21 June 2012
Aggressive brand-building by mainland garment manufacturers
Chinese mainland clothing firms are taking an aggressive stance, particularly with the pressure from greater overseas competition. Apart from strengthening their technology and quality management, many are already moving towards product value and, the next big step, branding.
Along the way they’ve re-thought their systems for design, R&D and the use of new materials.
A report from the HKTDC entitled China’s industry upgrade and opportunities for Hong Kong expertise revealed that processing enterprises on the Chinese mainland have actually been pursuing transformation and upgrades for quite a number of years.
The aim has been to head for “value added” goods either through R&D, design and marketing or by upgrading technology and product quality, the November 2011 report points out. Indeed, these are paths particularly followed by garment firms.
Clothing enterprises are taking a more diversified approach to development models as they travel this route. They have followed many of the aims mentioned.
Several manufacturers have begun to develop distribution businesses, for example. Others have successfully entered the retail market, building up cross-provincial or even nationwide retail networks while developing their own brands.
With their eyes firmly set on upgrading, many Mainland garment enterprises are moving away from production by gradually increasing the outsourcing ratio of their businesses.
This process not only poses competition to foreign and Hong Kong brands that are trying to enter the Mainland market, but also (more positively) introduces different service demands and business opportunities for related service providers as they move from production to both upstream and downstream activities.
Hong Kong companies concentrating on production have to be ready to grasp business opportunities arising from the gradual increase in outsourcing by Mainland enterprises as they, in turn, transform.
To better understand Chinese mainland garment makers’ drive to branding, outsourcing and related services, HKTDC ran a telephone survey with some 2,000 of those possessing own brands, with the exercise running from December 2011 to March 2012.
Those surveyed were from different provinces and cities across the country, with more than 70% with annual sales volumes of over US$1 million.
The development of a national brand has become the business goal for a vast majority (89%) of the surveyed garment enterprises that operate with their own brands.
But with formidable competition from high-end imported brands, 90% of the enterprises have positioned their brands at the medium-end, or mass market, with second- and third-tier cities as their main sales targets.
Some 85% of the surveyed enterprises are developing their markets through own-operated stores or specialty counters, while just 37% rely on distributors. Yet following the growing maturity and popularity of franchised operation and Internet sales, 64% of surveyed enterprises are running franchised businesses, with 56% selling their products online.
From production to brand marketing
The sales of garment enterprises are growing in scale. For example, 34% of the surveyed enterprises have annual sales volumes of over US$10 million.
To support brand development, garment producers tend to devote more time and labour into product R&D, design and marketing activities with higher added value. They’re also gradually outsourcing their production to other manufacturers.
Some 38% of the surveyed enterprises indicated that they are already outsourcing their production while 9% said that outsourcing would be an option for consideration, even though they have not outsourced production yet.
During the five years to 2010, China’s garment exports grew at an average annual rate of 12.9% while the production of garments, shoes and hats expanded at an average annual rate of 21.4%. This shows that the scale of China’s garment production, particularly for those selling their own brands in the Mainland market, is growing continuously.
The “take away” for Hong Kong manufacturers are to look out for business opportunities offered through a gradual increase in production outsourcing by Mainland enterprises.
There is growing brand awareness among Chinese mainland consumers. The HKTDC’s surveys on personal apparel items such as garments, jewellery and watches show that product development as well as the image and taste projected by individual brands have become the major shopping consideration for consumers. In other words, “branding” is the inevitable direction in the Mainland market.
To build up a brand effectively, there’s of course a requirement for appropriate positioning, product design and brand image. There’s also packaging, store ambience and advertising designs to consider, in line with the preferences of target consumer groups.
Among the surveyed enterprises, the most popular services that are being used or planned are logistics and distribution services, followed by advertising and marketing.
As for brand strategy, there’s a tendency to handle this in-house, although some enterprises indicated that they would make use of or take into account external professional advice.
The professional approach is particularly the case with the use of conceptual and product design, including architectural and interior design services from external sources.
To upgrade their internal management and operation in meeting their overall development needs, a relatively large number of enterprises indicated that they would make use of enterprise management and training services.
In order to upgrade the technology and quality of their products, some enterprises also buy production and environmental technology from external sources.
All this shows that Chinese mainland garment makers increasingly require business and support services, as they shift from production to brand marketing. It’s a services field that is set to grow and grow.