A SPORTING CHANCE
- STORM v.12
The long march of Chinese sporting athletes has been followed by a growing number of China brands keen on making it big on the global stage. Whether this wave will dominate the sporting scene is a matter for future generations to determine, but Erke has plans to be a major player.
By Rachel Chong in Quanzhou, China
In the high-profile sporting industry where reputations are quite often made or dashed like flashes in a global cauldron, the enduring motifs are usually the sport itself, and the brands that have embraced them. Even as the world wobbles along waves of financial crises, and families wonder where the next meal will come from, their faith in their favourite teams and sporting icons remain unshakable. Such is human behaviour, and sporting brands and franchises have been quick to capitalise on this unwavering human spirit to belong to a big happy family of strangers.
Sportswear brands have long seen the potential of this steadfast following and have built up relationships with sporting personalities to market their products to global audiences.
The global sports equipment industry was expected to generate US$64.9 billion (S$83 billion) in 2011, growing steadily at a rate of 2.3% since 2007. The value of this market is anticipated to be US$72.8 billion by 2016, according to MarketResearch.com.
For the longest time, the familiar international names have been mainly from Europe and US. Adidas, Puma, Nike, New Balance, Reebok and the like have helped cultivate deep, monetary and reputational relationships between business and sport. The rise of African and Asian sporting talent has seen the brands reach across continents and sporting disciplines in search of new faces to market and new markets to plumb. The advent of social networking and enhanced global connectivity have also spurred this process along.
With many brands seeking cheaper Third World production facilities, there has also been a technology and know-how transfer that has seen new entrants to the market, mainly Chinese brands trying to capitalise on cheaper manufacturing capabilities in their own backyard. The Beijing Olympics did a lot to bolster the confidence of these Chinese brands to produce sporting equipment and apparel that they believed would be accepted internationally.
As the doors of opportunity opened, in bounded Li Ning, Anta, Peak, Qiaodan, Kanwei, Deerway, X-Step, Warriors, 361° and Erke, among other brands that harboured ambitions of becoming the next Nike or Adidas. The major Chinese sportswear brands each have in excess of 7,000 outlets in mainland China, and some have managed to start the expensive and exhausting process of taking their brands and businesses offshore. Peak Sports Products signed US basketballer Jason Kidd to represent the brand, and was able to raise US$224 million when it listed in Hong Kong in 2009. 361° International raised US$231 million with its IPO in mid-2009. Beijing-based Li Ning which ranks top among the China sportswear brands, has more than 8,000 stores worldwide. It opened its first overseas store in Singapore, and its first store in the US popped up in Portland, home of Nike. Li Ning, which has 8,255 retail stores, is seen as the volume leader, while Nike and Adidas are the value leaders. Retailing its footwear at an average of US$32, Li Ning is seen as the more affordable choice over something similar from Nike which would retail at US$80–150.
But, despite the rise of domestic brands, the market in China is still dominated by Nike. The world’s largest sporting goods company has more than 7,300 stores in China and is still the country’s top sports brand.
The Chinese characters that make up the Erke brand’s name include words that mean “you” and “overcome difficulties”. Owned by Hongxing Erke, the Chinese brand’s singular objective is to be a global player. The Erke name also has an English-sounding ring to it, to appeal to an international audience. While the road out of China is slowly being paved, Erke is keeping its options open by appealing to the growing swathe of middle-income domestic consumer who is increasingly English educated, and drawn to Western culture.
Erke, established in 2000, is one of the few companies that applies itself across the full vertical chain — from research and development to manufacturing and retailing.
It has four large factories with 30 shoe production lines and 80 apparel production lines housed in 200,000sqm in Quanzhou, which enjoys the moniker “Flower City”. Flowers are believed to be a symbol of prosperity, and seem to have blessed Erke accordingly.
With its extensive space and more than ample room for workers to carry out their daily duties, Erke has created a positive and conducive environment for a facility that churns out 90,000 pairs of shoes a day with a 95% pass rate for quality control. The 100 Erke designers form a small portion of the 20,000 employees, which make up an organisation that is seen to be mindful not only of its environment but also its employees. The negative publicity about China’s demanding sweatshop facilities is not something you’ll find in evidence at Erke.
Workers across the shoe assembly line can be seen wearing protective masks as they go about their business in comfortably ventilated spaces that dissipate the smell of the environmentally friendly water-based glue that is used in the production process. The six-storey factory has apparel production lines stacked across several floors but there is minimal need for movement as workers have everything they need at their workstations.
Each floor has around 10 production lines and around 300 work stations. Each station sees a uniformed worker running through a standard series of operations — from cutting stacks of material that could eventually become a tee-shirt to stitching together the colourful shoes. Everything moves in orderly fashion, and this in turn has inspired confidence in the brand locally.
Erke fuels a retail network heavily skewed in favour of the China market, where it has 7,000 stores. It has around 1,000 stores overseas in 32 locations.
Erke has promoted itself overseas, the brand appearing on advertising hoardings at La Liga matches in Spain and NBA courts in the USA. When it comes to athletes, most of the top-drawer talent has already been vouched for. Aiming a little lower, Erke sponsored China’s Chen Xiexia, a member of the women’s weightlifting team at the Beijing Olympics, a selection of possible future tennis stars from Europe and the US, the North Korean football team, and the Olympic associations of Iran, Uzbekistan and South Africa. It has also associated itself with several ATP (Association of Tennis Professionals) tournaments. In Singapore it sponsors Gombak United Football Club, which won the League Cup in 2008. Erke listed in Singapore under the name China Hongxing Sports Ltd in 2005 and has an annual turnover of US$250 million.
After a tour of its facilities in Quanzhou, STORM chatted with Wu Rongguang, the CEO of Erke, and Jeffrey Li, Managing Director of International Markets to understand how this Chinese brand has been progressing in its aim to become a global player.
STORM: What were the factors that prompted you to set up Erke?
WU RONGGUA NG: I was born in Quanzhou, a city known for manufacturing sporting shoes in China. The factory manufactured shoes for some sporting brands and was engaged mainly in OEM (Original Equipment Manufacturing) business without playing an active role in developing its own product. Then I realised that without a brand and channel, it would be tough to occupy a commanding position in business negotiations and to grow the business.
So I decided to build my own brand since the factory was experienced in producing shoes and possessed the necessary technologies.
STORM: It must be challenging to be responsible for such a large workforce. How do you handle challenges?
WU: I have a hard time relaxing as I believe in social responsibility. I pay close attention to employees’ satisfaction and am always active in charities. But there are times when I will spend time roaming the streets to learn from the market. By looking at the stores and window-shopping, things sometimes just click. So I am full of passion for the business even if it requires a large workforce and poses several challenges.
There have been many challenges, and none of them were easy to tackle. Team, brand, strategy, you name it. In 2004, I set down ‘Lead by Technologies’ as one of the group strategies and applied ‘To Be No. 1’, which also represents the business philosophy — to be the best and to never give up. Reputable designers from various fashion-driven cities were invited to join the Erke design team, patented technologies were applied to the products, the strategy to focus on tennis was launched, the sales network expanded. I am never afraid of change.
STORM: How does Erke manage quality control in such a huge organisation?
JEFFREY LI: We are applying Six Sigma management in all our factories. The production facilities have been approved in accordance with ISO 9001 (quality management) and 14000 (environmental management) standards. Erke is an environmentally aware organisation. We were the first brand to use water-based glue in our shoe production lines.
STORM: What is the impact of the rise of Chinese sporting talents (eg. Yao Ming, Jeremy Lin) on the retail industry and how has it helped to raise the profile of Chinese sporting brands?
WU: The continuous rise of Chinese sporting talents is good news for business, as more and more Chinese faces appear in international campaigns and impress the world by their successful stories and personality. As China’s enterprises are in their early stages of development, Chinese sporting brands are not widely known overseas. Brands need a good carrier for their message, if they want to be internationally recognised. Hence, these ethnic Chinese talents will provide a good platform for China’s sporting brands to promote themselves.
STORM: How is the ‘made in China’ tag perceived internationally?
WU: China brands are growing. I do believe that in the near future some Chinese brands will become international brands. I think this would be a gradual process as customers get more and more familiar with products made in China, created in China, and they will begin to accept brands from China.
STORM: What were the challenges faced by Erke in the past, and how does it differ today?
LI: In the beginning, the most challenging issue was creating brand awareness. After several years of working, we can say that we are one of the leading brands in China to enter the international market. Now, the most challenging issue to us is to penetrate and to further enlarge our market share. But you know many countries have their trade barriers. For example, in Brazil and Argentina, they have quite high anti-dumping duties. We are looking for partners in those markets so that we can have local production. There is a trade arrangement between the Chinese government and the local ASEAN market and by the end of this year the tax and duties between Asian markets will be zero, so we are also going to take advantage of this new policy.
STORM: How do you see your customer profile evolving?
WU: Erke’s popularity is growing as we penetrate the European market. Young and successful tennis players in Europe have signed on as spokespersons for the brand. It’s not just the youths who enjoy Erke products. That would be a positive signal to Erke that the potential customer is not limited to the so call ‘young and sunny’ crowd, but also consumers looking for professional sporting outfits.
STORM: What is your total annual output?
WU: Erke has four factories in Quanzhou and Xiamen, with 30 shoe production lines and 80 apparel production lines. Annually, the facility can produce 22 million pairs of shoes and 40 million pieces of apparel at full capacity.
STORM: How does Erke choose its global markets?
LI: We focus on developing countries with big potential, so markets like Southeast Asia are important. We chose to list in Singapore in 2005 because of the importance of this region.
We were the first company to be listed overseas, and the Singapore stock exchange offered us quite a good platform.
Currently the Asian market still contributes the bulk of the turnover. While the Singapore market is not very large, we are competing in an environment where the international standard is very high. We are competing with international brands and some local Chinese brands that are also entering the Singapore market. And, according to our figures, Erke is one of the leading brands in the Singapore market compared to other Chinese brands.