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    China Business
     Apr 14, 2007
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 rights reserved. Please contact us about sales, syndication and republishing.)

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