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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Trade war or not, China Inc already reining in American brands

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SHANGHAI: As Beijing and Washington veer towards a full-blown trade war, American brands in China face what may be an even bigger threat: local rivals armed with innovative products and the Chinese government’s blessing.


American household names like Apple, Starbucks and Procter & Gamble’s Pampers are seeing their dominance challenged, a potential threat to the hundreds of billions of dollars US firms make in China.


According to an analysis of data from Bain and Kantar, local brands snatched almost three-quarters of China’s 639 billion yuan ($97 billion) market for fast-moving consumer goods — a category that includes items like soft drinks and shampoo — last year, up from two-thirds in 2013.


The data, shared with media, shows that US products like Pampers, Colgate toothpaste and Mead Johnson infant formula saw their market share drop around 10 percentage points in the past five years.


The data was based on a survey of 40,000 urban households.


At the same time, savvy Chinese brands like SeeYoung, offering a popular silicon-free shampoo, and Pechoin, a maker of skincare products that plays up local ingredients, gained rapidly. “Local competition is now extremely high on the agenda of foreign firms in China,” said Bruno Lannes, Shanghai-based partner with Bain & Co, the consultancy that co-authored the report.


“In order to win in China now they need to beat not just traditional competitors,” he said. “But they need to win against local companies that are faster and more innovative than they had realised.”


American brands have long enjoyed a vaunted status in China.


US fast food, beverages and coffee chains are ubiquitous in China’s cities, while consumers lap up US-branded infant formula, designer jeans, cars and smartphones.


That dominance, however, is threatened by China’s push to bolster domestic brands by creating champions in certain categories and weeding out weaker players to improve quality.


Brewing trade tensions could exacerbate this slippage, threatening more than $180 billion in sales by US firms in China last year, according to an analysis of 121 US-listed American firms that broke out data for China sales in the most recent fiscal year.


The total is likely far higher as many US firms with a major China presence — including Starbucks, McDonald’s and Walmart — don’t break out China sales. Apple made $44.8 billion in China in the last fiscal year, P&G around $5.2 billion and the sports apparel maker Nike $4.2 billion.


A trade war now looks more likely after talks in Beijing and Washington failed to defuse grating issues between the two countries over a trade imbalance, technology transfers and barriers that firms face doing business in China.


But the bigger threat might be the advances made by Chinese rivals.


Apple’s iconic iPhone has seen its share of the country’s smartphone market stall at around 10 per cent since 2012, according to data from the analytics firm Canalys, and has been overtaken by upstart domestic phone makers like Oppo, Vivo and the more established Huawei.


Starbucks, which boomed in China on the back of a budding coffee culture, said its same store sales growth in the country slowed to zero in the second quarter of 2018. — Reuters


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