Quotes of the Day

Call it the Ka-Ching dynasty. After decades of relying on exports and investment, China's leadership is targeting domestic consumption as the most enduring driver of economic growth. Not only are there more Chinese with money to spend, the still fragile state of the global economy makes self-reliance an imperative. "As we stand at a new historical juncture, we must change the old way of inefficient growth and transform the current development model," Vice Premier Li Keqiang, the likely successor to Premier Wen Jiabao, declared at Davos in January.

It will be years before China has a consumer-driven economy like that of the U.S., but with retail spending rising by double-digit percentages every year, the immediate future looks good. For the most part, the companies poised to enjoy the splurge will not be multinational but Chinese. They know their home market, and how to overcome its obstacles. Some also offer instructive examples for foreign enterprises keen to ride the growth of Chinese consumer culture. Here are four:

COMPANY: Li Ning
SECTOR: Sportswear
REVENUE IN 2008: $979 million
THE LESSON: Be nimble

Every Olympics has its underdog stories. At the 2008 Beijing Games, one of the most memorable was not on the track but in the boardroom of a Chinese sportswear company named after its founder, Li Ning — a triple gymnastics gold medalist at the 1984 Los Angeles Olympics. While the then 18-year-old firm wasn't an official sponsor, it used careful planning to outflank its deep-pocketed overseas rivals by picking likely medalists to outfit with Li Ning – branded gear (official sponsor Adidas had the rights to provide uniforms for medal and other ceremonies, but athletes were free to choose their own competition outfits). It also had a fabulous stroke of luck when Li was selected to light the Olympic flame during the opening ceremony — a spectacle that required him to make a slow circuit of the Bird's Nest stadium suspended from a wire. Even though he was wearing Adidas clothing as he did so, Li's name was nonetheless introduced to an estimated billion TV viewers, many of whom subsequently learned of his eponymous brand. The company's stock price jumped 5% in the week that followed.

Li hasn't always lived in such limelight. In fact, the national opprobrium he experienced after stumbling during the rings event at the 1988 Games in Seoul made him quit sport for manufacturing. His initial venture making jackets was a flop. "We had only one kind of material, in seven colors," he says. "It took us three years to sell them all." The experience made him see that it might be smarter to outsource design and production and concentrate on retail. He envisaged a chain of Li Ning shops, capitalizing on the goodwill that his name retained as memory of the Seoul snafu faded. "I realized if I ran the company by myself it wouldn't be a success," he says. So he began taking on expert advisers as the 1990s began, and over the next two decades expanded the business to more than 7,000 stores.

His national prominence made him a natural choice for the Olympic-flame spot — a free three-minute commercial that has passed into ambush-marketing legend. But in assessing his company's handling of Olympics opportunities it would be unfair to focus on that piece of good fortune alone. The truth is, his team began planning well in advance (662 days, by the count of CEO Zhang Zhiyong), focusing on bang-for-buck sponsorship choices. Knowing, for instance, that the U.S. Dream Team would wind up in the basketball finals, but that its NBA-star-packed roster would be too pricey to support, Li Ning sponsored eventual silver-medal winners Spain and bronze-medal winners Argentina. Li Ning – sponsored athletes won 27 out of China's 51 golds.

These days, the company works with NBA stars like Baron Davis (who has a signature Li Ning shoe, the BD-1) and Shaquille O'Neal (who is under a five-year contract with the brand). But it still maintains its value-for-money approach to marketing — recently making a big push, for example, into badminton, a sport largely ignored in the West but played and watched by some 300 million Chinese. Li Ning – sponsored shuttlecock star Lin Dan graces billboards and TV ads around China, and the firm opened a "badminton paradise" last year in Singapore, its first international outlet. Although badminton won't feature as prominently in its first American shop, which opened in January, the firm's determination to bring its game to the big boys is unchanged. The store is located in Portland, Ore. — just a sneaker's lob from the headquarters of a company named Nike.

COMPANY: Tingyi
SECTOR: Food
REVENUE IN 2008: $4.27 billion
THE LESSON: Cultivate the grass roots

In a land famed for its elaborate culinary arts, the best-known chef is a chubby, smiling cartoon character. Master Kong (Kang Shifu) has been gracing the packets of instant noodles since the early 1990s, and is the creation of Tingyi, a company that chairman Wei Ing-chou built out of his parents' edible-oils firm in Taiwan's rural Changhua county. Thinking that mainland China's rapid development would boost demand for the kind of quick, cheap meals that workers would fill up on during factory breaks or after a punishing shift, he decided to cross the Taiwan Strait and set up a factory in Tianjin in 1992. The timing was perfect. Master Kong is now the world's largest brand of instant noodles, with an enormous recognition rate that has enabled Tingyi to expand the line into bottled water, teas and snacks. "To consumers, Kang Shifu is a professional chef," says Wei of the brand's personality. "He cooks good noodles, so maybe he can make good tea and snacks."

Tingyi's growth is the result of laborious distribution work. Rather than rely on wholesalers, Tingyi hired specialized staff to ensure that its products were being sold not just in large supermarkets and convenience stores but in the tiny xiaomaibu, or corner grocers, where Chinese consumers still make a large share of incidental purchases. "Control over end distribution channels is one of Tingyi's key competitive advantages," according to the China Brands Index from Hong Kong brokerage CLSA.

Those same sales staff also offer a key channel for market research, assessing how Master Kong is received in the homeliest neighborhoods. And that all helps further growth. Wei acknowledges that Master Kong has to stay humble. "If you tell people Kang Shifu is a company that makes good coffee, they will never believe it," he says (coffee being too foreign and expensive-sounding). "So our brand extension is limited by our customers." But those customers have been great for Tingyi, especially amid the uncertain economy of 2009, when it was a distinct advantage to be dealing in low-cost goods. For the first nine months of the year, Tingyi's revenues climbed 20% to more than $4 billion.

COMPANY: Ctrip
SECTOR: Travel
REVENUE IN 2008: $217 million
THE LESSON: Don't take on everything at once

Chinese companies sometimes start out as carbon copies of successful overseas ventures. But replication doesn't happen overnight. Take Ctrip, the market leader for online travel reservations. The company, founded in 1999, initially hoped to be an instant Chinese version of Expedia but soon realized that rushing to provide the same features of the U.S. travel website — which offers package tours, hotel reservations, plane tickets, rental-car reservations and cruises, among other services — was a reckless, if not impossible, task. Instead, it focused on mastering one service before adding another.

In 2000, Ctrip acquired a hotel-reservation operation, Xiandai Yuntong Tourism Service, which gave it a large presence in the traditional offline travel business. After giving its new acquisition a successful online dimension, Ctrip began to move into other travel sectors. In 2002, it diversified into air tickets, and after two more years package holidays. Recently, it moved into corporate travel. "That's one of the most important reasons why Ctrip was successful," says James L. Tang, vice president of sales and marketing. "We waited for the infrastructure, the manpower and the technology."

Today, Ctrip holds 54% of China's online travel market by revenue, according to CLSA, versus 10% for challenger eLong, which is majority-owned by Expedia and has followed a more fitful progression — initially offering vacation packages, but temporarily withdrawing them in 2007 to focus on air tickets and hotels. Both players offer nearly identical prices, so customer service is a key point of difference. While Chinese Web users have become more sophisticated about researching prices on the Internet, they still prefer to buy tickets by phone (just 35% of Ctrip's customers buy their air tickets via the website). Ctrip's step-by-step approach has also helped there, enabling it to steadily accommodate increasing business volumes. When Ctrip customers dial in, their calls are answered within 20 seconds. "Otherwise it's a big, big mistake for our call centers," Tang says.

COMPANY: Septwolves
SECTOR: Garments
REVENUE IN 2008: $242 million
THE LESSON: Western design must adapt

When Zhou Shaoxiong decided to produce a domestic line of menswear in 1990, Western designs were in universal demand. Zhou was well versed in foreign style — at his Fujian factory, he had been producing export garments for five years, and the early designs of his own line, Septwolves, were almost identical. At the time, Chinese manufacturers seeking a reputation for quality and modernity still felt obliged to ape Western brands, as they had been doing for decades. "Like many other domestic companies, we started out aspiring for such influence," Zhou recalls.

Very gradually, however, he began to notice that his customers, mostly 25- to 45-year-old professionals, wanted their garments to have Chinese touches. "As the Chinese economy grows, and its market matures, we've realized that Chinese consumers have their own distinctive needs," Zhou says. That's why in Septwolves shops jackets are just as likely to have a Mandarin collar as a notched lapel. Color palettes are geared to domestic tastes and all garments, even those intended for casual wear, have a certain dressiness, fit and attention to detail that Chinese men prefer — you'll see no skater shorts, scruffy denim or torn tees hanging on a Septwolves rack. "We've learned to adopt certain fashion elements that are more culturally agreeable to the Chinese consumer," says Zhou. The strategy has worked extremely well for the chain, which now has more than 3,000 stores.

Still, overseas influences aren't excluded. Septwolves maintains foreign designers on its staff, and its advertising campaigns use both foreign and Chinese models. But there's no ambiguity about the target. "We've designed styles that are especially tailored to the Chinese," Zhou says. When Chinese consumers really start to make their mark on the world economy, we can expect a lot more of the same.

—with reporting by Chengcheng Jiang / Tianjin and Jessie Jiang / Beijing

• Austin Ramzy
• Four Chinese firms show how to reach the country's consumers — and get them to spend