The "Local Growth Formula" Of Chinese Sports Shoes Enterprises

In April 1st, foreign companies and local companies have been adopting different strategies to win Chinese consumers in recent years.

Western multinationals, especially

But now, the trend of the market is that Nike and Adidas, once the top suppliers of Chinese sporting goods, are no longer indisputable.

Following this, several local sports brands are expanding their sales networks with a view to advancing into the undeveloped market where they rarely get involved.

Including Anta, the company opened 7500 private brand stores, sales increased from 1 billion 250 million yuan (190 million US dollars) in 2006 to today's 7 billion 410 million yuan, the growth rate of nearly 600%. During this period, Lining's sales increased from 3 billion 180 million yuan to 9 billion 480 million yuan, and PEAK's sales increased from 623 million yuan to 4 billion 200 million yuan during the same period.

For the western pnational sporting goods companies, the road of China's high growth, once envied by people, is no longer logical.

In the last fiscal year (as of May 31, 2010), the revenue of Nike in the Greater China region was $1 billion 700 million, and its sales performance was mediocre, while the previous year achieved a sales growth of 29%. In the 2011 fiscal year, sales growth returned to the upswing, and the sales growth of 458 million dollars in the last quarter was 10%.

Meanwhile, Germany's Adidas also suffered a similar slowdown.

In 2009, the company's revenue in the Greater China region was 10% lower than that of the previous year of 967 million euros ($1 billion 400 million), followed by a 2% increase in 2010 sales.

Adidas blamed the slowdown on the high inventory after the Olympics and the overall reduction in consumer demand.

However, retail experts believe that this is not the whole picture.

In 2008, Nike and Adidas accounted for 18.8% and 14.9% of the market share in China respectively. In 2009, their market share dropped to 10.2% and 9.6% respectively, and Adidas was surpassed by Lining, according to data from Frost&Sullivan, a research firm.

The big backdrop of the fall is that the overall sales of China's sporting goods market are growing sharply.

From 2006 to 2009, the total sales of Chinese sports goods increased from 38 billion yuan to 140 billion yuan.

JasonDing, a partner in strategic management consultancy (RolandBerger) and senior strategist consultant Roland Begg, believes that in recent years, local enterprises have been growing rapidly by laying thousands of stores. These stores are often held in a market with little interest in JasonDing.

At the same time, brand building plays an important role in the rise of local enterprises.

Anta is an example.

He said that compared with Nike, Adidas and Lining, Anta's brand represents a heroic image of a grassroots grass roots, which resonates with consumers, while the former aims at a more high-end market, the consumers who want to connect themselves with fashion sports stars.

Formula for local growth

So, is it true that Chinese enterprises will soon become the leading force? Walton, Professor of operations and information management at EricK.Clemons School of Commerce, thinks that this moment is just around the corner. "Eric Clemons,"

"As time goes on, China's local brands can and will be as fashionable and trustworthy as their Western counterparts."

He said, "Western brands have always enjoyed a good reputation for their excellent quality and innovative designs, and they have been well recognized and profitable.

But in the future, Chinese brands will also win their reputation by the same quality and fashion design style.

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Zheng Jie, vice president of Anta, believes that before acquiring such a position, China's local companies have begun to play several advantages that foreign competitors do not have.

"An important difference between international sporting goods companies and domestic enterprises is the speed of feedback on market changes."

Zheng Jie said.

He previously served as general manager of Reebok Co (Reebok) China.

"In multinational enterprises, policymakers are mostly foreign managers. Their focus is often on big cities.

Their understanding of small and medium-sized cities in China is often less than that of local entrepreneurs who are willing to devote themselves to these areas.

There is another difference between them: Nike, Adidas and other foreign brands will outsource their production. Most Chinese brands adopt their own mode of production and outsourcing, which is a meaningful strategy in a country with the world's factory.

In Anta, 41.1% of footwear and 15.6% of clothing products are produced by themselves.

Ding Zhizhong, chairman and chief executive of the company, believes that this will enable the company to react quickly to market changes and help keep the style of new products confidential until the date of listing.

At the same time, this way also allows companies to have greater flexibility in cost management.

It is not limited to the Anta family that is keen on its own production.

PEAK sporting goods company has two production bases in two provinces of Fujian and Jiangxi, with a total workforce of more than 10 thousand.

Xu Zhida, vice president of the company responsible for production, said that this strategy is more convenient to control quality, to deliver products quickly and supply chain shorter.

"This market is still expanding. Our goal in 2011 is to increase revenue by about 20%, but we will still invest in production."

Xu Jingnan, founder and chairman of PEAK, pointed out that a large part of the investment will be invested in the production base of the company in Shandong Province in a 3 year investment project of about 2 billion yuan.

He stressed: "we will not abandon production but focus on brand management."

However, determining the optimal production strategy is a process that needs constant balance.

Ding Jie of Roland Begg management consulting firm points out that there is no right or wrong in production or outsourcing.

Although self production can ensure that the company has a more comprehensive control over the supply chain, he said that the "light assets" (light-assets) mode, that is, outsourcing all production to the third party, will enable enterprises to have an advantage in cost management.

Many Chinese companies say they have provided important experience for their self-reliance and rise in recent years for the history of international brand foundry.

In addition, geographically, many shoemaking enterprises "industrial cluster" effect, that is, producers, raw materials suppliers, and other important stakeholders in the supply chain are concentrated in one area. Apart from Li Ning Co, many large local sporting goods enterprises are located in Jinjiang city of Fujian province and its vicinity.

As Michael Porter, a master of management at Harvard Business School, said in a recent paper, under certain conditions, this industry cluster has a positive effect on operational efficiency, innovation, collaboration and competitiveness of enterprises. MichaelPorter

But future competition is not necessarily conducive to local brands.

Research by the Boston Consulting Group (BostonConsultingGroup) shows that although multinationals in emerging markets in China used to focus on big cities, their future growth will increasingly rely on small cities and remote markets which are harder to enter, and their brands are unknown in these markets.

This trend can be seen from the dynamics of the recent two giants.

Recently, Adidas announced that in the next 3 years, 2500 stores will be opened in China, most of which will be located in China's three and four tier cities.

As for Nike, sales of China's 20 largest cities last year accounted for half of its total sales in the Greater China region.

However, the company's top executives also claim that they will be betting on higher growth rates in other cities. Analysts predict that Nike will use its low-end brand CONVERSE (Converse) to enter the rural and urban markets.

Ding Jie said, "as you can see, they have practically begun to act.

From the layout of sales outlets to the development of low end market products, as well as the expansion of supply chain, a series of work has been arranged.

This will have a great impact on local brands. "

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Changes in the environment

So, apart from pricing, can local sporting goods companies compete with the multinational giants in terms of product quality? Professor Clemons of Walton Business School believes there is no reason why they can't.

The reason is that most of the western brands sold in China are actually produced by factories in this country.

However, he also said that local enterprises should not ignore the impact of "made in China" reputation in recent years.

"In some product categories, the level of Chinese manufacturing is lower than that of the west, and the result is that Chinese consumers are suffering from it.

Poor quality of products can sometimes poison people, or even kill people, such as toxic milk powder and other incidents. The image of Chinese products is overshadowed in the minds of consumers.

He also said that many of China's products, including sporting goods, look the same as those of Western brands, but they are either poor imitation or defective two goods.

"These poor quality products have seriously damaged the reputation of Chinese brands in the minds of Chinese consumers, and can even be described as" economic treason "to describe enterprises intentional to manufacture such products," he insisted.

Experts believe that in the past, the competition strategy adopted by local enterprises may be the only way to win consumer loyalty. These strategies have shown signs of overburden.

For example, Li Ning Co has begun to shut down poorly performing retail outlets and adjust its brand strategy.

These actions show that with the maturity of the market, the old strategy of rapidly expanding distribution networks and large-scale marketing activities has not been able to bring about such a huge profit for the company.

Ding Jie believes that the main disadvantage of Chinese local enterprises is that the development of core products and the field of proprietary technology are still relatively weak.

In addition, there is still room for improvement in forming a complete customer focused marketing strategy, including how to integrate online contacts, offline activities and shopping experience of retail stores.

However, local enterprises are making remarkable progress.

For example, Anta launched 2100 new shoes, 3000 costumes and 2000 accessories last year.

Like other sporting goods companies, Anta also promotes brand image through mergers and acquisitions, and is an international image.

In 2009, Anta acquired Fila brand from Belle International Holdings Ltd (BelleInternational) to help develop its own high-end market.

This year, the company is preparing to increase its store from nearly 200 to 500, which are mainly located in first tier cities and second tier cities.

Industry observers say that the current market competition and industry environment have entered a new stage.

Both multinational and local companies may soon find that the effective way has not worked well in the past few years when the market is developing at a high speed.

Ding Jie pointed out that "China's sportswear accounted for 30% of the total clothing market, far higher than 15% of the western market.

The growth of this market will slow down and competition will intensify. "