Guest Author: Dr. Fang-Fang Tang, China Centre for Economic Research (CCER), Peking University

The attraction of China is far more important for its consumption potential to multinational companies than for its low labor costs which are anyway now on an increasing trend. Particularly for the protection of international brand image for consumption goods, it is totally unwise to be legally safe but economically stupid.

There is still no clear law about recalling problematic products in China. In December 2004 the Chinese National Bureau of Quality Monitoring approved and issued a series of ‘requirements’ in respect of food safety and food production management, but the standards are still ‘recommended industry standards’ without any legal obligation. Enterprises can follow them voluntarily, or ignore them completely.

The recent Haagen-Dazs crisis in Shenzhen is an excellent example why stricter adherence to the rules, however porous they are, is vital for international enterprises in China. When Haagen-Dazs was fined for producing in unhygienic premises the outcry was intense.

It’s vital for international and Chinese firms to look after ‘brand integrity’. Haagen-Dazs positions itself as the ‘Rolls Royce’ among ice creams, with the slogan ‘if you love me, invite me for Haagen-Dazs’! Inconsistency between romance and performance, as we know, can be catastrophic. In business it shows up in the bottom line.

Even in a country without a comprehensive and mature legal framework, in food or other brand products, companies had best stick to the standards established in the home market. The myth about international premium brands is melting among the Chinese consumers, so infatuation with international brands could be a passing phase. Local brands and competitors are catching up. International firms had better take the local consumers and competitors more seriously.

In the past, international premium brands were simply perceived as ‘top quality’ by Chinese consumers, but Chinese consumers are now more questioning. International brands need to understand the rapidly changing trends and get used to re-positioning in the Chinese market. Want to stay in this fast-growing market? Take ‘brand integrity’ seriously, before the local brands catch up both in terms of their image and quality, not to mention their price!