How Nike Figured Out China

Nike swung into action even before most Chinese knew they had a new hero. The moment hurdler Liu Xiang became the country's first Olympic medalist in a short-distance speed event he claimed the gold with a new Olympic record in the 110-m hurdles on Aug. 28--Nike launched a television advertisement in China showing Liu destroying the field and superimposed a series of questions designed to set nationalistic teeth on edge. "Asians lack muscle?" asked one. "Asians lack the will to win?" Then came the kicker, as Liu raised his arms above the trademark Swoosh on his shoulder: "Stereotypes are made to be broken." It was an instant success. "Nike understands why Chinese are proud," says Li Yao, a weekend player at Swoosh-bedecked basketball courts near Beijing's Tiananmen Square.

Such clever marketing tactics have helped make Nike the icon for the new China. According to a recent Hill & Knowlton survey, Chinese consider Nike the Middle Kingdom's "coolest brand." Just as a new Flying Pigeon bicycle defined success when reforms began in the 1980s and a washing machine that could also scrub potatoes became the status symbol a decade later, so the Air Jordan or any number of Nike products turned out in factories across Asia has become the symbol of success for China's new middle class. Sales rose 66% last year, to an estimated $300 million, and Nike is opening an average of 1.5 new stores a day in China. Yes, a day. The goal is to migrate inland from China's richer east-coast towns in time for the outpouring of interest in sports that will accompany the 2008 Summer Olympics in Beijing. How did Nike build such a booming business? For starters, the company promoted the right sports and launched a series of inspired ad campaigns. But the story of how Nike cracked the China code has as much to do with the rise of China's new middle class, which is hungry for Western gear and individualism, and Nike's ability to tap into that hunger.

Americans have dreamed of penetrating the elusive China market since traders began peddling opium to Chinese addicts in exchange for tea and spices in the 19th century. War and communism conspired to keep the Chinese poor and Westerners out. But with the rise of a newly affluent class and the rapid growth of the country's economy, the China market has become the fastest growing for almost any American company you can think of. Although Washington runs a huge trade deficit with Beijing, exports to China have risen 76% in the past three years. According to a survey by the American Chamber of Commerce, 3 out of 4 U.S. companies say their China operations are profitable; most say their margins are higher in China than elsewhere in the world. "For companies selling consumer items, a presence here is essential," says Jim Gradoville, chairman of the American Chamber in China.

The Chinese government may have a love-hate relationship with the West eager for Western technology yet threatened by democracy but for Chinese consumers, Western goods mean one thing: status. Chinese-made Lenovo (formerly Legend) computers used to outsell foreign competitors 2 to 1; now more expensive Dells are closing the gap. Foreign-made refrigerators are displacing Haier as the favorite in China's kitchens. Chinese dress in their baggiest jeans to sit at Starbucks, which has opened 100 outlets and plans hundreds more. China's biggest seller of athletic shoes, Li Ning, recently surrendered its top position to Nike, even though Nike's shoes upwards of $100 a pair cost twice as much. The new middle class "seeks Western culture," says Zhang Wanli, a social scientist at the Chinese Academy of Social Sciences. "Nike was smart because it didn't enter China selling usefulness, but selling status."