A recent Wall St Journal article “China Tries the Finer Things”,http://tinyurl.com/bu2uer8 ,
talks about Chinese investors buying luxury brands from European companies that have suffered from the recent soft local market. China’s Shandong Heavy Industry Group recently purchased Italian yacht maker Ferretti Group. Other more well-known deals included assets of Jaguar Land Rover and a failed attempt to buy Saab Automobile AB of Sweden.

This is more than opportunistic buying by Chinese companies. It is a recognition that China’s longstanding advantage in lower cost manufacturing is in decline and that a longer term strategy is in order. While some local brand building has occurred, e.g. Haier, to succeed in global markets, Chinese companies will have to adapt. That means hiring local managers, investing in local research and even listing subsidiaries locally. One reason for Haier’s success is that they have learned to do that.

An article in the 2010 Economist identified this trend earlier,http://www.economist.com/node/17463473 ,

Some believe China Inc. can be a bit sinister in how they manage such acquisitions. Many in America think that Chinese telecoms-equipment firms participate in hacking scandals and pose a threat to its national security.

China often buys assets as a way to preserve the supply chain for their rapidly growing economy, e.g. strategic investments in global mining companies that help China Steel secure a steady supply of raw materials like iron ore and coking coal. But on the luxury and retail side of things, the key will be to let local managers run the businesses and the brands they have built over time. It will be interesting to watch how this plays out.

Revenues are not the only thing that suffers when the economy slumps. Brands take a hit. Research clearly shows that consumers increasingly scrutinize purchases, re-evaluate brand loyalties and are prone to trade down on brand purchases.

What’s an organization to do?

Some turn up the heat and spend even more on promotional campaigns seeking to strengthen their brand and possibly also capitalize on those brands that may be suffering.

Manufacturers sometimes reduce the size of packaging for consumer items such as snacks. They delay passing on cost increases. Many squeeze internally, trying to reduce expenses with things like delayed capital expenditures and workforce reductions.

Retailers have few options and eventually wind up discounting – either through increased coupons, sales or just across the board reductions.

Ann Zimmerman writes on the subject in the Wall Street Journal @ http://tinyurl.com/5wlmdll