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International brand names are losing their luster in China following product quality scandals and consumer service

Feng Yan, a white collar worker in Beijing, is passionate about luxurious brands. From handbags to household electrical appliances, she prefers paying more for world-famous names than buying cheaper goods by unknown manufacturer.

“I believe that famous brands are the most trendy, and also are famous for providing better quality and service. So when I buy products by well-known brands, I pay for my trust in the brands as well as the brand name itself,” Feng said.

However, Fengs steadfast belief in the power of brand names may not match that of the average Chinese consumer.

In 2005, major international brands took a financial hit in China, with several famous names in food, cosmetics and electronics affected by quality problems in the mainland market.

Such cases were widely reported in Chinese media, as were the reactions from unhappy consumers.

Digital defects

Just in the past year, Sony surprised consumers when defects in the companys products were found twice in only two months.

In October 2005, Sony China announced on its official website that it would replace, at no cost, the charge-coupled device (CCD) of its whole line of digital cameras and digital video cameras. The notice came after Sonys CCD, a special circuit that responds to light and is crucial to digital imaging, was proved defective by quality inspection departments.

As a result of the inspections, CCDs made by companies using Sonys technique also fell suspect. Nearly a hundred models of digital products made by Japanese brands including Cannon, Nikon, Fuji and Ricoh all reported possible quality problems. In response, these companies took measures to placate consumers, such as prolonging the guarantee period or changing the CCD component of digital products for free.

About two months later, Sonys digital products sank again. In early December, the Administration of Commerce and Industry of Zhejiang Province found that 30 batches in six models of Sony digital cameras fell below qualification at spot tests, including malfunctioned self-balance and uneven formation of image, low luminance of LCD and inexact automatic exposure problems.

After tough negotiations, Sony finally suspended sales of the cameras involved and agreed to accept returns by consumers.

Also in recent month, another well-known Japanese brand, Nikon Corp., recalled defective batteries.

In November, Nikon released a statement that the company had decided to recall EN-EL3 lithium cells since they may cause short circuits, resulting in overheating that may burn users or even cause a fire.

The scope of the recall was estimated at around 710,000 defective cells worldwide.

Beijing Review found that at the 315 Union website (a well-known Chinese site for dealing with product quality complaints) transnational brands received the same amount of complaints as their national counterparts.

Chinese brands most criticized by visitors to the website included handset products, while international brands were usually criticized for their best-selling or star brands.

Website staff said the international companies drawing the most complaints included Dell, Kodak and Nikon, mainly for their follow-up customer service.

According to a survey conducted by Economic Information Daily, a newspaper under the Xinhua News Agency Group, follow-up service provided by global brands for flat-panel television sales in the mainland lags far behind that offered by well-known Chinese brands such as Haier.

Foreign brand allure

The notion of world brands representing high quality and good customer service is what appeals most to Chinese consumers.

In the 1980s, at Chinas early stage of opening up and reform, international brand names were greatly admired not only by Chinese consumers, but also by domestic enterprises. They were praised in particular for having an ideal product quality control system. Backed by first-class workmanship and quality, those brands quickly caught the attention of Chinese consumers and grabbed Chinas market shares.

The brand craze of 20 years ago shaped the competitive edge of famous conglomerates in what is now considered the largest prospective market of the world, forcing local brands to fight by lowering prices. International companies, meanwhile, could keep selling their products at high prices while tapping into the belief of Chinese consumers that you get what you pay for.

Figures from Chinas Brand Association indicate that about 169 million people, or 13 percent of the total population on Chinas mainland, consume luxury goods, and the number is keeping on the increase. The association predicts that it may rise to 250 million by 2010.

As a result of this demand, some big names put backward and out-of-date products in the market to save on research and development costs.

According to a saying popular among the public, describing the sales strategy of some Japanese enterprises, “the best-quality products are sold in European and American markets, while the second-best in their domestic market, and the lowest-grade products may be put into markets in developing countries such as China.”

A Beijing agent of JVC electronics products said the saying isnt baseless, as some products have already been eliminated in Japan, but are still priced high and promoted as new models in the Chinese market.

A perception already exists among the general populace in China--and is one fueled by Chinese media coverage--that international corporations are considered to be indifferent toward the rights and requirements of Chinese consumers.

For example, in May 2003, a Shanghai-based company sold 50 personal computers through the direct sales network of Dell, worth some 300,000 yuan ($37,128).

But shortly after the order was recognized, Dell suddenly announced it was void for the reason that the price of the computers was mislabeled. The company adjusted the price of the computers to 1.1 million yuan ($136,138). The Shanghai company asked Dell to fulfill the original contract, but Dell refused to make further concessions and brought the case to court.

However, customers from Singapore, Hong Kong and Malaysia were reportedly far better treated in the same case. Dell made the same mistake of mislabeling the price of its laptop Inspiron 3800 C600ST at $123 instead of $1,338 in February 2001, and received piles of orders at that wrong price.

Eventually, Dell accepted those orders unconditionally and provided purchasers with the products, gaining their confidence in Dells online direct sales network.

Later reports said that Dell reached an amicable settlement with the company in Shanghai. However, the reaction in China was one of automatically thinking that Chinese consumers arent foremost in the minds of world big brands.

With regard to its recent product quality problems, Sony Chinas first reaction was one of objection to the results of tests. After that, it promptly accepted and apologized, but still avoided offering to exchange the defective products for consumers.

Finally, under pressure from the public and a barrage of criticism by the media, Sony said it would allow returns by consumers. Still, the companys response to the problem affected its brand image with Chinese consumers.

Some Chinese critics believe the coveting of big-name brands results in Chinese consumers being blind to their treatment by certain companies.

In addition, the Chinese mainland market lacks a supervision mechanism, such as a regular recall system, which means big brands have an easy excuse to shirk their duties when there is a problem with a product.

Careful, not conspicuous

As domestic brands mature and brand promotion battles in the Chinese mainland heat up, consumers are becoming less enthusiastic in their pursuit of famous international names.

Chinese consumers are becoming increasingly particular about customer service, leading to more complaints about brands with big fame but low quality and triggering a series of media reports exposing product quality problems.

These days, world brands can no longer afford to overlook the Chinese market.

Mei Xinyu, a consultant with Chinas Ministry of Commerce, said that many world brands arent dedicated to helping their Chinese counterparts to optimize their businesses after entering into the Chinese market, as intended under certain international conventions, but instead are focused on making their own tidy profits in a short vision.

In a bid to get easy access to the Chinese market in a short time, they outsource production to local plants, sales and service to agents and promotion to public relations companies. Meanwhile, a strange market environment and the variant and distinct characteristics of Chinese consumers buying preferences make for a serious test of their control capacity of the overseas market. The Sony incident is a good example of this happening, Mei noted.

Lack of legal protection

Some experts also stressed the loopholes caused by loose market supervision and inexplicit rules on compensation claims.

Associate Professor Wu Jingming from China University of Political Science and Law said that although the Consumer Protection Law was enacted as early as 1993, it only works to change the market in a general way, and isnt specific enough in addressing consumer concerns.

For example, the compensation for mental and punitive damages is not further prescribed, as is the case with provisions in the United States, where if products are proven with defects, whether they cause damage or loss to consumers or not, compensation must be paid in accordance with relevant stipulations.

Compared to their counterparts in the United States, Chinese consumers are less protected by both the enforcement of laws and punishment against companies that violate the laws.

“Even if the consumers get compensation through judicial procedures in some cases, it still might be underpaid since the compensation standards are not explicit,” Wu added.

In a competition to attract greater inflow of direct foreign investment to drive the economy ahead, some local governments in China show an overly tolerant attitude toward multinational companies. This is not only the case in approval procedures, land requisition processes and taxation, but also with regards to violations of rules and infringements upon the lawful interests and rights of local consumers.

This super-national treatment impresses upon international investors the notion that the Chinese mainland is a loose market without systematic rules and regulations. Thus some of them are bold enough to implement dual standards and specifications in China, treating consumers here more casually.

Feng Yan said she believes that Chinese consumers are also responsible for the quality problems.

“Only when local governments and subdivisions at all levels stand up for the rights of consumers by pushing for higher standards to rein in corporate behavior, can the companies, whether world brands or domestic ones, show due respect to consumers and keep themselves in line on business operations,” Feng added.