M: Business 3rd Edition by O. C. Ferrell, Geoffrey Hirt, Linda Ferrell

Exercise 4

Thanks to its rapid economic growth, Chinese demand for luxury items is growing. Some Chinese consumers like luxury products so much that they will make significant sacrifices (such as skipping meals) in order to purchase them. China currently ranks number two among luxury goods markets and is growing faster in this area than any other nation.

Despite a love for high-class products, luxury brands face many difficulties in China. The Administration for Industry and Commerce of Zhejiang province recently took actions against brands such as Tommy Hilfiger for selling goods that did not meet the country’s quality standards. Luxury brands can also suffer when they manufacture products in China itself. Giorgio Armani found this out when it manufactured its Emporio Armani line in China. Chinese consumers patronizing Armani wanted to purchase European fashions. After realizing that the items were made in China, they felt deceived. On the other hand, while Chinese consumers enjoy foreign brands, the Chinese government is working to promote brands created within China. These opposing forces (consumer versus government preferences) make it difficult for foreign luxury goods.

In spite of these challenges, companies that can adapt to the Chinese market have done well. Take Italian menswear company Zegna. Zegna owes its success in China, which makes up one-quarter of the company’s annual sales, to its willingness to adapt to consumer preferences. For example, Chinese consumers enjoy seeing new inventory on a regular basis. Therefore, Zegna boasts six collections annually compared to four collections common to other companies. These adaptations, in addition to its commitment to quality, have helped Zegna succeed in China. For many luxury brand owners, the success of Zegna and similar brands makes doing business in China well worth the risk.

Why is the Chinese government working to discourage consumers from buying foreign luxury brands?

Step 1 of 2

Even as the Chinese economy slows down, and growth in luxury consumption started diminishing, there is a small portion of sophisticated luxury shoppers in China. But the Chinese government is working on discouraging such overspending.