Chinese Prefer Brand-Name Goods

The first sales office of plastic container manufacturer Lock & Lock is located at Huai Hai Zhong Lu in downtown Shanghai. This is an expensive area, with rents costing 360 million won a year.

Some may think the company made a wrong investment move, but Lock & Lock generated 40 billion won in China last year by adopting brand marketing strategy to dominate the Chinese market in a short period of time. It launched massive advertisements, too. The first store made more than 1.2 billion won last year. The sales manager of the company, Woo Hyeok-jin, said, “After successfully establishing a luxurious brand image, we will introduce similar items soon.”

Successful Korean companies in China vary in items they carry, which shows that any company can succeed in China. One thing is common, however, between these companies: they are all engaged in “luxury marketing.” This marketing strategy will work only when companies sell quality products and understand the nature of the Chinese market, a mix of consumers with different purchasing power.

Lee Shi-heon, president of the Korea Society in Dalian, said, “Companies who mistakenly believed that inexpensive products that are popular in Korea will also do well in China have all gone out of business.”

Luxury Branding, the Key to Success-

In most department stores in Shanghai, an underwear brand “Under Look” has a store. Chinese customers think that that is one of the most expensive brands in Korea, but Under Look only exists in China. The CEO of the company is Lim Yeong-cheol, who went to China in 1994 as a clothes-processing businessman until he reached the conclusion that budget products will not generate profits in China. He then founded a luxury brand in 1999 and penetrated the local market. Graduating from Hongik University as an art major and working for a clothing company helped him along his way to success.

Lim said, “Under Look generates annual revenue of 8.5 billion won targeting the wealthy in Shanghai. A luxury image, once firmly established in Shanghai, will enable the brand to be loved by everyone in China.”

Lee Hak-jin, a former president of China’s Elcanto branch also succeeded in harnessing brand power. His company makes about 2 billion won a year by selling Korea-imported shoes at 25 major department stores under the brand “yeppn,” and those produced at a Taichang factory under the brand “Ips,” respectively. These two brands are different from their Chinese counterparts as they are designed in Korea.

Companies Need to Be Chameleons-

CEO Jeong Chi-hwan of SG Korea, which manufactures brushes and artificial nails in Tenjin, is known as a “chameleon” in the Korean community. Jeong opened a brush factory in 1992, not long after he moved to China, however he delved into the shoe business in 1997, as he did not see further potential in the brush business. He later changed his business to a coating business using electronics to coat the surfaces of cell phones or ear phones to prevent ultraviolet rays. The same technology, which prevents scratches on the surface of items, is used in many other fields.

This is what he leveraged to start a new business selling artificial nails, which are a very popular business item in advanced countries such as America. Using electronics, he treats artificial nails, which are exported to the U.S. for around 10 million dollars a year. He said, “China is experiencing rapid growth, so changing business models constantly is the only way for survival. A deep understanding of the global economy and China is the source of my know-how.”

Gyeongseong Semiconductors, a semiconductor molding company, went to Suzhou, China as one of Samsung Electronics’ partner companies in 2002, but now, in order to reduce risk, it exports 90% of its products to U.S. and Japanese semiconductor companies. Recently developed semiconductors used for optical mouse and audio equipment will be sold to major companies starting next year. CEO Jeong Yeong-cheol said, “Small companies should not depend heavily on major companies as their subcontractors. They should diversify their clients and always think about ways to move into different industries.”

Un-replicable Production Know-how Needed-

Many China-based Korean export companies continue to remain competitive despite inhospitable business conditions, including a recent hike in labor costs. Colt, a guitar manufacturer that opened a factory in Dalian in 1999, sells mid-to-high end products under the brand “Colt,” and high-end products under the brand “Parkwood” in its product portfolio. With its R&D center located in Korea, there is a slim possibility of technology being leaked out of the company.

The head of the firm’s China branch, Kim Dong-shik, said, “We came to Dalian to save labor costs, but the dry weather had more to do with it. The first-rate competitiveness of our product will guarantee success at all times regardless of business location.”

Some 800 accessory makers who moved their business to Qingdao are in trouble due to the growth of their Chinese counterparts, but “Shine”; “Jewelry”; and “Solex,” among others, remain more competitive than local companies. Yoon Dong-han, president of Solex, said, “Chinese companies will not be able catch up with us in a short period of time as design capabilities require rich cultural experience.”

eye@donga.com jinhup@donga.com