Brand names are hot in China. Witness the contest among local consumer-goods companies to win the most coveted advertising spot in the country: a five-second slot just after the national evening news. Guangdong Idall Electronics, a leading maker of video compact-disc players, will pay $25.3 million to run its ads in that slot for the next year. The company outbid Qinchi Distillery, a liquor maker that boosted its revenues dramatically during the three years it ran ads at that time. Such jostling shows just how competitive China's brand-name companies are getting.
"FAMOUS BRANDS." Yet even though local companies like Idall and Qinchi are flourishing, competition from foreign companies is increasing. Foreign products such as Tide laundry detergent and M&M candy are gaining market share, and more products made overseas will reach stores as China opens its markets to qualify for membership in the World Trade Organization. State-owned makers of branded goods, meanwhile, face added pressure as the government forces restructuring on the public sector. So to give local brands breathing room, Beijing wants to tilt the field in their favor.
Leading the charge are the State Economic & Trade Commission and the State Bureau of Technical Supervision. They have a plan to grant special status to "famous brand" companies, which then may qualify for easy access to capital listings, special loans, and perhaps even guaranteed market share. Legislation is pending to determine what constitutes a famous brand and local governments have submitted hundreds of entries to this beauty contest. The winners will be named early next year. "We can't let all Chinese brands be eaten up by foreign companies," says Chu Wei, deputy editor of China Top Brands, a bimonthly owned by the government.
Foreign companies are getting alarmed. "It's not bad to recognize famous brands--but not with government selection programs and subsidies," says Anne Stevenson-Yang, director of the U.S.-China Business Council in Beijing. An antimonopoly law due to be presented to the National People's Congress in March may even give officials the right to curb the investments of foreign companies that are crowding Chinese rivals out.
Beijing certainly won't ban firmly entrenched foreign brands, such as Procter & Gamble detergent, Unilever ice cream, Coca-Cola, and McDonald's fast food. But newcomers in other areas could find that their progress is held up. Beijing has blocked Eastman Kodak Co. and Fuji Photo Film Co. from forming joint ventures with the sole remaining competitive Chinese brand, China Lucky film. Rumors of new limits on foreign breweries or their joint ventures continue despite official denials.
SWITCHING BACK. Foreign executives argue that many Chinese companies don't need this help. While a few years ago foreign companies dominated household electronics, for example, today local companies hold more than 80% of the market because of recent improvements in quality, heavy advertising spending, and upgrades in distribution and service. Winners include refrigerator maker Haier and Little Swan, a washing- machine producer.
Chinese consumers are also not as enamored of foreign brands as they once were. "A trial [purchase] is fun" for the Chinese consumer, says Mike Underhill, head of the Beijing office of SOFRES FSA, a market research company. "But unless they see some reason to stay with the foreign product, they'll switch back to the original they know." A recent Gallup study finds that after years of favoring imports, almost three-quarters of Chinese now prefer local products.
To deal with this shift, some foreign companies are putting money into local brands. Coca-Cola has done this with Tianjin-based Jinmeile, a fruity soft drink. At the Chinese branch of advertising agency Ogilvy & Mather, local clients will soon account for more than half of billings, says T.B. Song, chairman of O&M for greater China. China is still an attractive market. But if Beijing tries to fix the game to favor the local team, foreign companies may just decide it's not worth playing at all.