Chinese Shoe Firm Steps Up Its Game

BEIJING — Swoosh and stripes, meet Brand X.

As sports shoe companies such as Nike Inc. and Adidas-Salomon jump into China with both feet, they face a firmly entrenched homegrown rival that's hatching plans to trip them up: Li Ning Co.

For years, the Beijing-based athletic footwear and apparel manufacturer has had the run of a domestic market that is now just finding its 2.6 billion legs.

The company posts annual sales of about $200 million hawking affordable, no-frills sneakers to the masses, which long have valued price over style and performance. Revenue and profit for the first six months of 2004 are up 50% from the same time last year, according to the company's latest report.

But now that high-end competitors such as U.S. firm Nike (with its highly recognizable swoosh) and German firm Adidas (with its signature stripes) have discovered China's burgeoning appetite for hip international brands, Li Ning finds itself on the defensive.

As it prepares to fight back, China's leading domestic sportswear manufacturer has taken a page from Mao Tse-tung, the late Communist leader whose ragtag troops scored an underdog victory over a larger Nationalist Army in 1949 by building their base in rural areas and attacking from there.

"We are familiar with the history of China, with how the Communists defeated the Nationalists," said Abel Wu, Li Ning's marketing director. He said the firm's strategy was "similar to what Mao did."

Li Ning is just the latest domestic brand facing an onslaught of powerful foreign competitors, a trend hastened when China joined the World Trade Organization in 2001 and began lowering trade barriers. The biggest hurdle -- the requirement that foreign firms create joint ventures with China-based partners -- is now history, leaving overseas companies free to compete on their own terms.

The competitive pressure, said one business expert, has winnowed weaker domestic brands. But it has also produced a number of Chinese companies that, through a combination of innovation and imitation, have bulked up to compete with big corporations here and abroad.

"Many will die, but the end result is not going to be a market dominated by foreign players," said Oded Shenkar, Ohio State University professor of international business and author of the book "The Chinese Century."

"This is a country that maybe doesn't take the Communists seriously anymore but has a strong national feeling," he said. "It is something that can be leveraged.... The end result will be the emergence of Chinese multinationals."