Eastern Influence

By ChriStine Birkner | StaFF Writer

 cbirkner@ama.org

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Entering the Chinese marketplace presents formidable challenges for Western marketers’ globalization strategies. Chinese brands face similar levels of difficulty in their quest to go west—with the additional hurdle of overcoming some long-held consumer perceptions. Athletic apparel brand Li-Ning is trying to be one of the first to successfully make the leap.

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T THE OPENING CEREMONY OF THE 2008 SUMMER OLYMPICS in Beijing, Chinese gymnast and 1984 Olympics champ Li Ning entered Beijing’s Bird’s Nest stadium in a literal blaze of glory, suspended from wires that sent him flying through the air across the stadium to light the Olympic cauldron. Now Li is hoping to pull off another spectacular—and, experts say, even more daring—feat: expanding the global reach of his namesake athletic apparel brand, Li-Ning, and blazing a trail for other Chinese brands working to build their stature in the United States and other Western markets. And Chinese brands aren’t just trying to make a name for themselves overseas to drive international sales. Their globalization strategies also are intended to boost the brands’ business at home.

For decades, American brands have worked to penetrate the Chinese marketplace, and for good reason. China’s GDP, $7.3 trillion, makes it the world’s second-largest economy after the United States, according to the World Bank. Some studies show that China’s economy theoretically is larger—and its consumer purchasing power greater—than the United States’. After accounting for cost-of-living variances and purchasing power parity (a factor that compares countries’ currency values relative to their purchasing power), the Chinese economy was worth $14.8 trillion in 2010, surpassing the United States’ 2010 GDP of $14.6 trillion, according to a 2011 study by the Peterson Institute for International Economics in Washington. The International Monetary Fund predicts that China’s actual GDP will surpass the United States’ by 2016.

While Chinese consumers buy American brands from Coca-Cola to Nike, the reverse isn’t true for most Chinese brands in the United States. For example, Chinese appliance maker Haier and electronics company Lenovo have a presence in the U.S. marketplace, but they’re not yet wellknown among U.S. consumers as brands, says David Srere, co-president and CEO and head of China operations at Siegel+Gale, a New York-based global brand experience and design firm.

“There’s a lack of really well-regarded global Chinese products or company brands and that’s a problem,” he says. “The first brand I’d like to build in China is Brand China. There is such a misperception of what China is about as a brand.”

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“The need to be a global brand isn’t just to be successful in global markets. It’s to continue to stem the tide of what’s happening in the Chinese marketplace.

The Chinese consumer is evolving rapidly.”

RAY GRADY

DIGITAL LI-NING

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Peter Mack, executive director of the Shanghai office at Landor Associates, a New York-based global branding consultancy, agrees. “In terms of an industrial base, [Chinese companies] are doing very well in the U.S., but in terms of a brand, something people know very well that has a unique reputation to it, no one has cracked that code yet. You could argue that Li-Ning is in a category where there’s potential permission for a Chinese brand to go there,” he says.

Founded in 1990, Li-Ning is China’s largest domestic athletic apparel brand, with 8,000 stores in China and a market cap just under $5 billion. Among athletic apparel brands, Beaverton, Ore.-based Nike Inc. is No. 1 in market share in China, followed by Li-Ning, with Chinese brand Anta close behind.

After the 2008 Summer Olympics, there was a boom in athletic apparel sales for homegrown Chinese brands, with revenue at both Li-Ning and Anta rising more than 50% in China, according to Dow Jones.

On the heels of that growth, Li-Ning made its first foray into the U.S. market, opening a retail store and design offices in Portland, Ore., in 2008 near Nike’s headquarters.

In the past few years, Li-Ning’s business hasn’t fared so well. A rebranding attempt in China in 2010, wherein the company tried to appeal to younger consumers, fell flat, says Hao Pan, director of strategy at Interbrand Shanghai, a division of New Yorkbased global branding consultancy Interbrand. “The rebranding failed … and led to a loss of a potential advantage among the 30- to 40-year-old segment,” he says. Meanwhile, Western sports brands such as Nike and Adidas gained ground in China, owning 24% of China’s sports apparel and shoe market in 2010, according to global market research firm Euromonitor International.

In 2011, Li-Ning’s profits fell 65% because of rising costs and slowing economic growth in China, and according to company estimates, 2012 is likely to be another slow year, with profits expected to drop by 41%.

In July 2012, CEO Zhang Zhi Yong stepped down and founder Li Ning became CEO until a replacement can be found. The company introduced a new blueprint for growth: focusing on core products in the domestic market, investing in the brand to improve marketing effectiveness and changing its merchandising model. Part of retooling its operations means focusing more on the Chinese market and scaling

back on U.S. operations, according to the company’s earnings release. Li-Ning executives in China could not be reached for comment before deadline.

In its analysis of Li-Ning’s July 2012 earnings report, Hong Kong-based Piper Jaffray Asia Securities Ltd. said that it was “cautious about the company’s future outlook.” In an interview, Alfred Ying, senior research analyst at Piper Jaffray Asia Securities, explains: “Foreign brands are gaining market share from domestic brands in China. [Li-Ning’s] brand value is damaged and somewhat perceived as a discount brand by consumers,” he says.

The Allure of International Brands

Amidst all of the hurdles—and in an effort to strengthen the brand’s appeal in China—Li-Ning’s globalization plans in the U.S. have forged ahead. In 2011, Li-Ning launched Digital Li-Ning in the U.S., a joint venture with Acquity Group, a Chicago-based e-commerce and digital marketing company, and that December the group developed a website to sell Li-Ning products in the U.S. In 2012, the Portland retail store closed and the bulk of Li-Ning’s U.S. operations were moved to Digital Li-Ning in Chicago.

The company’s financial woes and leadership transition won’t affect the marketing efforts of U.S.based Digital Li-Ning, and it will expand into the U.S. market as planned, says Ray Grady, general manager of Digital Li-Ning. “If anything, it may accelerate some of the things we’re trying to achieve in the U.S.,” he says. “We’re excited about the personal commitment of Mr. Li and of turning Li-Ning into a global brand.”

According to Landor’s Mack, if achieved, Li-Ning’s international expansion could be the key to keeping up with rival Nike at home, which plans to double its sales in China by 2015, according to The Wall Street Journal, and domestic challenger Anta, which is gaining market share in China’s second-tier cities, a group of about 25 cities with lower populations than China’s wealthier first-tier cities, Beijing, Shanghai and Guangzhou.

Due to increased urban development, China’s high-speed rail system and the growing middle class, second-tier cities are rife with opportunity for Chinese companies and Li-Ning’s Chinese business is taking a hit from challengers there, Mack says.

“The ironic thing is competitors within China are doing to Li-Ning what Li-Ning did to Nike, co-opting

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their tone of voice and approach to the market, and are doing it now in lower-end parts of first-tier cities and in second-tier cities. You’re seeing brands like Anta come from the second tier and challenge brands like Li-Ning in the first tier. There’s a huge fight in China for the sportswear market and if this was five, six years ago, Li-Ning would say, ‘We’ve got an established cash flow in China that can help us fund our international expansion.’ Now, that’s not there. [They] need another way to help fund their expansion.

Should they be tending to their house in China before they try to crash the U.S. market? You could say yes.

A nuance, though, is that one of the ways they get more credibility in their home market in China is by saying they’re an international brand.”

That’s what Digital Li-Ning aims to do, Grady says.

“The need to be a global brand isn’t just to be successful in global markets. It’s to continue to stem the tide of what’s happening in the Chinese marketplace. The Chinese consumer is evolving rapidly. … These types of individuals want to wear the coolest stuff and they tend to look west for inspiration. [If] the brand is a true global brand, a cool brand, it goes from being ‘It’s not Nike’ to [the fact that] there’s pride around that. Being cool in the West is going to be strategic to getting them to demand a higher price point in the larger markets.”

Tailoring to Fit

To make Li-Ning cool in the West, Li-Ning’s U.S. marketing team collaborates with executives in China, visiting the Beijing headquarters every two to three months and discussing its marketing strategies via e-mail and phone daily. The central creation of branding messages originates in Beijing and the U.S. team works to communicate those branding messages in the U.S. “It’s a brand that leverages the concept of mind, body, spirit,” says Craig Heisner, vice president of sales, marketing and merchandising at Digital Li-Ning.

“There’s going to be subtle changes to messaging or to the product mix to ensure it’s relevant, whether it’s colors or fit characteristics. The goal for everybody is to not get away from the fact that this is a global brand. The branding has to originate in one place, Beijing, and we interpret it and add nuance to it, and make it work on our site.”

Marketing Li-Ning to U.S. consumers also means tailoring the U.S. product line to sports that are relevant in the United States, namely, basketball, running and fitness, and eliminating products geared

$7.3 TRILLION

towards China-centric sports such as badminton and table tennis. “As a performance brand, we felt like positioning all of the categories where Li-Ning participates globally may not be the right approach to enter the U.S. market, so we focused on three main categories and we intend to evolve that into a fourth,” Grady says.

The popularity of basketball in both countries helps Li-Ning bridge the gap between U.S. and Chinese consumers, Heisner says. “We tend to focus more on how they’re similar, rather than how they’re different.

Basketball in China is huge and there’s also a significant following in the U.S. Athletes are looking for ways to express themselves on the court and there’s a fashion component to that that’s valued locally in the States as well as in China.”

Li-Ning’s e-commerce-only sales strategy in the U.S. also matches buying preferences of the company’s target consumer, which skews younger, Grady says. “We looked at overall trends in retail and there’s a seismic shift away from brick-and-mortar expansion into digital. [Our target consumer] is a progressive buyer and the lion’s share of the time where those types of consumers are engaging with brands today is done in the digital world.”

The e-commerce strategy also is a brand-building move, Heisner says: “It’s a direct-to-consumer play that gives a stronger opportunity to ensure that the first impression we make in the U.S. marketplace is a positive one, one that is in line with what we’re promoting. Rather than relinquishing the keys to the car, from a brand standpoint, to a local retailer or distributor, we have the ability to ensure that that messaging is on point, products are being priced properly and the experience that the customer has when he comes in contact with our brand is what we want. It aligns with the way in which the consumer is shopping and wants to shop.”

To supplement its online presence, Li-Ning sponsors offline events at the NBA All-Star Game; the Battle for Ohio celebrity basketball charity challenge, featuring former Ohio State basketball players and Li-Ning endorser Evan Turner of the Philadelphia 76ers; Red Bull King of the Rock, a one-on-one basketball tournament at Alcatraz in September 2012; and smaller events such as charity 10k runs. “It’s important for us to put the brand physically in the hands of our consumers. We look to events as opportunities for us to fully engage the consumer and … it’ll continue to expand as we get into 2013,” Heisner says.

China’s GDP, $7.3 trillion, makes it the world’s second-largest economy after the United States, according to the World Bank.

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brand

AMBASSADORS

Nike is Li-Ning’s biggest competitor domestically and most prominent pacesetter internationally. Here’s a short list of Li-Ning’s and Nike’s athlete endorsers, head to head.

NBA

EVAN TURNER U.S. TRIPLE JUMPER

CHRISTIAN TAYLOR JAMAICAN SPRINTER

ASAFA POWELL RUSSIAN POLE VAULTER

YELENA ISINBAYEVA

Digital Li-Ning also is engaging in SEO and advertises its events in local print media.

Li-Ning’s Globalization Hurdles

In mapping out its strategy, Li-Ning, or any other Chinese brand attempting to enter the U.S. market, has its work cut out for it, experts say, citing three major problems: general awareness, lower marketing budgets versus American rivals and lack of prominence for China as a brand.

For instance, entering the U.S. marketplace won’t be as easy for Li-Ning as it was for European athletic apparel brands Adidas and Puma in the ’80s, says Jim Andrews, senior vice president of content strategy at IEG, a Chicago-based marketing agency focused on sponsorship whose clients include Adidas and New Balance. “There’s a significant difference this time with Li-Ning. Those brands, coming from Europe, have a heritage that was more easily marketed to U.S. consumers because U.S. consumers were familiar with the sports and athletes they had been involved in. Soccer and track and field, there was some history there and the sports are familiar. With Li-Ning, you’ve got a much lower level of familiarity. With

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NBA

LEBRON JAMES NFL

DREW BREES MLB

DEREK JETER NHL

ALEXANDER OVECHKIN

him as a person … you can’t hang your hat on him, so to speak. And the sports that we as Americans associate with China are things like gymnastics,” which is what Li Ning, himself, is known for and therefore could influence consumers’ perception of his brand.

Although he wouldn’t reveal Li-Ning’s U.S. marketing budget, Heisner concedes that brand awareness is a problem. “The challenge has been not only getting awareness, but getting relevant awareness that supports a strong point of view and it doesn’t happen overnight. The competition has very good product and they have considerably larger marketing spend than we do.”

“We’re a challenger brand,” Grady adds. “We’re not naive to think we’re going to play this game and win in Nike’s marketplace.”

Budget concerns are a problem for most Chinese brands attempting to enter the U.S., Pan says. “It is really a long way to go for Chinese brands to build appeal to U.S. sporting-goods consumers. These brands possess far less marketing assets and marketing capabilities, which is necessary to build brand awareness and engagement. U.S consumers might

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be open to purchasing Chinese products, but sporting goods is a brand-driven category. Acceptable product quality alone doesn’t guarantee success.”

Marketing fundamentals such as positioning, differentiation and retail experience also are key when entering a new marketplace, and experts say that successful international brands leverage their “foreignness” to set themselves apart. For example, Japanese clothing brand Uniqlo has developed unique retail spaces in New York’s Times Square and SoHo that leverage the brand’s Japanese origins, says Hayes Roth, CMO of Landor Associates. “That’s caught the imagination of a lot of people because there’s Japanese style.”

Uniqlo also smartly gets the product in front of consumers, where they can touch it and try it on, and thereby interact with the brand—which is essential when introducing a foreign product portfolio to a new market.

An e-commerce-only strategy, with occasional product appearances at events, as Li-Ning is attempting in the U.S. can be much more difficult, Mack says.

Building Brand China

Foreignness can be a brand attribute in and of itself, especially in the apparel category, and thanks to China’s increasingly prominent role in tech manufacturing and other cutting-edge industries, products originating in China should soon be able to use their country of origin as a selling point, Mack says. “Products made in China are seen as competent; the ‘shoddiness’ perception is going away, thanks, in part, to Apple products being made in China. It’s that creativity bit that’s missing. Five years from now, I don’t think ‘Made in China’ is going to be an issue.”

Adds Li-Ning’s Grady: “Our research shows that the consumer we’re going after [is] well aware that … the brands they love, whether it’s Nike or Adidas, were made in the same factory where Li-Ning was made. There’s no confusion anymore that the New Balance American brand is stitched by an old lady in Portland, Maine. We’ve seen it as less of an issue. … It’s a perception held by an older demographic that we’re not going to spend a lot of time focusing on. The iPhone is made in China and people aren’t scared to walk around with an iPhone.”

Li-Ning might or might not set the pace for Chinese brands succeeding in the U.S. market, experts say, but Chinese brands will earn a spot in Western consumers’ consideration sets.

China already has had success in exporting its brands across the world, Mack notes. Car companies in China “are going gangbusters in places outside of China and outside of the developed world,” he says. “JAC, a Shanghaibased company, has significant share now in Brazil and does very well in Nigeria and Eastern Europe. Midea, a big appliance brand, is huge in India and North Africa.

They’re acting the way American brands did to Asia, acting that way to Latin America and Africa.”

Adds Roth: “China is on the cusp. Usually, it’s led by a product that makes an entrance in a big way. In the case of Korea and Japan, they were cars and electronics. All the computers are made in China, [but] it doesn’t say ‘Made in China’ anywhere on any of them and they don’t brand the fact that China is about competence. They need to create a Brand China that is sold to the rest of the world and failing that … there needs to be an ‘ownable’ product or service that can be branded that’s openly Chinese that will capture the imagination of Americans.” m

Product images courtesy of Digital Li-Ning

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