Chinese firms stung by trade war build up domestic brands

For over a decade, manufacturer Matsutek plied away at building its business with big Western brands, supplying firms such as Philips  and Honeywell with products made in its Chinese factories for the U.S. and other overseas markets.

That strategy paid off, helping it grow into the world’s

second-largest maker of robotic vacuum cleaners. But then, the Taipei-headquartered firm became one of the many corporate casualties in the escalating trade war between Washington and Beijing.

Sales of Masutek’s products in the United States plunged by a fifth last year in the wake of 25% tariffs on Chinese goods, forcing it to shut down two of its 11 assembly lines - all located in mainland China.

Already disenchanted with the U.S. market after a legal battle with rival iRobot Corp  in 2017, the tariffs were the last straw and in December Matsutek switched its focus to its own “Jiaweishi” vacuum cleaners - promoting them on Alibaba’s  Tmall and Pinduoduo’s e-commerce platforms.

Although the brand was created in 2015, Matsutek had until then not done much with it.

“This was our wake-up moment. We realized we couldn’t rely on overseas markets alone, rather we should build our own brands in China,” Terry Wu, general manager of two Matsutek units in Shenzhen, told Reuters.

The trade war is proving to be a turning point for the countless Chinese original equipment manufacturers (OEMs) that supply products to Western firms to rebrand and sell, and on whose backs China has built up its reputation as the “Factory of the World”.

For some like Matsutek, it has triggered a major strategic rethink, while for others that have been developing brands aimed at the Chinese consumer, it has prompted them to step up those efforts.

“Being an OEM is like being a peasant counting on a good year of rain. Why shouldn’t we build our own brands, lower the price a bit and offer products that have the same quality as foreign brands,” Wu said.

Indeed, for China-based companies heavily exposed to the U.S. market, it is one of their few strategic options aside from shifting some production to other countries - a tactic that is also gaining momentum.

• Reuters