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Li Ning torches inventory. All Chinese consumer goods companies concede their inability to compete with foreign companies.

Okay, so my headline grossly exagerates.  But the first sentence is absolutely true and I have a sophisticated blog reader who claims the second sentence is not that far off.

Let me explain.

The first sentence comes from Tom Orlick’s WSJ article, entitled, “Li Ning Torches Inventory.” In that article, Orlick (who, BTW, consistently does a great job reporting on China’s economy/business) reveals that Li Ning’s earnings have fallen “from 582 million yuan ($93 million) in the first half of 2010 to just 44 million yuan in the same period this year.” The article goes on to say that Li Ning and its domestic rival, Anta, are both losing market share to foreign brands like Adidas and Nike.

The second sentence very loosely comes from a long-time blog reader/long-time China expat who is fluent in Chinese and has always had a terrific pulse on China business. This blog reader (who wants to remain anonymous for reasons that are obvious to me in light of his position) sent me an email before the recent Doing Businss in China Seminar that I co-chaired.  His email (which I am paraphrasing because I have since deleted it), was essentially the following:

You have a terrific lineup for your upcoming seminar.  Your consumer people all are first rate.  Here is a question you should pose to them: China’s consumer brands are failing as against foreign competition. The Chinese know this and it terrifies them. Both the government and the State Owned Entities are talking of how Chinese consumer goods companies just cannot compete against foreign consumer goods companies on product quality, marketing or reputation and as the Chinese consumer continues to get more sophisticated and wealthy, they are going to even more so favor foreign goods over Chinese goods.  There is even talk of imposing either explicit or implicit quotas against foreign goods.  So the question you should ask is whether in light of this anyone is afraid of China instituting quotas on foreign goods in a way similar to what it has done on foreign movies.

So I asked this question of one of the panels and I got an answer from Sage Brennan, who knows China’s consumer market (especially its luxury goods market) as well as anyone.  Sage’s answer (and again I am loosely paraphrasing) was something along the lines of how the above is not really true because the definition of a Chinese consumer good and a foreign consumer good isn’t clear cut in that so many “foreign” consumer goods are made in China and even developed in China.

I wanted to ask Sage and the other panelists a follow-up question but didn’t feel it appropriate, so I will ask the question of you-all. Here goes.  Okay, Sage, let’s take what you just said at face value as I think you are absolutely right.  But having said that, wouldn’t you admit that an iPhone, whether made in China or not, is really an American product because it was conceptualized mostly in the United States, designed mostly in the United States, marketed mostly from the United States and, most importantly, the bulk of the profits from it go to the United States.  And most importantly, wouldn’t you agree that most Chinese and Americans view it as an American product, especially when it comes to issues of nationalism and foreign resentment. Those things being the case, are you still saying that you have no worries about what might happen when foreign goods greatly increase their domination of the Chinese market or are you saying that you don’t see that happening? How many headlines of torched inventories can China handle?

So everyone, what do you think?

Dan Harris is founder of the Harris & Moure law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes as a source of China legal and business information.


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