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Chinese firms’ new challenge: Sell to Chinese

Jack Yin and other factory owners find it's not easy to sell to their countrymen.

By Jeremy KutnerCorrespondent / September 11, 2009

DONGGUAN, CHINA – Jack Yin’s Western hopes are fading. He founded his small bath-products factory three years ago in a lonely industrial area on the outskirts of Dongguan with visions of Americans and Europeans snapping up his soaps, shampoos, and body lotions. When the economic crisis hit, 70 percent of his export orders evaporated.

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“The impact has been huge,” Mr. Yin says. So he’s shedding his cut-rate offerings, betting heavily on lines of high-quality hair-care products that he hopes will turn Bath Concept Cosmetics into a brand that people learn to know and trust. Yin’s target market? His fellow countrymen.

“When the foreign markets don’t work, you have to change,” he says.

All across South China’s manufacturing heartland, entrepreneurs like Yin are turning inward. As Westerners buy less, Chinese companies are trying to sell their goods to a surging domestic marketplace that often doesn’t even know they exist. It’s a key to rebalancing a world economy that’s dangerously out of whack, economists say. It’s also hard.

Long accustomed to producing foreign-designed goods cheaply, many manufacturers are clueless about selling to their own compatriots. Or they’re stuck with product lines, like toasters and sports bras, that have little appeal here. In January, the government estimated that around 20 million workers lost their jobs as foreign orders dwindled since the global downturn took hold. Dongguan alone has lost more than 500,000 jobs – 10 percent of its workforce – in the first half of 2009 compared with the same period a year ago. Exports are down nearly a quarter during the same period. A few high-profile factory closures – such as last year’s sudden shutdown of Smart Union, a huge toymaker that supplied Mattel and Disney – have fueled fears that China’s export-heavy economic engine was grinding to a halt.

“The larger challenge for China, and everyone says this, is shifting towards domestic consumption,” says Marshall Meyer, a management professor and China specialist at the Wharton School of the University of Pennsylvania in Philadelphia. “The big issue is the dependence on exports…. It’s a real vulnerability.”

Wrenching change

Transitioning to a domestic market sounds great to Hu Guohui, who manages the Guangzhou Shenglong Electronic Technology Company. But wrenching his firm away from the simple, foreign-driven ways of the past hasn’t been easy.

The sprawling factory produces digital cameras, mobile phones, GPS units, and dozens of other products for a range of international name brands – high-end products that fill store shelves abroad but pointedly omit the name Guangzhou Shenglong Electronic Technology Company.

“People are always joking with us: ‘Foreigners are always thinking about the Chinese market. Why aren’t we Chinese thinking about our own market?’ ” Mr. Hu says. But “Chinese spending habits and those of Americans are really different. America has a culture of spending.”

His factory has taken the ambitious step of launching its own brand – UAT – directed at the Chinese consumer. The company hopes that in a few years this just-created brand will make up 40 percent of company revenues. Already, the new brand has pulled in around $3 million in one year, up from zero before the financial crisis, he says.

But launching a brand from scratch – in a market already dominated by the foreign brands his factory was supplying and thick with competition from lower-end local manufacturers – has required ingenuity and faith. UAT is developing a string of late-night infomercials to make contact with customers directly, the Home Shopping Network approach to battling the Canons and Sonys of the world. It’s using online resources, like Alibaba, to get its name out. Sales agents are fanning out across the country, tracking down corporate clients and trying to persuade retailers from Beijing to Chengdu to stock the unknown cameras.