The numerous challenges and opportunities presented by the world's emerging markets, which we have started to cover more intensely in our publications, were among the most interesting topics discussed in recent months at Empreintes, a convention on brand-building held every two years in Bordeaux. Interestingly, the topic was also on the agenda of the World Footwear Forum, held in Rio de Janeiro a few weeks later. Here are some of the most relevant highlights that emerged in our opinion from the two conferences and from some newspaper clippings that we have come across recently:
- The current economic crisis in Europe is leading decision-makers to think differently, to look at different systems, processes and business models, based on better knowledge of markets and consumers. It is stimulating more creativity and innovation, as well as more globalization and internationalization, creating faster and more efficient distribution channels for their products.
- The 3 billion people living in the BRICS – Brazil, Russia, India, China and South Africa – represent half of the world's population of around 7 billion people and 25 percent of the global GNP. Together, they are expected to account for 75 percent of the likely continued annual 5 percent growth in the global GNP over the next 15 years. The world's population should grow by 1 billion people over the same period. Most of the growth will take place in the BRICS. Ten percent of the Chinese population can already afford to buy high-end local or imported shoes. Together the middle class in China and India, which are the most populous countries in the world, will be bigger than the middle class in Europe.
- The wealthier people in the BRICS will continue to crave Western products to distinguish themselves and because they feel they are of better quality than those made in their own countries. Enormous opportunities exist in these countries for mid-tier brands. According to one of the speakers at the Empreintes conference, the more affluent Chinese tend to prefer European brands to American brands because they have a longer history and stronger identity. Generally, American brands are more marketing- and retail-driven than European brands because of the large U.S. market and its less pronounced production culture.
- The wealthier people in emerging markets buy most fashion products abroad because of an insufficient offer in their own countries and, especially in the case of Brazil, to avoid paying sales taxes. Chinese tourists have become the biggest customers at the stores in Paris' airports.
- Big investments are required to build up a brand properly in China, although more and more are entering the market, as it is difficult for the local people to retain all their names and logos in their minds. This is why only major Western brands such as Adidas, Nike, Louis Vuitton, Gucci and Prada have made their mark in the country so far.
- Why not invest in a company in China or in another emerging market, providing know-how and experience while promoting one's brands and products in the country? Chinese and Indian companies are acquiring Western companies and brands to acquire that know-how, but it can go the other way around, as Luxottica has recently done with the acquisition of Tecnol in Brazil.
- The internet can help prepare a company for entry into a new market. One way of entering it is the so-called “flagship & click” strategy: Set up your own single-brand store in a prominent location and market your brand in the country through the internet, possibly setting up a local e-commerce operation.
- It is advisable to talk to retailers in the emerging markets to determine the best possible distribution mode in the country. It may involve an exclusive deal with a retailer or a licensing agreement, at least initially, rather than the classical wholesale distribution model.
- Before talking to any potential distribution partners in China or any other country, companies should protect their brand names and internet domains, and patent some of their key designs. It will be much more expensive to recover intellectual property rights after the damage has been done. The contract signed with a foreign partner may include a non-competition clause if the relationship comes to an end.
- China is more open than Brazil or India to foreign imports, although it has a big counterfeiting program that must be dealt with before exploring market penetration. In five years China has become the world's largest market for French wines, followed by Russia.
- More and more fashion companies, including Chanel and Hermès, have developed specific collections for the Chinese market, with different features and price points. Other less important brands are doing the same, especially in the footwear and apparel sectors.
- The big and affluent market of South Korea can be a launching pad for the Chinese market. Korean companies are developing rapidly in China. The silhouette and some fashion trends are similar. Furthermore, Korean companies have gained a lot of experience in reinterpreting and adapting European and Japanese style codes.
- Indians are more sensitive to fashion than the Chinese, but there are so many regulations in India that the choice of a suitable local partner with the right connections and resources is an absolute necessity.
- Brazilians are also more fashion-oriented, but with a different twist. Fashion has some special natural and sophisticated connotations in Brazil.
- Shoes and other fashion products are less in demand for most people in China than other items. Once they get richer, they generally tend to spend their extra money first to buy an apartment and a car, and then to prepare their retirement. Senior citizens are in fact creating a big new market in China, Korea, Japan and other Asian countries.
