Jenny Chan
May 26, 2016

'Made in China' label is losing its stigma (in China)

Even in China, the ubiquitous label once implied cheap or copied. New research from OMD and McKinsey says that is changing

'Made in China' label is losing its stigma (in China)
"Made in China" once meant cheap or copied. That’s changing, according to recent reports from OMD and McKinsey, as the perceived quality of domestic brands strengthens and home-grown brands earn loyalty for their responsiveness.
In OMD's Future of China report released this month, which explored the outlook of 2,500 Chinese consumers in eight cities across tiers one to four, 40% of interviewees who buy local said quality is "improving all the time."
Shoppers in China's biggest, "Tier 1" cities are forsaking foreign brands "in droves," according to OMD. Why? A focus on meeting customer needs, nimbler structures and processes and quick responses to changes are driving a shift in how consumers perceive, and now prefer, local brands.
Preference differs across China's different city tiers, which are ranked by economic factors such as population and infrastructure. In Tier 3 and 4 markets, where many foreign brands lack presence in terms of awareness and/or distribution, domestic brands have "absolute dominance," OMD stated.
Interestingly, Tier 2 cities show the lowest preference for domestic brands, as consumers there are attracted by the novelty of international brands. Tier 1 consumers, who experienced this influx of foreign products years ago, are more discerning now and "no longer blindly buy into the aspirational dream so many international brands seem to sell."
A greater liking for local brands transcends almost all product categories studied by OMD — from quick-service restaurants to body wash to home appliances (see below). This inclination towards local brands such as Xiaomi and Haier is almost two times stronger than that for their foreign counterparts, OMD stated. Today, categories where multinational behemoths still command cachet are limited to luxury goods, premium skincare, cars and sports apparel.
OMD expects other cities in China to follow this buy-local trend.
So does McKinsey, which conducted 10,000 in-person interviews with people aged 18 to 65 in 44 cities in March 2016.
McKinsey found that 62% of Chinese consumers now prefer Chinese brands over foreign ones, particularly in the mass segment of the market, where local brands are "winning market share from foreign incumbents through a much stronger product proposition."
However, local brands cannot rest on their laurels, advised the authors of both reports. A large number of Chinese brands still rely on low pricing as their main selling point, which is not sustainable in the long term. As Chinese consumers become more and more discerning, domestic companies will need to invest in building their brands to compete beyond pricing.
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