Multinational brands must be China-specific, not rely solely on global experience to thrive on the mainland, analysts say

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Multinational consumer brands need to be agile and adapt to rapid change and keen local competition to thrive in China, and avoid the blind application of global practices, analysts said.

Multinationals must tailor their business models to the rapid changes and growth seen in Chinese consumer tastes and consumption to be successful.

“Multinational companies’ performances in China varies widely, with some achieving outstanding performance in the Chinese market,” said Jason Yu, general manager of Kantar Worldpanel Greater China. “Overall, if multinational companies could manage to view the Chinese market as a singular market, and not simply transferring their global experience to China, they will be well set up for success.”

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The popularity of local brands has been growing in China over the past few years. For instance, consulting firm Bain & Company said e-commerce platform Tmall saw about 70,000 new local sellers join it last year, and of these, more than 700 reached top spots in sales for their product categories.

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“Sometimes, the scale of multinational operations and the bureaucracy involved become an obstacle for multinational companies’ development in the Chinese market,” said Joanna Lu, an expert partner at Bain. “That’s why setting up a China-specific operation model, with local teams on the ground, becomes exceedingly important.”

The coronavirus pandemic, especially the ongoing lockdown in Shanghai, has entrenched consumer trends such as online shopping. This trend has been particularly palpable in the luxury goods sector, which has seen tremendous growth in online sales since the pandemic started.

The volume of online luxury sales grew by 88 per cent in 2020 to US$14.1 billion. This breakneck growth continued in 2021, as online sales grew by 75 per cent to US$24.7 billion, according to a report by Yaok Institute.

Multinationals dominating the luxury goods sector in China could also do well in the premium goods market. However, analysts said such companies should think beyond market advantage.

“One can’t put all their eggs in one basket. There will still be competition in the premium goods market, depending on different types of goods. Prestige may be one aspect, but whether the product could offer a unique experience is more important, which may be more important than its price,” said Kantar’s Yu.

“In many ways [multinational companies that failed in China] did not understand potential,” said Bruno Lannes, a senior partner at Bain in Shanghai. “For instance, these companies have only focused on the premium segment of the market, and they thought that because they were a multinational they could stay there, but in fact many local brands and international competitors have shown that to be successful one has to play in the premium and mainstream segments of the market. Just being cornered into a segment has been a problem if companies want to be able to win in China.”

Analysts agreed that amid the transition to online spending and consumer experience, success boiled down to adapting to Chinese consumer trends using multinational companies’ ability to provide unique experiences through their products and sales.

“The most important thing for multinational companies in China is to win trust. This is because the market is changing too rapidly, reinventing itself constantly. The key is to let the global headquarters understand this and trust the Chinese team to learn from the market and produce novel solutions to lead global capabilities. This is easier said than done and is an issued faced by all multinational companies in China,” said Bain’s Lu.

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“If companies could immerse themselves in China as a ‘glocal’ brand, there would be a great chance for success. This differs from before, when multinational brands occupied a superior position by having their [Europe or US-based] headquarters dictate their strategies,” said Kantar’s Yu. “There’s still plenty of room for growth for multinational companies. It’s not so much about local versus multinational, but about whether the brand could adapt quickly and land new opportunities in a rapidly changing market.”

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