Chinese consumers don't idealize American products the way they used to - and that's bad news for Apple and Tesla
- Younger Chinese consumers don't appear to see products from Europe and the US to be superior to domestic brands the way that their parents did.
- The shift in perception has led to increased dominance of the Chinese smartphone market by domestic companies, rather than Apple.
- William Li, founder of electric car startup Nio, believes the same trend will play out between his company and Tesla in the Chinese automobile market.
For decades, Chinese consumers have prized foreign brands, thinking that products made by American or European companies indicated higher quality than domestic. Increasingly, that's no longer the case.
Chinese people born before 1985 have a "mindset that foreign brands are better" than Chinese ones, billionaire William Li told Business Insider during a recent interview at the 2018 Beijing Auto Show. But for those who were born after 1985, the mindset is different.
"When I first went to the United Kingdom in 1997, I thought that the difference between China and Europe was quite significant," Li said. "But for those born in the 1990s, when they visit Europe or the US, they do not think there is a significant different."
Li is the founder of electric car startup Nio, which is counting on that trend to help it compete with Tesla.
The change in perception among Chinese consumers is showing up in numerous markets in China previously dominated by western companies. A study by Credit Suisse released in March found that young Chinese consumers are increasingly showing a "domestic brand bias."
More than 90% of young Chinese consumers would prefer to buy domestic home appliance brands, according to the study. Meanwhile, domestic companies producing food, beverages, or personal care products increased their share of the market by 3.3% over the last decade to nearly 70%, according to Nielsen.
"Chinese consumers, especially the younger generation, don't just believe the notion that foreign brands are better. Right now, Chinese consumers think China is good and 'Made in China' is not bad at all," Charlie Chen, head of China consumer research at Credit Suisse, told South China Morning Post in March.
The Chinese smartphone market is dominated by domestic companies - Huawei, Oppo, Vivo, and Xiaomi. Apple is the only foreign brand in the top five, but it has lost significant ground to the domestic brands in recent years.
Apple's market share is believed to be down to 37% from a 2015 high of 54%.
Li believes that the rise of domestic smartphone companies is attributable both to a closing gap in perceived quality and because smartphones serve their users better when they "rely on local service, local software, local support, and local data."
"That's why, for the Samsung and the iPhone, their market share is now decreasing in the China market," Li said.
The trend has also been happening in the auto industry. In 2017, Chinese car makers took 44.2% of the market. That's up from 38.4% in 2014. Li is bullish that domestic car brands can grow to 65% market share over the next decade.
The increase in market share is more impressive when you consider that many Chinese car companies like JAC, Geely, and SAIC are priced similarly to foreign brands, Li said.
Li is hoping the change in Chinese consumers' perceptions extends to the electric car market, where he hopes Nio will be able to take on Tesla, which doubled its sales to $2 billion in China in 2017.
Though Tesla currently dominates as a status symbol among China's luxury market, Li said that he believes Nio and other Chinese electric car manufacturers will eventually prevail because they have "a better understanding about Chinese users and they can develop their software and adapt it to their behaviors."