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License Strategy

Savvy customers on the Chinese mainland now often research lesser known brands online 

Savvy consumers on the Chinese mainland now often research lesser known brands online
(photo: EyePress)

 

The market for licensed merchandise on the Chinese mainland, considered by many brands worldwide as the critical market for expansion, has entered a new phase. It continues to grow, up 17 per cent to US$4.6 billion in 2011, as reported by EPM Communications Inc, a US-based firm that tracks licensing and marketing trends. The rise of e-commerce on the mainland, however, has changed the relationship between consumers and licensed brands. While websites with a large user-base present more chances for brands to connect with a larger population, it also means brand owners need to stick closer to their original industries. 

This wasn’t always the case on the mainland. As recently as five years ago, international brands were finding relatively easy success by branching into product categories that often were unrelated to their core business. A good example of this was when Pepsi launched a line of sports clothing and footwear. Such types of brand extension were not uncommon in label-conscious China. Now, however, Chinese consumers have begun to look past the name. To win over savvier customers accustomed to researching lesser known brands online, license-holders need the clout that comes with a proven track-record within their industry.

A More Open Market

 George Williams, General Manager of Asian operations, LMCA
 

George Williams, General Manager of Asian operations, LMCA

Brand extension, though, is by no means slowing in China, says George Williams, General Manager of Asian operations for LMCA, which specialises in strategic brand extension licensing. Since establishing a presence in China seven years ago, Mr Williams says he has witnessed a change; namely, that the rise of e-commerce in China is presenting greater opportunities for lesser known brands.

“[Online retailers] seem more likely to take a brand that has less recognition in the market because their costs for developing recognition is far less than when people had to establish that recognition one store at a time, Mr Williams says.” Appliance-maker Whirlpool has found success with the largest chain of electronics stores, Suning, and have moved that licensing arrangement online.

For most brands, however, the Internet is the only viable option. China still lacks the wholesale retail channels that can launch branded products in industries such as fashion and entertainment nationwide on a single day. With e-commerce, they can.

“In the e-commerce space, they have 20 million people hitting their website, they have an ability to position a branded product over and above competing products when a particular category is searched online, and they can link to an existing website of the brand to substantiate that it’s legitimate,” says Mr Williams. All this drastically reduces the cost to bring an unknown brand to market, meaning more licensees will be willing to take a chance on more brands previously unknown to China.

Characters Sell

Sun Jian 

Sun Jian’s licensing agency, Shanghai Character License Administrative Co Ltd, is responsible for bringing some of the biggest Japanese animation characters to the lucrative Chinese mainland market

 
As the Chinese market continues to mature, intellectual property owners related to media, characters and entertainment see a wide field of possibilities. From his position as strategy consul covering China for Japanese toy and video game-maker Bandai in the early 1990’s, Sun Jian saw the potential of this market. Now, as head of his company, China Shanghai Character License Administrative Co Ltd (SLCA), he oversees the largest licensed collection of Japanese characters in China.

SLCA has had great success extending the brands it manages throughout the Chinese media, handling movie releases, publishing, television and digital online entertainment. When a company’s licensing aspirations involve more than extending their brand name, he says, success in China depends on having more than a strong brand.

License-holders, he says, often fail on design considerations in China. “Most companies’ brand-style guides are old, or the colour and weight are not suitable for China. Sometimes you need Chinese writing, or a Chinese ‘Happy New Year’.” Promotion in China also requires special effort, with floor shows and online advertising that matches the demographics closely.

Another specific feature of the Chinese market, especially for character and entertainment brands, is the extensive fake-goods market. Mr Sun advises licensors to choose their battles. “You have to understand that sometimes you cannot fight fakes everywhere, because they are [themselves] everywhere. You have to pick the big markets to combat, and choose which market to fight. In the meantime, you need to bring your licensed products into the fake market to sell them in the proper way.”

Persistent Challenges

 Hong Kong serves as a regional marketplace for global licensing brands to enter the Chinese mainland
 

Hong Kong serves as a
regional marketplace for global licensing brands to enter the Chinese mainland

While progress is being made, the fake-goods market remains a thorn in the sides of rights-holders moving into China. Other challenges, including the often opaque business practices of the licensees international brands work with, make the world’s fastest-growing market for licensed merchandise perhaps, the trickiest.

In the face of these challenges, Hong Kong plays a vanguard role for international brands. Alice Ngan, Chairman of the Licensing Executives Society China’s Hong Kong Sub-Chapter, has seen the development of Hong Kong’s intelletual property (IP) business from her position managing IP for the Chinese University of Hong Kong. She now sees a similar transition at work on the mainland, where there’s been growth in the number of legal practices specialising in Chinese IP. For now Hong Kong, remains the leader on IP issues, along with its standing as a window for international brands, making the city an important springboard for businesses to enter the mainland.

The prize remains the windfalls from establishing a brand with mainland consumers. “You can really exploit an item, whether it’s art, technology or copyright, in many, many ways,” says Ms Ngan. But she adds that when entering that market, even with technology that has proven itself elsewhere, making it work on the mainland is never a sure thing. “There’s still a lot of risk in licensing.”

LMCA Asia’s George Williams and SLCA’s Sun Jian were speakers at the Asian Licensing Conference, held during the HKTDC Hong Kong International Licensing Show, 7-9 January 2013.  

Related Links
China Shanghai Character License Administrative Co
Licensing Executives Society China 
LMCA

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