10/31/2007, 00.00

Luxury marketing is the only way for South Korean companies to make a profit in China

South Korean companies in mainland China have stopped producing for world markets and turned instead towards marketing luxury goods, however shoddy they may actually be. Sales in China are becoming more interesting than investments.

Shanghai (AsiaNews) – When Woo Hyeok-jin, sales manager for South Korea’s Lock & Lock, a plastic container manufacturer, opened the company’s first store in posh Huaihai Zhong Lu in downtown Shanghai, many of his compatriots shook their head thinking he was out of his mind for paying high rents to sell cheap stuff in low volumes. And yet it is Woo Hyeok-jin who is laughing all the way to the bank. He found out that luxury marketing was the way to make money in China, even if it meant shoddy goods. And he is not alone for many South Korean companies have adopted this strategy in order to stick it out in the mainland. After making huge investments in the 1980s, they have stopped manufacturing because of high production costs foreign companies incur (for more information, click here) and turned instead to marketing.

Woo realised the need to diversify the offer for an increasingly rich clientele. This led him to marketing foreign luxury items. At the beginning the going was tough, but it paid off in a year with sales in his first store reaching about US$ 1.4 million. Now the company is planning to expand, perhaps into southern China. And it does not really matter whether it is a truly luxury item; what counts is branding and marketing.

For instance many Chinese customers think that Under Look underwear is one of the top brands in Korea. However, not only it exists only in China, but its products are not top quality—it is just advertised this way in Shanghai’s main papers.

The company’s CEO, Lim Yeong-cheol, went to China in 1994 as a clothes-processing businessman until he realised five years later that budget products do not generate profits. With the same product line the company repackaged itself as a luxury brand and sales shot up to US$ 10 million a year, largely thanks to the nouveaux riches in Shanghai and Guangzhou who swear by the company. Now it is in a position to expand across the country, at least where there is wealth.

SG Korea’s CEO, Jeong Chi-hwan, pioneered this strategy, showing how to survive in the Chinese market. In the early 1990s his company began manufacturing low-tech items then changed tactic. It began to present itself as a leading international company so that now its products have become status symbol among Chinese elites.

Famous at home Jeong said that “changing business models constantly is the only way for survival.” In his view large-scale manufacturing for world markets is no longer profitable; that can be done in South-East Asia. China’s real interest is in its nouveau riche clientele and its changing marketplace. Only a flexible approach can enable companies to get the best from customers who have money to spend but not much taste.

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