A former Forbes India correspondent, I worked for nearly 10 years as a business journalist in India before heading to the Graduate School of Journalism at University of California, Berkeley, as a Visiting Scholar in 2010. It was a step towards getting a first-hand experience of the US economic and business climate, as well as a great opportunity to get an insight into Africa with a Bill and Melinda Gates Foundation-funded reporting project of my choosing in the continent. Post-Berkeley, one thing led to another, and in early 2012, I found myself braving sub-zero temperatures in Beijing, exploring the nuances of China's evolving business and economic landscape as Editor of CKGSB Knowledge (http://knowledge.ckgsb.edu.cn/), the research publication of Cheung Kong Graduate School of Business. China is an exciting place to be and despite my constant struggles with Mandarin and unfamiliar food, each day opens my eyes to something new. Some of the things I find fascinating are MNC strategy in China and the evolution of Chinese companies into global powerhouses. Interestingly, several Chinese companies that haven't ventured beyond the Mainland are, in many ways, spearheading innovation in ways we cannot imagine. Another interesting trend that I am witnessing firsthand is the evolution of 'Made in China'. This blog is about my experiences and discoveries in the world's second-largest economy. Apart from China, I have an abiding interest in Africa, where I spent the early years of my childhood. More recently, I have researched and edited two books, one of which was on Africa: Culture of the Sepulchre by former diplomat and UNESCO Goodwill Ambassador Madanjeet Singh (Penguin India, 2012), and Leading with Conviction: The Nine Principles of Integrated Leadership by Shalom Saada Saar and Michael J. Hargrove (Jossey-Bass, forthcoming). The views expressed in this blog are my own, and do not represent those of the organization I work for.
“Is that the new maid?” I asked my husband rather incredulously, as we walked up to our apartment.
“Nonsense! She is probably a neighbour,” he snapped back.
This happened a year ago. We had just moved to Beijing – and into our new home. We didn’t speak Mandarin, and settling in was quite a challenge. Through a complicated process involving an iPhone, a translation app and sign language, we somehow managed to explain to the landlord that we would like to hire a maid to clean the apartment. He would send one soon, he promised.
And so we rushed home at the appointed hour, and sure enough, there was a lady standing at our door. And that was what the whole confusion was about – she didn’t look like a maid. She wore jeans, knee-high leather boots, a well-cut overcoat, her hair was permed, and she had a Louis Vuitton bag. Obviously not the maid. Or so we thought. Till we walked past her and opened the apartment door, and Madam-LV-bag-in-hand walked right in and uttered a cheery “Ni hao”.
Once inside, she unzipped the Louis Vuitton bag and much to our shock, she took out a collapsible broom, a duster and a pair of slippers. Off came the leather boots, and she diligently got to work.
This was my first brush with fake designer goods in China.
And then I went to Silk Market, a seven-storied complex in downtown Beijing with nearly 1,700 vendors. Don’t go by the name because Silk Market is really not about traditional Chinese silk anymore – it has gained notoriety for selling fakes. You name it, and they have it – from Timberland shoes to Samsonite suitcases, Armani belts, Gucci, Fendi and Prada bags, and of course, Louis Vuitton’s Spring, Summer and Fall collection. A pesky vendor offered to sell me a “Lolex watch” – cheap, only for me. A fake copy of a designer bag that would originally sell for RMB 18,000-20,000 can be bought here for RMB 100-200, depending on how well you can bargain.
Here’s the irony: a huge banner on the ground floor of Silk Market proclaims: “Do not buy any unauthorized brand, buy original.” It is, very obviously, just an empty slogan. A senior VP from a leading MNC retail giant we recently met wryly remarked that Silk Market is “a shrine for fake goods”.
He is absolutely right. Earlier in 2012 Beijing hosted (rather ironically) the World Intellectual Property Convention, and for a few days Silk Market vendors hastily replaced the fakes with tourist memorabilia, much to the disappointment of tourists who clearly came here for counterfeits. A senior official of this establishment was quoted as saying “we have respected intellectual property rights for a long time” and that “we have always educated our stall holders not to sell fakes.” But as soon as the conference was over, it was business as usual.
China is the world’s third-largest market for personal luxury goods today (and my guess is the biggest for counterfeits). While only a handful can afford the real thing, the others turn to places like Silk Market and countless others that dot all of China’s major cities. The interesting thing is that with rising incomes, the big push for (real) designer brands is now coming from cities in China’s interiors, and not Beijing, Shanghai and Guangzhou. According to research by Fortune Character China Institute (FCCI), a consultancy that researches the lifestyle of China’s rich, the growth of luxury retail in Tier 2 and Tier 3 cities is faster than that of Tier 1 cities, thanks to the proliferation of wealth in the country. That has encouraged brands like Louis Vuitton and Gucci to go deeper into the hinterland. Will they succeed? The jury is not out on that yet.
For years, Louis Vuitton has enjoyed a first-mover advantage in China. They came here in the 1980s. Somewhat ironically back then, they had to decide between China and India, long before either country was considered hot. They chose the former. The bet paid off and China has become Louis Vuitton’s second-biggest market globally.
That advantage is starting to chip off today. The reason? The LV monogram has become ubiquitous – both on the real Speedy 35, as well as its RMB 150 fake from Silk Market. You see it everywhere – in high-end restaurants on Shanghai’s Bund as well as on the shoulder of the ordinary commuter in Beijing’s subway who pays just 2 yuan for a ride.
The brand – thanks to its wide reach in China – has gained “mass appeal” leading to a logo fatigue of sorts, which is apparently is making it less attractive for the sophisticated consumer who is looking for exclusivity. Instances like my Louis Vuitton-totting maid have damaged the exclusivity immensely.
I recently interviewed Vincent Bastien, former CEO of Louis Vuitton, and one of the people instrumental in the company’s China entry. He said, “My position has always been -- and it is still the position in Louis Vuitton today -- we don’t fight the people who wear fakes, because often they don't know. If you wear a fake Vuitton, it means you like the brand otherwise you don't wear it.” Louis Vuitton’s response is to fight against the people who sell fakes or produce them, and open more stores so that people can buy the real thing. However, in China, that is often not a very effective ploy as the counterfeit ecosystem is more deep rooted than just that. Warnings and occasional raids are not a long-term solution.
Louis Vuitton – and other luxury brands as well -- might just have to come up with something more drastic. From what it seems, the future of luxury in China lies in brands that are not so easy to get.