#103 A tale of two companies in China – Hermes and McDonald’s

Most of the time, it catches my eye when companies fail internationally. This focus on failure may be the result of my academic training, and it may have something to do with my cultural roots. However, every once in a while I am really intrigued, even fascinated, by how smart some companies are. Hermes International SCA has developed a completely new brand for the Chinese market, Shang Xia. As the Wall Street Journal recently reported, Hermes has now spent several years to build the brand and isn’t expecting to break even before 2016. They understand that Western luxury brands will not continue to harvest the benefits of newly gained affluence in China forever. With the growth in the segment slowing down – from 20 % annually to about 2 % this year – the high demand for foreign brands will eventually cease. Chinese consumers are becoming ever more discerning and new brands, and more and more local brands, will succeed. Hermes has recognized this many years ago and made the right decision by building a strong local luxury brand. McDonalds (and yes, I admit, they compete in quite a different industry), however, is experiencing rapid declines in China for the exact same reasons. Competition from newer entrants is intense, and more and more Chinese alternatives eat into their market share. The time when being “foreign” or “American” was enough to drive purchase decisions will soon be over, and companies worldwide are well advised to adapt their China strategies.

And, by the way, I just realized that I ended up talking about failure again, after all.

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