BEIJING: Foreign brand owners are facing a major challenge in China, thanks to improvements in the goods and services offered by domestic rivals.

The Financial Times reports that large Western firms such as Procter & Gamble and Unilever are losing the battle for share in some categories.

Ge Wenyao, chairman of Shanghai Jahwa United, a cosmetics manufacturer, told the newspaper: "Chinese companies have grown and learnt a lot from foreign companies. They now have better marketing and feel much more confident."

Increasing national pride - fuelled by China's successful hosting of global events such as the 2008 Beijing Olympics and the Shanghai Expo of 2010 - is also encouraging higher-income consumers to "buy China".

This represents a turnaround from the 1990s and early 2000s, when domestic brands were less developed and newly-affluent Chinese consumers in Beijing and Shanghai were hungry for foreign goods.

For their part, overseas corporations have been attracted by the rapid economic expansion of the world's most populous nation.

According to latest Warc forecasts, Chinese adspend rose by 13% in 2010 and will increase by another 12.5% in 2011. China's economic growth has also outstripped the rest of the BRIC nations, with GDP rising 9.1% last year.

The "buy China" trend can be observed in many categories, including tea - where Unilever has suffered a significant drop in its market share over recent years.

Today, the FMCG giant controls just 4% of the Chinese tea market, while local rival Guangdong Strong, having introduced successful brands such as U-loveit, an instant tea, has increased share from around 10% to 20% in the past two years.

It's a similar story for ice cream, where Inner Mongolia Yili Industrial has a larger market share (15.8%) than Unilever (6.9%) and Nestlé (3%) combined, according to data from Euromonitor.

Even established global leaders are failing to dominate.

Coca-Cola and PepsiCo control 16.8% and 5.9% of the Chinese soft drinks sector respectively, as local rival Tingyi takes a share of 12.6%.

Figures from Manpower, a recruitment group, show that multinationals, while still popular, are even losing some of their lustre as prospective employers.

Just 73% of Chinese job candidates now say they would rather work for a foreign-owned firm than a Chinese operator, down from 83% four years ago.

For the future, the rivalry between global and domestic brands could shift away from the more affluent top-tier cities of China's coastal provinces, and move inland.

Mitch Barns, president of Nielsen's Chinese division, said: "Third- and fourth-tier cities are twice as big as the first- and second-tier ones in terms of population, and the growth rate twice as fast. So that's where the big opportunity is."

Competing for the attention of Chinese consumers is proving expensive for Western firms.

Figures cited by the Financial Times suggest that, when measured against sales, the proportion of budgets spent by multinational advertisers on marketing activity is 50% higher in China than in the rest of the world.

This in turn is stoking significant price inflation in media rates, which are currently rising at around 20% per year.

Data sourced from Financial Times/Warc; additional content by Warc staff