Design, branding and the challenge of ‘cheap Chinese imports’

Nokia’s successful capture of the mobile phone market in China led me to think about the phenomena of ‘cheap Chinese imports’ and the challenge they pose to established brands that come with warranties, service centers and of course, reputation. Particularly in emerging markets where for the lower income demographic they offer what seems to be a low cost alternative to pricier products.

But is the decision as much of a ‘no brainer’ in the BoP market as it seems? Certainly not in Tanzania, where customers are saving up to spend more for the original product,

Hamisi Juma, a bus agent, saved 125,000 shillings to buy a mini hi-fi stereo at a big name chain store in Dar es Salaam’s largest indoor mall.

“I could get a unit like this for 80,000 (shillings) in the Kariakoo market but I know I’ll get what I paid for,” he said. “If there’s a problem I can’t go back for a refund or exchange.”

While an article on ‘cheap Chinese’ power generators in Pakistan and their market dominance still manages to make the following point,

“But I do not see a massive increase in sales of this category of generators as most of the users already have Japanese brands, which are more reliable and known for their good service.”

In India, that other Asian market with a significant rural and base of the pyramid demographic, we have Titan, a member of the Tata Group, and an established design leader in the Indian watch industry, taking an aggressive stance to counteract the influence of cheap imports. From The Hindu, August 16th 2008 we learn,

To crack open the mass market and take on the threat of cheap Chinese watches and others of spurious quality, Titan Industries has launched nationally a new brand, Sonata Super Fibre. Sonata is Titan’s brand for the economy market and is the largest watch brand in India in terms of volume sales, with five million watches sold last year.
[…]
The company is targeting sales of 4 lakh SF watches this year. According to Mr Agarwal, the branded and organised market of plastic watches is miniscule with close to 7-8 lakh (700,000 to 800,000) watches. The total estimated plastic watch market is around 2-3 million watches, which primarily is a combination of cheap Chinese imports and local manufacture.
[…]
Even though the watches would be sourced from the very places the cheap imports come from, the watches will carry the Sonata brand and have access to service stations, apart from a Titan warranty, explained Mr Bhat.

Indian mobile phone manufacturers are going a step further, intending to take on both ‘cheap Chinese imports’ as well as the MNC’s – Nokia, Samsung, Motorola and LG – in small town and rural India, the heart of the BoP market. From the Business Standard, July 25th 2008

Indian companies are confident of taking on the big multinationals. The domestic companies are importing phones from countries such as China, Taiwan and Hong Kong, affixing their brand names, and offering warranties and after-sales services not provided by the non-branded Chinese products.
[…]
There are others who see a potential in the smaller towns and rural India, a market which is open to everyone. Says Ramesh Vaswani, executive chairman of Intex Technologies,

“Multinational companies have established their brands, the Indian companies hence have to carve a niche for themselves, so though the mobile brands dominate the market, the rural areas and B and C class towns are still open for Indian players ”

So, we have here a ‘clear’ strategy being articulated by Indian brands, albeit one that’s not quite what Nokia used so successfully in China. From the articles linked in my previous post, its clear that Nokia focused on two key things,

The problem is not that we need to be more aggressive in pricing. We need to ensure we have the right products to market through the right customer understanding, and we need to completely reconfigure our distribution systems to improve the way we manage retail.

The Indian brands mentioned, whether its Titan for watches or Usha Lexus and Videocon (!) for mobile phones, are focusing instead on simply leveraging their extensive distribution and retail networks in the hinterlands but sourcing the products from the same or similar manufacturers in Hong Kong and China.

That is, their intent is to add the value of ‘insurance’ – a warranty, a brand, a service center – against the caveat emptor approach of the unbranded imports. The chances of the products themselves offering any value apart from the brand are almost nil. As an aside, the uniformity of tactics seems to imply a repurposed management consultancy BoP strategy in here somewhere but lets not digress.

What are their chances, given what we know about the situation and the competition?

I’d put my bet on Titan; the watch industry and market is very different from the mobile phone market. Furthermore, Titan is an established brand with probably the most reputable name in the country behind it, Tata. In the mass market segment they’re going after, there really isn’t any other brand worth mentioning at that price point, that is genuine. Not to mention that they have an award winning design department.

But the others? Banking on brand recognition and a distribution network alone may not really take them very far. Sure, ensuring higher quality standards through specifications while sourcing the products from China may indeed offer a better value for the rupee but ultimately it will simply commodify their own brands if everything looks the same but for the logo. Having sold desktop computers in India in 1990, this reminds me of the absolute lack of difference between one beige box and another. Agreed, Usha is a long established (built, in fact, by my grandfather) brand as is Videocon but what are they known for? Ceiling fans and washing machines.

An outstanding product indigenously designed by those who truly cared to understand the needs of the market could just take on a foreign brand, but this commodifying approach will simply make life that much easier for Nokia et al and just create that much churn in the Indian market.

Lets see what happens in the future; here’s the last paragraph from the article,

Established mobile phone brands are however not alarmed by the entry of new players. Devinder Kishore, Director-Marketing Nokia says,

“We already have our strategy for the rural market in place, we provide multi-lingual capabilities, our phones are rugged and affordable. However entry of new players is welcome, competition is always good for the market and the industry. But it is important to note that customers look for value and not only cost.”

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