Chinese brands are losing ground to their foreign rivals in the domestic consumer market, according to a report released last week by Sinomonitor International, a Sino-Japanese independent market monitoring company established in 1997.

The report ranked the top three competitive brands in 27 consumer product sectors for the year 2004.

The sectors include information technology, daily necessities, food and beverages, financial services, and textiles and garments. Products range from microwave ovens to instant noodles, from cosmetics to sportswear and from personal computers to bank cards.

Lenovo computers, Sony digital cameras, Nokia mobile phones, Gree air-conditioners, Olay shower gel, Rejoice shampoo, Huiyuan juice, Peony bank cards, KFC fast food restaurants and Nike sports shoes are ranked as the most competitive brands in their categories.

The report is based on information gathered by the China Marketing and Media Study, which has been following over 70,000 Chinese consumers, between the ages of 15 and 64, in 30 major cities over the past eight years.

The study covers more than 1,000 brands in the Chinese market, and is the biggest market survey so far in terms of scale, coverage and time span in the domestic market.

The competitiveness index of the surveyed brands is calculated based on the share of their consumers, the ratio of loyal consumers among all purchasers, and market share growth indices, according to Ma Hongzhong, research manager for the study.

"Comparing the ranking lists for 2004 and 2003, we can see great changes in China's consumer markets," said Liu Rong, vice general-manager of Sinomonitor.

"International big brands are hastening their development in the domestic market and regaining lost ground," she said.

In Sinomonitor's first such ranking produced a year ago, Chinese brands stole more limelight. Among the 27 product sectors ranked, 16 local brands were found to be the most competitive brands for 2003.

However, in 2004, several domestic brands, especially in the daily necessity categories, such as Liushen shower gel and Dabao skin care, lost out to foreign rivals.

Olay, with an expanded product line, ranked top in both sectors.

"I felt a chill when I saw the survey results for last year," said Wang Weiqun, editor-in-chief of Successful Marketing magazine, co-producer of the report.

"Domestic brands are losing their advantages, and will face great challenges in the future," Wang said.

Liu from Sinomonitor said the survey has uncovered two main features of China's consumer market.

First, foreign brands enjoy much greater brand loyalty than domestic brands.

In the laptop computer sector, domestic brand Lenovo ranked the most competitive. But only 79.1 per cent of its consumers are loyal to the brand, compared with 91.4 per cent loyalty to Sony, 90 per cent to Dell, 89.4 per cent to IBM. Lenovo recently purchased IBM's computer division, which should increase its competitiveness, however.

In the sports shoes sector, Anta ranked top in terms of market share, while its brand loyalty is just 59 per cent.

Its foreign rivals, Adidas and Nike, enjoy as high as 72.7 per cent and 71 per cent brand loyalty.

"This is one of the reasons that more foreign brands won over their local counterparts in 2004," she said.

The other feature is the structural changes in the country's consumer market.

In today's China, consumers like to pay more money for high quality products, Liu said.

And the country's luxury goods market is growing day by day.

Take the skin care sector as an example. Internationally famous brands, Lancome and Revlon, enjoyed high growth rates of more than 90 per cent last year.

Foreign companies, more experienced in marketing, have better knowledge about China's markets and consumers' demands and have easier access, she said.

"Foreign brands' outstanding performances in the Chinese market last year, unveiled by the ranking, are similar with their activeness in China Central Television's prime time advertising auction last November," said Guo Zhenxi, director of the advertisement department of CCTV.

On November 18, CCTV auctioned its prime time ad slots for a record sum of 5.25 billion yuan (US$634 million).

International giant Procter & Gamble spent more than 385 million yuan (US$46.5 million) on the auction and was the biggest bidder that day.

And 12 companies won some major ad slots, spending 753.3 million yuan (US$91 million), compared with less than 180 million yuan (US$21.7 million) invested by P&G in a previous year's auction.

"A major reason for the market change is the attraction of China's rapid economic growth and its huge market potential to foreign companies," said Zhao.

The successful development of local firms also stimulate the shifting of foreign companies' focus to China.

According to Zhao, in the post-World Trade Organization-era in China, foreign brands will have easier market access, while local brands will face more challenges and heated competition as all kinds of protection measures will be abolished.

"The next two years will be a turning point for both domestic and foreign brands. Companies which have priorities will win the market," Guo said.

Li Guangdou, general manager of Beijing Huasheng Shidai Advertisement Co, suggests the key point for domestic companies development is to build brand loyalty.

"The country's economic growth in the next 20 years will depend on domestic brand building," he said at the conference launching the report.

Chinese enterprises should focus their core strategy in brand building in their development and only brand competitiveness is a long-term strength, he added.

According to Li, though China has a large number of enterprises, it lacks big brands.

Statistics indicate the country currently has 2 million registered trademarks. That means one of every six companies registered has only one brand.

And among the total number, 25 per cent are owned by foreign-funded companies.

"Foreign companies have done better in brand-building in China, as well as in their localization strategies," said Zhang Zhongliang, director of the China Economic Monitoring Centre, affiliated to the National Bureau of Statistics.

According to Zhang, many Chinese firms now are eager to expand in the overseas market, though they did not perform very successfully in the domestic market.

"Chinese companies should rethink their going-out strategy," he said.

The success of Chinese firms in the local market is mainly based on China's huge market and relatively low labour costs, according to Zhang.

"Only when they have strong foothold in the domestic market, could they succeed in international market," Zhang said.

Guo Zhenxi of CCTV believes through the competition in the years ahead, some of domestic brands will grow into world famous ones.

Based on the survey result, an evaluation made by marketing experts and media reporters, and an Internet survey, the report also ranked the top 10 brands which influenced the Chinese market most in 2004.

They are Hainan Airlines, China Merchants Bank, TCL, Nokia, Lenovo, Amway, KFC, P&G, Hisense, and Beijing Hyundai.