending is on the rise, as is their appetite for brand-name products.
“The standard of living of the general public is improving dramatically and will continue to do so,” observes Eddie Lam, CEO of Onlen Fairyland Company, which makes children’s and athletic shoes. “Our customers used to buy a pair each season. Now they’re buying three or four pairs for different occasions.”
The Brand Game
But developing a brand in the mainland consumer market is a long and arduous journey. Most SMEs operating on the mainland are original equipment manufacturers (OEMs), which have suffered during the global economic slump. The mainland consumer market continues to thrive, however, tempting SMEs with their own brands to join the gold rush.
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Kenneth Wong, Director of Universe Watch Trading Company
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One example is Mr Lam’s Onlen Fairyland, a Hong Kong OEM that has been exporting shoes to Europe and the US for years. In the early days of developing the mainland market, Onlen bought licenses from Disney and Hello Kitty to manufacture and distribute kids’ shoes there. After building its reputation on the mainland with these global brands, Onlen launched its own brand, Onlen Kids, in Beijing, Shanghai and Guangzhou.
Experiencing success, Onlen expanded the brand to other mainland cities, including Harbin, and to other emerging markets such as the United Arab Emirates, Hungary and Russia.
Hong Kong’s Universe Watch Trading Company has also taken the plunge into the mainland market. A long-time OEM with a factory in Bao’an, Universe purchased the brand name of a French leather-goods maker, Charles Hubert, and attached the brand to a self-created line of mid-price analogue watches. After three years in the Hong Kong and Macau markets, where it sells Charles Hubert watches in 35 outlets, Universe is making gradual inroads in the mainland.
“Brand building is like growing a tree,” warns Kenneth Wong, Director of Universe Watch Trading and Vice President of the Hong Kong Watch Manufacturers Association. “You water it, you nurture it. In 10 years, you see something growing out from the ground. But for brand building, 10 years might not be enough. So persistence is the key.”
Finding a Niche
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Personal contacts on the mainland helped get Universe watches into Chinese mainland stores
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According to these entrepreneurs, brand building is more than simply spending money on marketing and advertising. Companies, they say, need to define a clear marketing position and target a specific consumer segment.
“Make sure your products stand out from those of your competitors,” advises Onlen’s Mr Lam. “If your products can’t attract consumers’ interest, then you’ve lost your chance.”
“The first and most important criterion is still product quality,” says Mr Wong “After you have the quality, you have to be careful with your positioning. My tactic is to find areas in the market where I can fill the gap.”
Given the plethora of quartz watches available on the mainland, Universe chose to introduce mechanical watches with quality-guaranteed Japanese automatic movements. Automatic mechanicals are also offered by Swiss manufacturers. “But for the Swiss names, you have to pay more than Rmb10,000 to get a decent watch. I’m offering them comparative quality at Rmb3,000 to Rmb4,000. So there is a niche there. If they want to buy an automatic watch but can’t afford a Swiss watch, they have to come to me,” Mr Wong says.
“Very strange, but price, really, is not the main issue. If you have the right product, Chinese people are very daring to try. I’m not talking about the poor cities, but the second-tier markets like Qingdao, Wuhan, Chengdu, Sichuan. Even if they don’t know your brand, if they like your styling, they will try.”
Looking for Shortcuts
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The Mainland Market: Do’s and Don’ts
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Do:
- Product quality always comes first.
- Find a partner who can help get your products into department stores or shopping centres.
- For non-licensed products, you need to create a good name to arouse attention and get your product remembered.
- Enhance your product image and create publicity. Continuous exposure is important.
- An after-sales service network is essential.
- Listen to success stories. Visit the local HKTDC office, talk to the staff there and gather information from the HKTDC’s library.
- Join HKTDC trade missions to the mainland. The HKTDC has more than 40 years’ experience exploring new markets around the world.
- Be prepared to spend on trademark, design, patent registration and legal fees when launching your brand.
Don’t:
- Don’t think you’re offering just a product. Consumers expect more, such as a brand story, an image and a feeling of prestige.
- Don’t undercut prices. Brand promotion, market share and product placements are not achieved that way.
- Don’t be too eager to offer your product to wholesalers or distributors who don’t see brand promotion as their job and want only to sell quickly. They may dump your product or sell to undesirable outlets, which eventually will ruin your brand.
- Don't spend too much on advertising and PR prematurely. Spend only when necessary.
- Don’t believe everyone who says they have an inside connection.
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“Due to unclear government procedures at the local level, many SMEs still don’t know where and who to apply for the ‘entry’ key to the China market,” says Mr Lam. His advice? “Ask those who’ve been successful, instead of going in blindfolded.”
And the mainland market is still not fully open, notes Mr Wong. “You need to be able to issue tax vouchers before you can really enjoy domestic sales. This is the main obstacle. To set up a company on the mainland, where you are capable of issuing a tax voucher yourself, is difficult. The easiest thing for most SMEs is to find a partnering company on the mainland that’s qualified to issue this tax voucher, and then jointly work with them. You supply the goods to them, they are the registered, legal company owner, and so you work with them. That’s the shortcut.”
The next challenge is to persuade department stores or shopping centres to carry your product. “The shops have too many brands to choose from, and they won’t risk trying a new name. The shop space is too valuable.”
To help Universe get into stores, its Hong Kong partner introduced Mr Wong to a Hong Kong contact. The individual was involved with Swiss watch brands and had personal connections on the mainland. “So, really, it’s the personal factor, he says. “Without this middle man, who brings my brand to shop managers, there’s no chance. It’s a very personal way of doing business in China.”
In short, SMEs seeking to enter the market need to find the right partner. When partnering with mainland companies, Mr Lam advises SMEs to incorporate in Hong Kong, to take advantage of the SAR’s legal protection. “And make sure both parties are clear and agree on the ground rules,” he adds.
Mr Lam also stresses the need for SMEs to stay focused. “China is an exploding market. There are lots of opportunities in all sorts of areas. SMEs should focus on their core business and avoid being distracted into entering another business that they don’t specialise in.”
Product Dressing
Mr Wong notes that mainland consumers are not simply buying a product. “They’re paying for many things: a watch, a brand, a background story, an image.” This requires marketing to dress up the product: posters, showcases, advertising, perhaps hiring a celebrity as brand ambassador, and showing off awards such as Hong Kong’s Q-Mark certification.
Word of mouth is also effective. “More than 70 per cent of my customers in Hong Kong, the end users who buy the watches, are visitors from the mainland,” says Mr Wong. “I try to use this as a form of advertisement. People coming from the mainland buy my watch, then bring it back and say good things about it.”
Finally, he says: “Start small, gradually getting more exposure.” And don’t overtax your resources on brand building if the majority of your income comes from the export market. “Don’t overspend; it will really destroy you.”
Despite the challenges and the need for long-term patience, the lure of the mainland consumer seems irresistible. “In every aspect, it’s a growing market,” notes Mr Wong. “Not just in population, but in demand, in their lust for luxury goods, for brands, for new things. The growth in disposable income is really quite remarkable.”
Eddie Lam and Kenneth Wong are featured speakers at the upcoming World SME Expo, 3-5 December.
Related Links
Onlen Fairyland
Universe Watch Trading Company
