China looks upmarket

It still turns out cheap plastic toys. Maybe your next DVD player, too.

On a recent Sunday evening, Mike LaPonsie and his friend Aarika Wells wandered into Wal-Mart in Hudson, N.H., to buy a cheap DVD player for Ms. Wells's mother.

In the electronics department, they shuffle from right to left, inspecting the names and prices of the DVD players arranged from most to least expensive: Sony, Phillips, Pioneer, Sanyo ... Apex.

"Apex? I've never heard of these guys," Mr. LaPonsie says as he flips through the booklet detailing the machine's specifications and price. "But for $50, how can you go wrong?"

Millions of American consumers have probably been asking this same question. Last year, Apex sold more DVD players and recorders in the United States than any other company but Sony, according to the NPD Group, a market-research firm in Port Washington, N.Y.

Apex's success illustrates the emergence of ultracheap electronics brands, which began to appear on shelves at Wal-Mart, Target, and even the drugstore Walgreens just a few years ago.

Indeed, Apex didn't exist five years ago. More recently, other electronics companies, with names including Haier and Norcent, have begun selling televisions, refrigerators, and air conditioners in the United States - all priced for less than $100.

Almost all these new entrants have strong ties to China: They either are Chinese-owned or own factories in China. (Nearly all of the world's electronics firms contract at least some production to Chinese manufacturers.)

While these Chinese companies are forcing competitors to slash prices of their lower-end products - a boon to consumers - doubts linger about the quality of Chinese "no-name" brands.

Yet millions of shoppers find the low prices hard to ignore, buying brands they've never heard of.

"Brand loyalties are somewhat up for grabs right now," says Sean Wargo, an analyst at the Consumer Electronics Association (CEA) in Arlington, Va. "New brands are coming in and customers are willing to try them out."

To be sure, electronics are becoming more affordable overall: The price of DVD players has plunged by 75 percent over the past six years, according to the CEA.

As Sony and other big names shift more production to China, where labor is cheap and plentiful, the price gap between "names" and "no names" will narrow further, analysts say.

A confluence of consumer trends in the 1990s enabled unknown electronics brands like Apex to successfully elbow their way onto the crowded shelves of US retailers and sell millions of units.

Most significant, big-box retailers, including Wal-Mart, have become one-stop commercial centers in towns across America. These stores flex their marketing muscle, promoting lesser-known brands (and their own labels) in Sunday papers and on websites.

Analysts say consumers are more inclined to buy Apex or Haier once they appear in such stores, knowing that these retailers generally stand behind the quality of their merchandise.

"Consumers identify retailers as someone that takes care of them," says Tom Edwards, a technology analyst at the NPD Group. "Retailers give them a sense of security."

The low-price items also satisfy a quest for value held by many of today's consumers.

"It's considered chic for [a shopper] to find a bargain at Target even when he buys his suits at Brooks Brothers," says Amanda Nicholson, a retailing and consumer-affairs professor at Syracuse University.

In addition, many young shoppers are more concerned about how much a product costs than how long it lasts, Ms. Nicholson says. This is especially true with clothes and electronics, where what's hot one season is out of fashion or obsolete the next.

Nicholson says companies including Target, Ikea, and H&M understand that their consumers crave well-designed, inexpensive items. Whether a television, desk-lamp, or skirt lasts until next decade is of little concern. Nor is country of origin.

The Internet has made consumers savvier. Many now compare product specifications of retailer websites and read product reviews posted on discussion groups and technology sites like before heading to the brick-and-mortar stores, Mr. Edwards says.

While China has been the "workshop to the world" for more than two decades, only in the past five years have Chinese companies begun aggressively exporting more upscale merchandise stamped with their own name.

In this sense, China is following in the footsteps of its neighbors Japan and South Korea, says Dominique Hanssens, a marketing professor at UCLA. In the 1950s and 1960s, many Americans considered Japanese cars and electronics to be poorly made knockoffs of American goods. Yet in the following two decades, Japanese companies Toyota and Sony became two of the brands to Americans respected. A similar phenomenon occurred in the 1990s with the South Korean company Samsung.

Many analysts believe it's now China's turn. But the challenge remains for Chinese companies to move into the realm of higher-end products. Haier - which has been selling appliances and electronics in China for almost 20 years - is probably the most established Chinese company in the US, says Annie Chung, a Hong Kong-based analyst for Gartner Inc., a technology research group.

Michael Jemal, chief executive of Haier America in New York, acknowledges the stubborn perceptions of some American consumers that the "Made in China" label means inferior quality. He says Haier has a responsive repair network, and that the firm's products speak for themselves. He declined to provide sales figures.

Another challenge to China's entry in these new categories: The US International Trade Commission is currently investigating whether the selling of televisions in the US by some Chinese manufacturers at below-cost prices damaged business for Five Rivers Electronic Innovations, one of the few remaining US television manufacturers. Five Rivers, in Greenville, Tenn., filed an antidumping petition in May.

Yet hints exist of some initial success for Chinese firms in America: Haier's air conditioners and refrigerators, for example, dominate Target's appliance aisles, and Haier can produce more than 300,000 refrigerators a year at its three-year-old South Carolina plant, among the first built by a Chinese company in the US.

Jemal says he expects Haier to become the "Sony or GE" of China by focusing on selling innovative products aimed at young buyers.

Haier must not only contend with the dozens of other Chinese companies that may enter the US market, but also with consumers like Steve Simons. After finishing his shift behind the electronics counter at Target in Nashua, N.H., Mr. Simons returned home to his Sony 36-inch high-definition television, Sony surround-sound speakers, and Nintendo, Sony, and Microsoft video-game consoles.

While he doesn't hesitate to recommend lesser-known brands to customers, he says he wants only the best for himself. "I'm sort of an electronics buff," he says.

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