Products at an industrial design exhibition in Guangzhou. The concept of design has become increasingly important for Chinese enterprises looking to build their brands. [China Daily]
Yang Mingjie was happy and proud when his packaging design, which he considered a statement of simple elegance, won the admiration and approval of his client, Jiuyang Co Ltd of Shandong province, which is best known for its machines that make soy milk.
However, Yang's excitement was short-lived. Consumers in various markets were quick to show their displeasure at the new packaging, which they considered too bland. "Chinese consumers want to see lots of color and patterns on the packaging," Yang said. "We had to do a complete redesign to suit the customers' taste while trying to avoid looking too chintzy," he said.
Yang's story exemplifies the steep learning curve that Shanghai designers are experiencing as demand grows for their services from manufacturers keen to move up the value-added chain by building their own brands. Indeed, brand-building has become a buzzword among the many thousands of manufacturers in the Yangtze River Delta industrial region as they struggle to skim a profit in industries squeezed by rising costs and slowing demand.
For many factory owners with a background in contract manufacturing for overseas buyers, tapping the domestic market with their own branded products is the only way to survive over the longer term. Their newly adopted business strategy has spawned a multi-billion-yuan creative industry in Shanghai, a city playing host to a growing crowd of Western-trained designers, advertising experts and marketing professionals.
Meanwhile, Shanghai's municipal government has made the creative industry the focus of its efforts to promote the city's service sector as it tries to further diversify its growth engines from over-reliance on manufacturing and real estate investment. At a Shanghai municipal government working conference for the fourth quarter of 2011, Mayor Han Zheng emphasized that the city was undergoing a critical period of transition, driven by innovation.
Han said the Shanghai economy will maintain moderate but high-quality growth in the coming years, during an accelerating process of economic restructuring and upgrading.
Yang studied design in Germany and worked for the world-renowned company designaffairs GmbH before coming to Shanghai in 2005 to start his own studio called Yang-Design.
The company has a large client base, ranging from the Shanghai branches of multinationals to domestic start-ups. "We have different strategies tailor-made for different individual clients," he said.
"Many manufacturers looking to transition came to us. Some well-developed domestic companies are well aware of the significance of brand identity. But for start-ups, it is still something remote and new. They are concerned more about the design of single products," Yang commented
Julong Case & Bag Co Ltd, based in Yiwu, Zhejiang province, one of China's largest luggage companies, is a typical example of a domestic manufacturer trying to re-engineer its business model with its own brand. Established in 2002, the company had been engaged almost entirely in original equipment manufacturing (OEM), producing goods under contract and in strict accordance with the designs and specifications of its overseas customers.
Business was booming until 2008 when demand tumbled as many overseas buyers were hit hard by the financial crisis that sent the global economy into a tailspin. "It was a hard time for the company," recalled Lu Chenghang, Julong's general manager. "We never knew that things could get so bad in a global recession," he said.
For Lu, and many other private-sector entrepreneurs in the Yangtze River Delta industrial region, the recession was nothing short of an alarm call that alerted them to the reality of over-dependence on OEM work. The seemingly inexhaustible supply of low-cost labor had "lulled us into believing that the good times would last forever", Lu said.
Not anymore. The recession hit at a time when labor costs and raw material prices were on the rise, further trimming the producers' already narrow profit margins. Official figures show that manufacturing workers' wages have risen at an average double-digit rate in recent years.
Running out of options, Lu talked his partners into trying something new to save their business. The company began developing its own brands in 2009 to tap the domestic market. Before then, spending on product development, mainly to find ways of cutting costs, accounted for less than 1 percent of total expenditure. Now, "we have budgeted at least 3 percent, or 2 million yuan ($316,000), a year for product and brand development", Lu said.
For that, the company looked to Shanghai for help. It started off by seeking advice from design institutions such as the University of Shanghai for Science and Technology (USST). But "we realize that if we are serious about developing our own brands, we will have to hire experts in commercial design and marketing", Lu said. "We can't skimp on such expenses," he said.
Competition in China's luggage industry is extremely fierce, according to experts. It's crowded with a host of foreign brands selling products that are made in China at highly competitive prices.
Lu said that he aims to carve out a share of the niche market for young consumers who appreciate appearance and style more than established brand names. For example, the company came up with the idea of customizing its top-end "Baoli" brand by accepting requests to print a portrait of the customer on the outside of the suitcase. The company also has another brand, "Julong", that targets the mass market.
The idea has become something of a hit in secondary cities and rural townships. Lu said that many of those who warmed to the idea of having their portrait printed on their luggage are newlyweds going on honeymoon or students heading off to study overseas. "Customer-oriented design is gaining traction in the markets in Europe and the United States," said Lu. "We hope that we can make a profit with this new idea."
Other than marketing "gimmicks", the company has employed the services of USST to design more durable products. "They (the university designers) are making our cases lighter, prettier and more user-friendly," said Lu.
But to compete on quality alone is going to be an uphill fight because Chinese consumers have a long-standing bias toward foreign brands. "Customer-oriented design is still going to be the key to getting a bigger share of the market," said Lu.
And that's not going to be easy either, because of the highly diverse tastes of Chinese customers in the country's many different regions, said Wang Yang of the Kieferzapfzen Design Studio in Shanghai. Although she said her dealings with clients have mostly been pleasant and productive, "there were times when we found we had to stand firm and defend our designs when they clashed with our clients' perceptions of the market", she said.
Wang said that clients that have been exposed to a foreign marketing culture are the easiest to work with because they are ready to accept the innovative ideas needed to compete with foreign brands in the domestic market. For instance, "we have a good relationship with a company that manufactures bathroom accessories, because its manager is forward thinking and innovative", Wang said. "He (the manager) frequently travels abroad and closely follows the latest trends in bathroom accessories," she said. This client has agreed with some of her more avant-garde designs.
A growing number of Chinese manufacturers are beginning to realize that risk-taking is part of the brand-building process. "You can never know for sure if the product you spent months, or even years, developing will become a hit," said Wang. "It's not like OEM when you can work out everything down to the last dime," she said.
Wang recalled that she once had a "terrible time" convincing a manufacturer of stationery products to improve the design of his best-selling line of pens to improve his profit margin. The manufacturer didn't see the need to go to the trouble and expense because he had no problem selling millions of the pens to buyers from around the world.
Last year, the manufacturer came to Wang for help. Dwindling overseas demand had toppled his tried and trusted business model built on economies of scale. "He now sees the need to maximize his profit margins by selling fewer, but more expensive, pens," Wang said. "He has seen the light."
