New Program Aims To Ease Flow Of Foreign Brands To Chinese Consumers

The Chinese government is on a $630 million shopping spree to bring foreign-branded goods home to a nation of increasingly cashed up consumers.

Until recently I worked for a small, edgy Oregon company that made a niche folding bicycle on their home turf, using local USA labor and materials. Most of the customers came from the USA, Canada, Australia, and Europe. Certainly not China, or anywhere near it.

Then something strange happened: we started getting orders from that mysterious giant, as well from neighboring regions like Korea, Indonesia, and Japan. These were places that could execute a credible knockoff for an incredible price: $100 or less.

The buyers were bona fide customers, too, salary earners spending a decent part of their wage. We were witnessing a country transitioning through a similar period as the U.S. in the fifties: affluence, optimism, a sense of increased personal freedom that money can buy, and a taste for exotic foreign labels.

It's not a sweatshop in China: it's a clothing factory in the heart of New York's Garment District, a declining industry due to China's massive manufacturing power.

The Chinese government has finally snapped to attention on this trend and recently set up a program to actively import, showcase, and distribute Not Made In China goods. Or, rather, goods that may be physically manufactured in China, but with the irresistible cache of a foreign brand.

A friend of mine, Randi Miller, did the classic mid-life career plunge, quitting her life as a trademarks attorney in New York City and headed for China. After 2 years of struggling to find her niche in Chinese business without speaking the language, she contacted me with exciting news: the floodgates are open, bring on the tchotchkes! As General Counsel for Maryland company, US-Pacific Rim International (USPRI), she has breaking news on the new Chinese initiative. Here's what you need to know to tap into the Chinese market:

LYNETTE CHIANG: What exactly is this initiative?

RANDI MILLER: Every five years, the Chinese government creates a five-year plan for the country. The twelfth and current plan includes this program, administered by the the Global Products Trade Center (GPTC) in Shanghai. The longstanding policy to limit imports and expand exports has been changed: equal emphasis is to be placed on importing and exporting. I have been told that the new push to increase imports will narrow the trade deficits between China and other countries countries and efficiently get products to Chinese consumers. The government goal is to increase consumption.

We're flooded by products from China. It must be tough going the other way?

Getting products to the Chinese market is extremely complicated, expensive and risky. This program makes it easier in 4 ways.

First, the government is buying the products from the sellers and then selling them on to the distributors, so there are no concerns about unsold product. Second, the government pays for all shipping and handles logistics. Third, the government has set up a special customs and health inspection center that will expedite processing of the goods so they won't be delayed in getting to the market. Fourth, the government is not charging the very high import taxes that are normally levied on foreign goods. It's because of these taxes that foreign goods are currently very expensive in China—this is why the Chinese love to shop in other countries. For them, clothes are really cheap in the U.S., even though most are made in China.  

What about once they land?

The government has set up a major distribution system involving numerous websites, television stations all over the country, newspapers, radio and mobile phone platforms.

This will make it possible for companies to sell their products throughout China without having to open retail outlets or figure out how to create Chinese facing e-commerce sites, a complicated undertaking. If there is a market for their products, however, some companies may choose to open retail outlets later.

What kinds of products are the Chinese interested in? Is there a local demand for "Not Made In China?"

It isn't about "not made in China." In fact, products that are manufactured in China are eligible for this program. The key is "foreign brands." Part of it is about status: the PRC Chinese are obsessed with money and flaunting it. So luxury products are in demand for that reason alone and most luxury brands are foreign owned. Another reason is quality. They don't want to buy crappy foreign products just because they are foreign; they are looking for high quality foreign branded goods. 

Just what kind of products?

GPTC is looking for all kinds of goods: Cosmetics, fashion, luxury baby products (a huge market for that), OTC health products, gourmet foods, wines and liquors, toys and games, sporting goods, electronics, home decor items, jewelry, accessories, athletic wear—all the things we enjoy over here.

How would a prospective product be received and shown to the market over there?

American companies must contact USPRI to express interest in having goods considered as soon as possible; we are aiming to hold the initial purchasing event in the first week of November. If their products are eligible, they will then send samples or catalogues to GPTC. USPRI is the exclusive agent for the US, so American companies cannot participate without contacting us. We can also handle imports from Europe and SE Asia. From Distributors will come to an event to inspect samples and catalogues and order what they want.

Foreign sales representatives may optionally attend the event to promote their company's products, and a knowledge of Chinese won't hurt.

Companies may also pay to have a booth at the event, but we are not sure this will be particularly advantageous.

After the event, GPTC will order the goods from the sellers, via our company, USPRI. In 2012, they intend to spend RMB4 billion (about $US630 million) on the purchase of foreign goods, with at least RMB500 million (about $US78 million) being spent to purchase U.S. products. The goods will be shipped free to GPTC, pass through customs and inspection on-site at GPTC's showroom and exhibition center, and then be sold on to the distributors. The distributors will then work out how they are going to sell them. 

Some people may be concerned about the Chinese copying their product. Any thoughts on that? 

It is no secret that this is a concern for everyone who does business in China. Everyone knows that there are fake Apple stores here (though the products they sell may be the read deal, either sourced from Apple distributors or grey market imports).  

The draw of this program, at least for the Chinese, is that the Chinese will know that the goods that they are purchasing are authentic. In the case of foods and over the counter healthcare products, they will know that the products meet health standards that Chinese products won't. 

What about trademarking and patenting?

I advise all companies who wish to participate to immediately take steps to protect your intellectual property.

In the case of trademarks, companies need to register both English names and Chinese names. Otherwise, the Chinese are likely to start calling the product by a Chinese word that sounds similar to the English word. That Chinese word will then become associated with the product, but the company that makes it will not "own" the Chinese word. Consequently, another party can register the Chinese word that everyone associates with a particular product and then use it in connection with a competing product.

Pfizer famously learned this the hard way with Viagra. Chinese party starting using a word that sounds like Viagra with a similar product and Pfizer sued to stop them, but lost. Even though everyone was using the Chinese word that sounded like Viagra in reference to Pfizer's drug, Pfizer did not itself use, promote, or protect the Chinese term in connection with its product. As a result, it was deemed not to have any rights in that word.

Note that a company does not have to choose a Chinese word that sounds like the English name. It is free to choose and register an entirely different Chinese name (although similar sounds are preferred). If they do this, and actually use the Chinese name on their packaging and promotional materials, then the name that they choose will become associated with the product.

My advice to any company that is entering the Chinese market is to retain experienced intellectual property counsel who can and will provide valuable advice this and not just hire anyone who says that they can register a trademark.

The deadline was initially August 31, now it's been extended?

This breakthrough opportunity was all very last minute. To any Western business person, this may appear as a big red flag. Anyone who has done business in China will understand that this is completely normal and not be fazed by it. On one hand, it makes Westerners want to tear their hair out. On the other hand, it is part of what makes working in China so great—no two days are ever the same, and you are never bored.  

GPTC plans to spend RMB4 billion (about $US940 million) import foreign products this year and more next year. This is an ongoing program, so yes, there will be further opportunities to participate. However, we don't know whether the terms will continue to be the same, so it may not be as good a deal later as it is now. 

How will applicants get to keep tabs on the progress of their submission?

We address this personally with each applicant. One thing I have learned in China is you have to learn to move forward even if you do not have seemingly critical information. If you can't adapt to this, you will never get anything done here and your business will fail. Unfortunately, it is really difficult to understand until you spend time in China and experience first-hand how things work here. That's why we're here to help.

Read the USPRI announcement | Press release | Contact Randi Miller randi.miller@us-pacific-rim.com

[Image: Flickr user David Salafia]

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4 Comments

  • Ria Fernandez

    Great article Lynette! I work for Fashionbi, a social media analytics firm, and we recently also opened up in China. This article is really interesting, i'm glad to hear about the propensity towards foreign luxury brands, and also thanking you for the healthy warnings you've included about entering the Chinese market! Hope to hear more from you :)

  • Galfromdownunder

    Than you Ria - do you see the say when celebs and fashionistas and stores on 5th Ave will be wearing a "double C," that is, a Chinese luxe label? High end galleries like Gagosian are already set up there to snap up the next Asian Damien Hirst ...

  • Bob Lee

    Lynette , thanks for your encouraging article about GPTC ,  i am certain that the US$630 million allocation will be used up , perhaps next year Randi should ask the China's govt to increase it to US$2 billion , Bob Lee

  • Lynette Chiang

    Much appreciated Bob - I'll make sure Randi sees your suggestion once she deals with the stampede of submissions.