China Consumer

Heritage industry

China erects barriers to multinationals buying its most beloved brands

Heritage industry

Happy bunnies promote local candy

When Richard Nixon returned home from China in 1972, he brought two pandas and a bag of White Rabbit milk candy back with him.

White Rabbit, then a household name in China, was Premier Zhou Enlai’s favoured chewy confectionery. Nixon’s China trip made sure that White Rabbit made an appearance in at least one US household too.

White Rabbit has now joined Moutai (see WiC36) and Wanglaoji Herbal Tea (see WiC16) as one of the nation’s ‘time-honoured’ brands.

This is part of a coordinated certification effort – instigated by the Ministry of Commerce – in an attempt to preserve the country’s traditional marques.

Becoming a laozihao (a respected brand) has its perks. Once certified, companies can get subsidised loans and favourable tax rates .

In truth, the numbers of heritage brands in China are dwindling fast. According to 21CN Business Herald, there are only 1,000 such marques in business today compared to over 10,000 a few decades ago.

So where have they all gone? Critics point the finger at foreign investors.

Take Jinhua Tea, the once-popular black tea label. In 1999 the mainland company accepted investment from Unilever. But sales continued to disappoint. Jinhua fell out of view, especially while Unilever’s own brand Lipton thrived.

Other well-known Chinese products have met similar fates, including Power 28, a Hubei-based washing powder, and White Cat, a Shanghai detergent.

That has led to the Ministry of Commerce’s decision to block foreign investment in laozihao firms.

But whether it is fair to blame foreign money is debatable.

Presumably many of these brands have gone out of business more because Chinese consumers no longer wished to buy their products.

But foreign investors may be an easier target. Cheng Xu, assistant to the general manager of Neiliansheng Shoe, is a supporter of the government’s latest initiative. Neiliansheng was established in 1853 in the Qing Dynasty. But it is wary of taking the foreign dollar; overseas partners always mess things up, says Cheng.

Others suspect that the problems of these heritage brands lie closer to home.

Many belong to antiquated enterprises with outdated management structures and practices. Quite often, these companies have relied on single products or limited ranges that have lost their relevance to consumers today. Nostalgia only goes so far, after all.

Another possible side effect of being a long-established business is staid thinking or an inability to respond when competitors enter the marketplace.

Many old brands also find themselves burdened with pensions and medical care commitments for retirees, thus reducing the funds available for investment in innovation or market research.

“Laozihao have potentially strong cultural and historical appeal,” Professor Huang Guoxiong of Renmin University’s Business School told China Today. “But they won’t excel in today’s market unless they change with the times.”

And besides, not all foreign partnerships are doomed to fail.

One of the success stories is Nanfu Battery’s tie-up with Gillette. In 2003, struggling with huge losses, the laozihao sold a majority stake to Gillette. It not only survived the crisis but has also maintained its position as the largest battery producer in China, even outperforming Gillette’s Duracell sales in the domestic market.

In fact, ring-fencing the laozihao may end up being counter-productive.

An open and competitive market is key to keeping time-honoured brands alive and well, urges Global Times.

Containing competition is not going to help at all, it muses.

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