China's Li-Ning Towers, Wobbles and Regroups

It appears homegrown China sportswear brand Li-Ning's ambitious great brand leap forward has failed. After summoning the willpower to expand its reach outside China, and engage in direct global battle with Nike, Li-Ning has again slipped back to offering competitively-priced products for a sensible athletics market.

The stumble leads the Financial Times to ask if there is a "bamboo ceiling that stops Chinese brands from becoming truly competitive even in their own market?" Yes, and that ceiling is China itself.

Many Americans first met Li-Ning during the 2008 Olympics opening ceremony, when they watched the brand's namesake and former gymnastic star zip around the stadium, suspended on wires. The Li-Ning brand rode the Olympics and swelled sense of national pride to surpass Adidas and come within striking distance of Nike, which still leads the China market.

In 2010, Li-Ning unveiled a rebrand to coincide with its 20th anniversary. By later 2010, the brand was expanding into the US market with a humorous, slick campaign and the endorsements of a few (non-Chinese) NBA stars.

Established in 1990, Li-Ning's estimated brand value last year was around 12.734 billion RMB, or just short of US$2 billion. But in the first half of 2011, the brand's net profits are off 50 percent, and its shares have plummeted. (However, let the record note that Li-Ning has fared better than another Chinese brand, Dong Xiang, which saw its sales crash by 71 percent during the period.)

In a bid to correct the course, Li-Ning has dumped its high-end products and gone back to what made it popular: affordable merchandise modeled on that of western sportswear brands like Nike and Adidas.

It certainly needs to do something unique to stand out with its target market, as both Adidas and Nike are pushing harder to localize their products, endorsements, prices and messaging. If Li-Ning is not careful, soon it will even be losing its inexpensive market foundation.

Peak, a local athletics brand that showed great promise in 2009, also posted a huge sales drop in the first half of 2011, bringing us back to FT's question about a "bamboo ceiling" for Chinese brands. From cars to sportswear, are Chinese brands doomed until they boost the quality of their goods?

Joe Baladi, author of The Brutal Truth about Asian Branding ... And How to Break the Vicious Cycle, says they'll have no choice. In an interview with Asia Times, Baladi says:

"We are now seeing the low end of manufacturing move out of China into lower labor cost markets like Vietnam. These industries are migrating to other countries as a consequence of Chinese businesses moving up the value chain — it is a manifestation of China's overall economic development… Building Chinese brands matters to Chinese companies because they matter to all companies. The absence of strong branding relegates a company to a commodity, and there is no future in that. Also, the single most powerful driver of economic growth is consumer spending. Consumers — be they Chinese or Western — buy brands, first and foremost."