McKinsey urges rethink on Chinese launches

21 September 2010

BEIJING: Multinationals face high failure rates for their Chinese product launches as "confusion" reigns among consumers over brand origins, experts from McKinsey have said.

Writing for the Harvard Business Review, Max Magni and Yuval Atsmon suggested that people in China often believe that domestic products are foreign-made, and vice versa.

The authors, both of whom are part of McKinsey's team in China, added that western firms often do not accurately reflect local needs with their products.

McKinsey data cited by the report indicate that 90% of consumers mistakenly believe fashion brand Metersbonwe is foreign, while 70% think French-owned Danone is Chinese.

At the same time, increasing numbers of Chinese consumers say they actively prefer to buy foreign goods.

According to McKinsey, a majority (52%) of people earning over RMB 250,000 ($36,675; €28,000) per year "trust" overseas brands more than Chinese brands.

The mainstream consumer is also feeling more positive towards foreign brands, with the proportion that generally prefers local products falling from 57% in 2007 to just 45% this year.

But these statements are at odds with actual purchase habits when it comes to new products from multinationals.

Magni and Atsmon argue that foreign firms often find launching brands in China difficult, due to their inability to adapt to local tastes.

In response, the authors called for the use of much more local help in product development.

"Launching a China brand, which could later be sold in other emerging markets, will require giving executives in China a mandate that encompasses local research and development as well as localized marketing approaches," Magni and Astsmon added.

"It will also require a deeper level of customization than most Western executives are either comfortable with or capable of."

The authors also conceded that some large multinationals have begun to target products more effectively in China.

For example, General Motors and SAIC plan to retail a specially-designed new car, Bao Jun, or "prized horse", while models including the Audi A6 and BMW 5-series have also been "tweaked".

Reflecting the popularity of luxury goods among affluent consumers in urban centres, Hermès is to open a Shang Xia, or "from top to bottom" store in Shanghai this month.

Data sourced from McKinsey; additional content by Warc staff