To What Extent Can Luxury Brands Benefit from Relocating to China Where Ignoring Copyright is the Norm?
To What Extent Can Luxury Brands Benefit from Relocating to China Where Ignoring Copyright is the Norm?
"Being copied is the forfeit of success" said Coco Channel, the famous French fashion designer. Looking at the 77 billion dollars of global luxury sales in 2008 presented in the WWF report Deeper Luxury (2008, p4), one could agree that fake products are an affordable problem. A huge increase of sales is predicted with the arrival of the Chinese middle class on this market. But while rushing to relocating to China and preparing to welcoming its new customers, luxury brands tend to forget that China was and still is a paradise for counterfeiting. The absence of any intellectual property rights regulation and the traditional chinese culture of copy seem to be two obstacle to benefit from the seductive perspectives of the market and may even threaten the identity of any brand. This essay aims to evaluate the impact of the fake industry on luxury brands relocating and selling in China in terms of : image and brand identity, business strategy, awareness of customers and Chinese perspective of luxury. The examination of these criteria will reveal that a successful relocation to China relies on a new understanding of brand awareness by Chinese customers, marketing strategies and technology which end the confusion between fakes logo and luxury labels.
"One thing that has surprised us in the last ten years is the speed at which China luxury market has developed" said Serge Brunschwig global manager of LVMH ( 2007,p143). There is no doubt that China is the place to be for luxury groups such as LVMH (French Luxury group composed of Louis Vuitton, Givenchy, Dior, Celine, Moët et Chandon), and Hermes. In an Ernst and Young Report (2005)both Goldman and Sachs, and Merryl Linch predicted that China would dominate the market by draining 30% of global sales during the next decade and finally overtaking Japans. And when, according to Bendell and Kleanthous (2007), 94% of japanese women bought at least one Vuitton bag, the 300 000 chinese millionaires and the 250 millions emerging middle class are making the market irresistible . But unlike Japan, China market is surrounded by fake industries. And enforcing new copyright regulation is not on the agenda of the chinese government which is more preoccupied with fighting with corruption and crime organization. It appears that luxury brands are on their own facing this challenge and that relocating in the el dorado of fake industry is endangering their brand. In fact US authorities recently denounced the fact that China manufactured 80% of counterfeiting goods seized in the USA(The Economic Times, 2011), and it is usually known that manufacturing genuine products side by side with copy industries undermines the image of a luxury brand and the exclusivity of its products. Although the reduction of costs is imperative in our global economy, it is not applicable to luxury products, whose reputation comes from high quality handiwork, exclusivity and whose prices do not depend on production cost but on creativity. Despite reducing cost will allow huge profits, previous criteria would suffer from customers' scepticism if its products were manufactured in China. People tend to think that "made in China" is either fake or a bad quality product, and luxury brands, such as Longchamps, who had lately dared to relocate in China and had breaken the taboo, have seen their products losing their exclusivity and find themselves discriminated by famous concurrent. Even though Longchamps achieved the improvement of its brand awareness in China, the reaction of experienced westernized customers led to a backfire. After a decade Chadha and Husband are convinced that Chinese customers are likely to have the same sense of sophistication , therefore such a business strategy is doomed to failure .
Hermes, Louis Vuitton and Dior are strongly refusing any relocation plans to preserve their image. One of the solutions to create a strict distinction between fake industry and luxury industry is to educate target-customers. Emphasis should be made more on "designed by" than "made in". If luxury westernized brands are not able to achieve the Chinese market, it will not be dominated by them and other brands will step up. Shanghai Tang and La Vie, are two Chinese brands which have emerged from the western luxury brands lack of adaptation and are currently illustrating the capacity of local businesses to adapt to this new market. But if Shanghai Tang and La Vie are mostly attracting foreign customers looking for Chinese-stamped luxury handiwork, they succeed in understanding the deeper value of luxury : brands have to guarantee quality, to protect know-how and to promote creativity. If counterfeiting and genuine products are hard to distinguish, know how quality and furthermore creativity are the deeper values of luxury. Several studies led by Ernst and Young have shown that 20% of global luxury customers tend to mix fake and genuine products without regard to cost (p4,2005). Such behavior from the customers illustrates the weak communication of luxury brand of a labeled product and the direct threat of counterfeiting on brand identity.Luxury brands have been reacting differently to this challenge and some with success : Celine, the booming LVMHs brand in Asia and in Europe, relocated to China successfully, focusing on a Chinese know-how integrated with a western brand.
By producing a precious luxury fabric made from bamboo according to ancestral chinese know-how, Celine achieved to please both western and Asian customers while profiting from relocated low cost production. Bernard Arnaud , the present chairman of LVMH, by introducing chinese luxury sourcing had pointed a way out to break the taboo of relocating to China. Despite experts predicted that Celine would not resist to the test, the brand is now one of the most cutting edge in Asia and Europe. In other words the target customer could be educated and brought to the conclusion that "made in China " is not compromising the brand image. However, if Celine's strategy opens the door to relocation in China by using local know-how and by letting counterfeiting behind thanks to creativity, the question of relocating European luxury know -how remains. In fact, this success story, highlights the importance of the country of origin in the customer decision. The marketer Sammie made an interesting analysis by separating "country of origin"of a product, "country of manufacturing" and "country of designing (1994) and luxury brands relocating to China could be inspired by looking closer at these three distinctions during the production process. According to customers 'expectations, the factor "country of origin" is paramount and must be carefully planned to avoid endangering the brand identity. On the contrary, the "country of designing" and the "country of manufacturing" are more likely to be relocated successfully if presence of creativity and know-how is noticeable . An education of luxury consumers should be made using these three criteria to show that a luxury brand is not simply "made in" as in a counterfeit but "made of" a complex and demanding process. The design and the creativity are not questioned by relocating since they are stamped by brand image. This is the relocation of the origin country know how which causes the main dangers.
Firstly transmission of country based origin know-how is a hard task and if know- how were to be successfully transferred, the ignorance of copyrights regulation is a free pass to the chinese fake industry to corner the market. Hermès, Louis Vuitton and Dior are argue that the risk is too high and refuse to go further in the know how transmission as they have already done in other countries as Italy or Romania. First, exporting fragile luxury goods is not cheap and secondly a business brand based on high level handiwork, can not resist tochinese low cost manpower for long. Can they afford such a risk ?
Even more, they are l already behind Celine and Chinese brands strategies which have secured their image and genuine product in China. Moreover luxury brands are excelling in Marketing so that setting new standards for luxury products in China will not be difficult. However an other unexplored pass to relegate counterfeiting could be technology. In fact technology asks for huge amount of research and development and could reveal and widen the invisible gab between genuine products and counterfeiting, for an example by using holograms. Trott and Hoecht (2007), are therefore arguing that counterfeiting is a chance for luxury brands to question what distinguishes them from a simple copy and helps them to go back to deeper values. That is to say counterfeiting in China is a productive threat for luxury brands which has to be in constant move in order to provide exclusivity of its genuine products. Recently Gucci have been exploring the field of holograms to label its bags. Although such technology is asking for high investments from Gucci, expensive devices are clearly out of reach from counterfeiter who relie on a strict budget. Price of counterfeiting can not include creativity and is therefore limited to a low cost strategy which limit the budget of counterfeiters. Trott and Hoecht (2004), said that unexpectedly and in a certain way, fake industry is a chance for luxury and for alternative technologies. Kapferer and the WWF "deepervalue" from Bendell and Kleanthous are identifying the technology as one of the solution to distinguish luxury goods value. In fact they argue that technology will be the new criteria of exclusivity for its genuine products. Whether or not this marketing strategy is effective is an other question, but surely counterfeiter are not interested in cutting their budget and will therefore not being able to follow original brand if they chose to apply this strategy.
In conclusion, relocating to China and facing counterfeiting is a challenging move for luxury brands, they can neither afford to lose market shares nor to ignore low cost manpower. Apart from the obvious benefits, struggling with the chinese fake industries appears as an opportunity for brands to revitalize the conception of luxury by making place for cutting edge technology in traditional handmade products and redefining the deeper value of its products. Although luxury brands have a important role to relegate counterfeiting by implementing new marketing and sourcing strategies, new laws should be enforced in China and Chinese government must undertake massive measure in order to stamp out the ignorance of copyright and Intellectual right. But this measures should only follow the new definition of luxury products in China.
Bendell. J and Kleanthous A., November 2007, Deeper Luxury ,WWF-UK http://wwf.org.uk/deeperluxury/report.html, (date of access : 13/09/11)
Chadha R and Husband P., 2006, The Cult of the Luxury Brand: Inside Asia’s Love Affair with Luxury. London, UK. The Economic Times 14 jan, 2011
http://economictimes.indiatimes.com/80-fake-products-seized-in-us-comes-... Accessed on the 13/09/11
Ernst and Young report, 2005, China : new lap of luxury. 2005 www.ln.edu.hk/mkt/staff/gcui/EY-Luxurygoods.pdf Accessed on the 13/09/11
Kapferer, J-N.,2004, The New Strategic Brand Management. Creating and Sustaining Brand Equity Long Term, Kogan London,
KPMG, Australia’s Monash University and market research firm TNS, 2006. www.kpmg.com.cn/en/virtual_library/...markets/CM_Luxury_brand.pdf
Accessed on the 13/09/11
Trott.P, Hoecht.A., 2007,Product counterfeiting, non-consensual acquisition of technology and new product development: An innovation perspective, European Journal of Innovation Management, Vol. 10, (2007)
Sammie. S., 1994 Customer Evaluation of Products in a Global Market, Journal of International Business Studie
Trott.P, Hoecht.A., 2007,Product counterfeiting, non-consensual acquisition of technology and new product development: An innovation perspective, European Journal of Innovation Management, Vol. 10,