Volte-face for 'Made in China' (China)

The newly founded Sheji/Sorgere brand recently launched its first fashion show in Beijing. This menswear brand, belonging to State-owned China Garments, overturns conventions of the luxury industry, with all its products being designed in China, but made in Italy. It is just one of several brands making efforts to ensure that people used to the "made in China" label may be surprised.

According to statistics from consultants Bain & Company, annual sales for the luxury market in the Chinese mainland soared from 7.1 billion euros ($8.88 billion) in 2009 to 12.9 billion euros in 2011. These obviously lag behind sales in the biggest luxury market, the US, where annual sales reached 48 billion euros last year. However, adding the consumption of individuals from Hong Kong, Macao and Taiwan, sales in the Chinese market in total reach 23.5 billion euros, even rising to 40 billion euros if you include the 15 billion euros spent annually by Chinese customers abroad on luxury goods.

There is no need to argue the important role of the Chinese luxury market. International luxury brands are focusing more and more attention on the Chinese market, holding fashion shows in big Chinese cities, adding Chinese products to their ranges, opening more stores, and organizing advertising campaigns featuring prominent Chinese stars.

However, these foreign brands are seeing new competition as the nascent Chinese fashion industry is seeking to claim its own place at the table of the global luxury industry.

Adopt and adapt

Armando Branchini, managing director of Italian luxury guild Altagamma, told the Financial Times that "Chinese companies will likely merge with foreign brands, and try to found their own Chinese luxury brands."

The Chinese government and private entrepreneurs have also outlined two major aims: buying shares in European luxury brands that Chinese people are fond of and boosting domestic consumption. As aforementioned, last year, Chinese people spent about 15 billion euros abroad on luxury goods, mainly due to the prices of most luxury goods being cheaper than on the Chinese mainland by as much as 70 percent.

However, there is no easy way for Chinese investors to buy into renowned European luxury houses. For example, Fosun Group failed to become a shareholder in Prada when the giant was planning to hold an IPO in Hong Kong to raise funds.

A few Chinese investors have "succeeded," but through merging with smaller, less known brands. For instance, Hong Kong investment company Fung Brands succeeded in getting 80 percent of the shares of the French fashion company Sonia Rykiel.

However, the other way of creating Chinese fashion brands has also proven taxing. Many Chinese fashion companies already owned the right equipment and knew the techniques but wanted more benefits from the domestic market. But having good quality is still not enough as it remains common for Chinese consumers to believe foreign products are superior to those made by Chinese brands despite many being "made in China." Therefore, those Chinese companies often gave their brands foreign-sounding names to make customers believe they had the same intrinsic value as European competitors.

New Chinese model

Now Sheji/Sorgere seems to be starting a brand new model for founding a Chinese brand, designing products in China, but having them made in Italy. According to Zhan Yingjie, general manager of China Garments, this model complies with the trend of combining Chinese styles with European quality. "Chinese customers at first believe that being expensive means being good, but now they are becoming more and more educated. We are providing them with items with our own national style but with the best quality," said Zhan. Sheji/Sorgere controls the Italian manufacturer Caruso Spa who focuses on producing clothes for luxury brands.

Sheji/Sorgere actually is not the first Chinese brand to pursue "high quality" from abroad. For example, another brand, founded in 1993, has its products designed by an Asian group, but imports 80 percent of the textiles, such as cashmere, cotton and silk from Italy, France and Japan.

"Having their products manufactured in Italy is definitely improper in terms of cost. The labor cost in Italy cannot be lower than that in China, without factoring other costs like transportation," said Liu Yanfei, senior reporter for China Textile News. "The most likely purpose of this 'new model' is to label their products through a 'made in Italy' stunt. We have to say that Chinese customers are superstitious for Italian and French fashion brands, supposing that only products from those countries are fashionable."

Raising Chinese customers' confidence for domestic luxury brands may be just a matter of time as concepts of fashion are changing. But there exists a more serious problem that must be solved quickly. "The problem remains a lack of designing ability. In today's society where companies are looking for instant benefits, Chinese company will rarely invest time and money to cultivate their own designers. But in Europe, every big company fosters is own design team and even has research centers for design." In order for Chinese companies to cement their hold domestically, maybe having a world-famous Chinese designer would be worth more than having a foreign name or manufacturer.