Jun 28, 2018
Trade war or not, China Inc already reining in American brands
Jun 28, 2018
As Beijing and Washington veer towards a full-blown trade war, American brands in China face what may be an even bigger threat: local rivals armed with innovative products and the Chinese government’s blessing.
American household names like Apple and Procter & Gamble’s Pampers are seeing their dominance challenged, a potential threat to the hundreds of billions of dollars U.S. firms make in China.
According to an analysis of data from Bain and Kantar, local brands snatched almost three-quarters of China’s 639 billion yuan (73.35 billion pounds) market for fast-moving consumer goods - a category that includes shampoo - last year, up from two-thirds in 2013.
The data, shared with Reuters, shows that U.S. products like Pampers saw their market share drop around 10 percentage points in the past five years. The data was based on a survey of 40,000 urban households.
At the same time, savvy Chinese brands like SeeYoung, offering a popular silicon-free shampoo, and Pechoin, a maker of skincare products that plays up local ingredients, gained rapidly.
“Local competition is now extremely high on the agenda of foreign firms in China,” said Bruno Lannes, Shanghai-based partner with Bain & Co, the consultancy that co-authored the report.
“In order to win in China now they need to beat not just traditional competitors,” he said. “But they need to win against local companies that are faster and more innovative than they had realized.”
American brands have long enjoyed a vaunted status in China. U.S. fast food, beverages and coffee chains are ubiquitous in China’s cities, while consumers lap up U.S.-branded designer jeans and smartphones.
That dominance, however, is threatened by China’s push to bolster domestic brands by creating champions in certain categories and weeding out weaker players to improve quality.
Brewing trade tensions could exacerbate this slippage, threatening more than $180 billion in sales by U.S. firms in China last year, according to an analysis of 121 U.S.-listed American firms that broke out data for China sales in the most recent fiscal year.
The total is likely far higher as many U.S. firms with a major China presence - such as Walmart - don’t break out China sales.
Apple made $44.8 billion in China in the last fiscal year, P&G around $5.2 billion and the sports apparel maker Nike $4.2 billion.
A trade war now looks more likely after talks in Beijing and Washington failed to defuse grating issues between the two countries over a trade imbalance, technology transfers and barriers that firms face doing business in China.
GROWTH TO ZERO
But the bigger threat might be the advances made by Chinese rivals. And it’s not only U.S. brands that are feeling the squeeze. A European trade body recently cited “stiffer competition” from Chinese rivals as one of the main anxieties felt by European brands.
Overall, local brands gained market share over international rivals last year in 21 product consumer product categories like skin care, shampoo and infant formula, according to the Bain report. Local brands grew 7.7 percent last year versus tepid 0.4 percent growth for overseas rivals.
“That’s definitely a trend,” said a senior executive at a major U.S. consumer goods firm, adding that the biggest challenge his firm faced in China was strong domestic rivals.
China’s “Made in China 2025” push, which includes strategic areas including new energy and smart vehicles, is also helping local brands. Many firms have responded by shifting production to China, which can give a brand quasi-local status.
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