The first tremors of a seismic shift in global marketing could occur this November [2001]. After a marathon 15 years of talks, China’s finally looks set to join the World Trade Organisation. The progressive removal of trade restrictions thereafter will open new pathways to the hearts, minds, and pockets of 1.2 Billion people. For Western multinationals faced with mature markets and sagging demand in slow moving Western economies, could this be a prayer answered? Surely, not since the days when British traders made fortunes ferrying opium to China have so many been so ready for so much of what savvy multinationals can offer.

 WTO entry will come not because Western marketing directors are praying for it, but because China feels ready. A decade ago superior products and marketing tactics helped Western marketers trample Chinese competitors. P&G, for example, persuaded the Chinese to wash their hair with Head and Shoulders rather than bar soap. As recently as 1999, Chinese shampoo brands like Bee & Flower, and Olive mustered only a third of China’s shampoo market by volume. Today, according to AC Nielsen, Chinese brands have twice as much share despite the marketing wizardry of Japan's Kao Corp., Bristol-Myers Squibb, Colgate-Palmolive, L'Oreal, and Unilever who now compete alongside P&G to make Chinese hair shine.

 Though Western brands may have lost volume share in some markets, they still have great strengths. “[They] have made consumers increasingly quality sensitive. They are trusted. A western or "joint venture" pedigree will increase intention to buy and add to the cachet of a brand. This helps justify price premiums that can be as high as 500% in categories like shampoo and skin cream. Consumer trust makes Western brands much more "extendable" than in the West. For example, Hazeline is a shampoo, a skin cream and a soap. Lipton is both a Chinese tea and a black tea,” explains Tom Doctoroff, CEO of JWT China.

 But it is not Western brands that are responsible for the surge in China’s advertising spend in recent years. The big spenders now are assertive home grown brands eager to claim ownership of domestic markets before the WTO brings increased competition. Last year, for the first time, the 10 most-advertised products in China were all local brands. Manufacturing in China is no longer left just to inefficient state enterprises. Privatized companies, such as Legend Computers and the Haier Electronics Group, lead the change, behaving like nascent capitalist multinationals. For the Chinese government, it is important that local brands become strong players. For example, plans published recently by the State Economic and Trade Commission will restructure the domestic auto industry through closing small, unprofitable firms and supporting the three biggest auto manufacturers.

 On a recent visit to Beijing, Shelly Lazarus, Ogilvy’s worldwide chair/ceo was entertained in Zhongnanhai, the residential compound for China’s highest officials. Her host, Madam Wu Yi, a State Councilor and an Alternate Member of the Central Committee Politburo commended the agency for its work supporting Chinese brands and emphasized the importance the government attached to helping Chinese manufacturers burnish the marketing skills. Madam Wu is in charge of foreign trade and oversees the talks about China’s accession to the WTO.

 Chinese brands are quickly becoming strong players. With rapidly improving product quality and cheaper prices than their international rivals, domestic brands have found their own solutions to the price/value equations.  Their success is demonstrated not just in sales volumes, but in the bonds they have built with consumers. According to BrandZ, a proprietary WPP study which measures brand loyalty, the five top brands in China last year were: China Telecom, Mudan Credit Card, Industrial & Commercial Bank, Sohu.com, and Legend Computers. Leading global brands in China, such as McDonalds’, Coca-Cola, and KFC came lower down the scale. Significantly, China’s top brands are in telecommunication, finance, banking, and technology – all markets which will open to foreign competition once China joins the WTO.

 Part of the cachet of local brands is that they are Chinese. Economic growth has rekindled a pride in things Chinese. The patriotism of buying Chinese is good for the economy and no longer involves the painful sacrifices in quality and reliability of  a decade ago. 

 Growing brand-literacy of Chinese companies is good news for Western agencies since it increases the numbers of clients looking for their skills. But it is not such good news for Western multinationals now facing stronger competition.

 Returning self-confidence about China requires multinationals to embed themselves in society. “It is not enough for foreign-owned and foreign-managed brands to ‘think global, act local.’ Instead, they must be seen to be local by locals,’ says Miles Young, Chairman of Ogilvy Asia/Pacific.

 Once a brand has a Chinese name, Chinese packaging, and is sold in Chinese stores, it is already Chinese to many consumers unless advertising plays up the international credentials. But more is needed.

  Unilever, for example, has literally been planting roots. Last year, the company planted 500,000 trees throughout China together with local communities to tackle desertification. This year they will spread seeds across barren mountains to sow forests. And, closer to market, they are establishing a research center in China to develop shampoos specifically for the country’s growingly sophisticated consumers. In advertising, Unilever asserts ‘China is our home.’ 

But even when the WTO removes the last formal barriers, one formidable barrier will remain – distribution. A recent McKinsey study warns of transportation bottlenecks. Poor roads, inefficient freight operators can conspire to keep products off the shelves. Stephen Shaw, one of the authors, reckons that such inefficiencies make products 40%-50% more expensive to ship in China than in the U.S. "The focus elsewhere is on supply-chain management, but the problem in China is more basic. It's about transportation, and it doesn't work," he says. 

 “It is easy to advertise in China,” says Young, “the most difficult problem for a newcomer is to find ways to get products to consumers, and to do so profitably. But despite such birth pains, China is evolving into a capitalist marketplace in which domestic and global brands will fight it out. ”