China's global luxury brand
workshop By Olivia Chung
HONG KONG - Don't be surprised if you find
the Prada, Armani or Burberry products you are
wearing are made in China. Goods "Made in China"
are no longer limited to cheap, low-end products.
More and more brand-name luxury consumer goods are
made in this "world's workshop", largely because
of growing domestic demand as more and more
Chinese can afford them.
According to a
report by the World Luxury Association, more and
more brand-name luxury goods are shifting their
production to China. It expects that 60% of the
world's luxury brands will have
their products made in the
country by 2009.
"This will be largely
driven by the booming demand for luxury products
by consumers in the Asia-Pacific region,
particularly in China," Ouyang Kun, representative
of the association in China, was quoted as saying
in China Daily.
He said the demand for
such products in China was increasing by 15%
annually. At present, the demand for luxury goods
in China has already surpassed the manufacturing
capacity of European makers by about 60%;
therefore, they have had to shift their production
to China, where labor and other costs are
relatively low. In addition, this saves them the
cost of shipping.
Sales in China's luxury
market hit US$2 billion in 2004, making it the
world's third-largest consumer of luxury goods,
after Japan and the United States, according to a
report by Ernst & Young. The report predicts
that the market will grow by 20% each year until
2008 and then 10% annually to 2015, when sales are
expected to exceed $11.5 billion.
Au
Kin-fan, associate director of the Hong Kong
Polytechnic University's Institute of Textiles and
Clothing, said seeing their competitors, one after
another, shifting production to China's low-cost
environment to maximize profit forced other
luxurious-goods makers to follow suit.
"However, foreign manufacturers usually
shift part of their production line to China to
cater for the growing demand there and keep their
production bases in their home countries or other
places to meet the global demand," he said.
Foreign luxury-goods manufacturers started
to shift part of their production line to China in
2004, and products made in China with foreign
labels have flooded the Chinese market since 2005,
said Ouyang: "Some luxury brands claim all of
their products are made at home, but 60% of them
are actually made in China."
So far a
number of fashion brands have gone public about
shifting their production to China or have
announced plans to do so. They include Pierre
Cardin, Burberry, Armani, Prada and Furla.
The Chinese media have reported that
French fashion brand Louis Vuitton plans to set up
a production base in Zhejiang province this year.
However, Janie Zhuang, public relations executive
at Louis Vuitton China, said the firm does not
produce any products in China at this time, nor
does it have any plan to do so in the near future.
Au said one of the reasons for the
international fashion brands keeping a low profile
when shifting their production to China is the
negative image of goods "Made in China", which are
often regarded as low-cost, low-quality products.
To avoid the possible negative impact on
the brand value of their products, foreign
manufacturers proceed with caution even if they
shift only part of their production to China. For
instance, their Chinese partners are assigned to
produce mid-end products, or products made in
China are sold under other brand names.
However, as globalization progresses, it's
not surprising to see a growing number of goods
being made in more than one country before being
put on the market. The nationality of a brand no
longer has much to do with where the product is
made.
Patrizio Bertelli, chief executive
of Prada, has said that if his firm's products
were made in 10 countries, they should be labeled
"Made by Prada" to give the brand the freedom to
produce wherever it was thought appropriate.
This is because the most important aspects
are design, quality and marketing - the production
can take place anywhere, Au explained.
Au
said more and more brands will relocate part of
their production to China as other markets become
saturated. Famous brands are struggling with a
dilemma: the temptation to cut costs by shifting
production to China and the sense of exclusivity
that customers demand.
"Due to historical
factors, it will take a long time for consumers to
change their perception of the 'Made in China'
label to a positive concept of being highly
desirable from the existing perception of
substandard quality," Au said.
Before
China began its market-economy reforms, factory
workers were paid equally and there were no
bonuses or rewards for superior performance, so
whether the products were good or not did not
matter to them, which led to serious quality
problems. This attitude toward quality still
persists to some degree.
According to
China's General Administration of Quality
Supervision, Inspection and Quarantine, of about
9,000 goods that its quality inspectors sampled in
the first six months of last year, 78% were found
to comply with the relevant safety rules.
"To enable luxury brands with the 'Made in
China' label to be well received, China needs
stricter quality-control procedures, not to
mention better technical and management skills,"
Au said. "Quality control is key in every market."
To illustrate how important quality
control is, Au cited as examples some products of
well-known fashion houses Armani, MaxMara,
Burberry and Ermenegildo Zegna that failed to pass
a quality inspection in China last year.
"This not only tells us that high price
may not necessarily link to high quality, but also
that international fashion makers are adopting a
double standard when marketing their products in
different countries," he said.
"As China
and other new and emerging countries for the
fashion brands are only the mid-end markets, in
order to capture a bigger market share, they mass
produce and sell the products at not-so-high
prices, so the brand products are of not-so-good
quality," he said.
However, Au stressed
that where human health is concerned, the
international brands should not employ a "double
standard".
In an examination carried out
by the Shanghai Administration of Industry and
Commerce last year, brands' dresses, suits, coats
and pants were found to be substandard. Problems
included high levels of formaldehyde, a chemical
that can cause cancer, unacceptable acid levels
and poor dyes.
In addition to
quality-control measures initiated by
manufacturers themselves, China's authorities
should also improve health and safety regulations
for all kinds of consumer products, which could
help improve the average quality of the country's
exports and transform the "Made in China" image
into something desirable, Au said.
As the
major brands outsource production to almost every
corner of the world, quality control could be a
problem, so there is a need to increase consumer
awareness of the need to make the right choices
when shopping.
As for the "Made in China"
label, Au said many makers of international
brand-name products flocking to China in recent
years have been quite satisfied with Chinese
firms' quality of production, reliability and
management. It is, he said, time for the world's
consumers to take a new look at the "Made in
China" label.
"With more overseas tourists
coming to China, they will learn more about the
great progress the country has been making and
[have more] confidence in products made in China,"
he said.
Olivia Chung is a
senior Asia Times Online reporter.
(Copyright 2007 Asia Times Online Ltd. All
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