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Economy ... ...
    Old brands face the challenges of new era
JIANG YAN,China Business Weekly staff
2004-07-13 07:47

Locals in old Beijing used to judge how rich you were by whether you were wearing Majuyuan hats, Neiliansheng shoes or Ruifuxiang clothes.

But Majuyuan - a hat maker established in 1817 - collapsed several years ago, the 111-year-old Ruifuxiang is facing fierce competition and the 40-year-old Neiliansheng is expanding its franchise stores with the help of a professional consulting company.

These three old brands are just a mirror reflecting the fate of old and famous Chinese brands which numbered over 6,000 when the People's Republic of China was founded in 1949.

But only 1,600 survived to greet the advent of the new millennium, according to recent statistics from the Ministry of Commerce. But what makes matters worse is that only 10 per cent of them are consistently profitable. About 70 per cent are just managing to stay afloat. The rest are struggling on the brink of bankruptcy.

A combination of factors has led to their failure, including outdated enterprise structures, conservative management, backward technology, outdated products and small-scale operations.

The ministry has completed a draft of standards to reappraise these old and famous brands, known as laozihao in Chinese.

The reappraisal will then be based on the brands' history, culture and profitability of their current business.

The standards, the first to give the definition of laozihao are expected to crack down on any piracy of these famous brands, and prevent the further erosion of what is seen by many as part of China's national heritage.

At a recent meeting with government officials, laozihao representatives called for financial support.

Jia Feiyue, vice-general manager of the Beijing Jude Huatian Holding Co, said subsidies and favourable tax policies would be preferred.

However, Gao Yidao, deputy secretary-general of the Beijing Commercial Enterprise Management Association, said the chances were very slim of these cash-thirsty enterprises receiving government financial support.

Gao is helping these old brands get a new lease of life through self-development under government policy support, by meeting domestic market demand first and then seeking opportunities abroad in consortia.

Gao, together with other industry experts, is helping these old brands to expand in the country by establishing franchise stores.

China Chain Store and Franchise Association Deputy Secretary-General Wu Ruiling said franchising is a good means to rapidly expand business scale and brand names by utilizing private funds, labour and resources.

China Beijing Quanjude Roast Duck Corp (Group) stepped up the pace of its franchising in 1993. The group had established 43 franchise stores by the end of May, earning a sales revenue of 350 million yuan (US$42 million) last year, in addition to owning six chain stores.

Beijing Wuyutai Tea Co's 72 stores, including 60 franchise stores, last year generated a total sales revenue of 110 million yuan (US$13 million), according to General Manager Sun Danwei.

However, franchising has its own problems.

"After a couple of years of experimenting, we have encountered difficulties," Zhang Aijun, Neiliansheng's deputy general manager told China Business Weekly. "We had to bring in external help."

The company recently signed an agreement with Beijing Franchise Consulting Co Ltd for three-year on-the-spot professional aid, dealing especially with how to select and train franchise partners.

"We are seeking partners who have the venture capital but do not desire big quick profits," said Zhang. But the firm usually attracts investors who either have no money or want to make a fast buck.

"An inappropriate choice of partners will possibly damage the whole brand name," Wu warned.

The Beijing Franchise Consulting Co Ltd will help map out partnership rules and update management system with its veteran team members from home and abroad, said its President Zheng Danyang.

(Business Weekly 07/13/2004 page8)