The diminishing aura of foreign brands and increasing sophistication of consumers are slowly exerting pressure on multinationals in China. They have to raise service to a new plane if they don't want to lose hitherto loyal customers.

A spate of incidents in recent years has taken the sheen off foreign companies' reputations and shaken consumers' faith in foreign goods. Among others, transnational giants Nestle (Jin Pai Growing 3+Milk Powder), Sony (which suspended distribution of six "Cybershot" digital camera models) and KFC (unapproved ingredients in chicken wings) have grabbed public attention for all the wrong reasons, although they have made amends.

Zhou, a resident of Yangzhou in East China's Jiangsu Province, is an interesting case study.

"I was furious when I had a bout of diarrhoea and thought it was because of Nestle milk powder," says Zhou, in her 60s, adding she immediately dialled the Nestle service line and gave a piece of her mind to the man at the other end.

Two days later, a Nestle employee appeared at Zhou's home and took the rest of the milk powder to Beijing for testing.

A week later, Nestle notified Zhou that they found no problem with the powder and believed Zhou's diarrhoea was caused by lactose intolerance - which means people cannot digest food with milk sugar and often feel sick, a condition common with Han Chinese, particularly elderly people.

To make up for Zhou's loss, the other bag of Nestle milk powder she bought was replaced by a box of Nestle chocolate in days.

"I was pleasantly surprised. If the service people at Nestle had treated me with indifference, I would have never bought another product from the company, even after it was proven that the stomach problem was not because of product quality," Zhou says.

"Service is important."

The lessons from the incident may be familiar to most foreign company executives and are a basic principle in management courses.

Sam Walton, founder of Wal-Mart, once said that it was service that distinguished the supermarket giant from other companies. "Give customers what they want - and a little more. Let them know you appreciate them. Make good on all your mistakes, and don't make excuses, apologize. Exceed your customers' expectations. If you do, they'll come back over and over."

But multinationals seem to be finding it a bit tough to live by that credo - mainly because of the high expectations of Chinese customers, who were long-convinced that foreign companies are suppliers of top-notch commodities, models of advanced management and symbols of a better way of life.

The rising number of complaints against foreign brands may seem unfair to multinationals as they believe they usually apply stricter quality controls than domestic companies, says Mao Shoulong, professor at Renmin University.

Unfortunately, they are easy targets for complaints from consumers who are not particularly surprised if the quality of domestic products is a little shoddy.

"It also is sometimes due to nationalism because Chinese people feel they might be discriminated against by foreign firms," Mao says.

"But in most situations, Chinese consumers are more critical of multinational products, as foreign companies have a better image and local consumers have higher trust and higher expectations of foreign brands. That is why consumers gladly pay higher prices for foreign brands."

When the quality of domestic products is rising to be on par with foreign brands, service is the key, Mao says.

According to Liu Shiru, a director at the State Administration of Industry and Commerce, consumer complaints have risen sharply in recent years, while complaints on quality are falling. At the same time, foreign companies' performance in service has not lived up to expectations, sometimes faring even worse than their domestic counterparts.

A survey by China Quality Promotion March, a consumer movement on branded goods, gives the service of domestic brands a lead of 11 percentage points over foreign rivals. The poll was done last year in 16 cities on the service of 97 brands - including 40 foreign brands- for mobile phones, computers, televisions, refrigerators and air conditioners.

The survey shows foreign brands have little commitment to 24-hour hotlines, while most domestic brands are stepping up service in that area, says Ye Bolin, vice chairman of China Quality Association.

And foreign enterprises in China usually do not have service networks as widespread as local companies, says Ye.

To grab market share, manufacturers and dealers promote their goods by every means, resulting in delayed deliveries and installation, says the organization's deputy secretary-general Wu Gaohan.

In particular, some foreign brands fail to deliver timely after-sales service because of inadequate maintenance points and spare parts supplies.

But one area where foreign companies are doing well in service is the automobile industry, according to the Quality Promotion March survey.

Many foreign auto companies have set up their own service brands and are pioneers in making service part of their strategic planning, Ye says.

For example, Shanghai Volkswagen introduced the service brand Techcare in China last year, which encompasses sales, after-sales service, used-car sales, auto financing, component and part supply and automotive clubs. In addition, it incorporated its product survey, customer service, brand strategy and market survey units in an attempt to channel market information and sales to headquarters as quickly as possible.

Huang Jirong, head of Shanghai Volkswagen's after-sales department says these measures means the company is treating service on par with research and development and quality control in China.

Direct economic benefit is the major driver of auto companies' service plans, according to Ye. In overseas markets, the proportion of profit in after-sale service may reach as high as 70 per cent.

But in many other industries, the tangible gains are not so evident, says Wu Gaohan, secretary-general of the China Consumers' Association.

Many foreign executives emphasize the added value brought by service to their brands and businesses, but the execution of the strategy does not measure up, mainly because of personnel.

To most customers, the front-line staff of the company IS the company but foreign firms - sometimes saddled with inadequately-trained employees who do not have a sense of service - are finding it difficult to differentiate themselves from domestic companies, Wu says.

(China Daily 03/13/2006 page1)