Entering an abandoned military base on Huangshi Road in Shanghai we find a recently redecorated 2,000-square-meter display area for Tony Wear Clothing, laid out in imitation of stores on an ordinary street. Lit by the lights on the stage, the new styles of clothes on display provide a stark contrast with the serious and solemn atmosphere of the military base outside.

The Tony Wear brand started out a decade ago with a single pair of Western-style trousers, but today has total capital of US$3.2 million and over 200 sales outlets spread across China, making it one of the leading makers of men's clothing in mainland China.

In fact, Tony Wear Clothing actually made losses for its first six years of operations and only started to turn a profit in 1999. After many years of hard work and dedication the company had a turnover of RMB25-30 million in 2001, a growth of nearly 50% on the previous year.

Taiwan fashions in China

Unsurprisingly, the market for women's clothing has always been strongly contested.

It is 6 p.m. on a Saturday afternoon and the Mysheros' salesroom, located on the third floor of the Zhengda Plaza in Shanghai's Pudong district is full of shoppers, with many young people taking advantage of the discounts on offer to stock up on the latest fashions.

Mysheros has operated in mainland China for ten years and now has three directly managed stores in Shanghai and designated counters in six department stores. In addition, the company has 260 specialist and chain stores across China, with an annual turnover of RMB250-300 million.

In addition to more established firms such as Mysheros, two years ago a more recently developed Taiwanese clothing label-Bianco-also began to make inroads into the market.

Bianco officially opened for business at the Zhonghuan Plaza in Shanghai in November 2002. Today specialist Bianco stores can be found in such high-end Shanghai shopping areas as Meilong Town Plaza, Eastern Villas, Paris Spring and Pudong's Times Square, etc.

Taiwan Bianco was established in 1988 and first started operations in mainland China in 1999, with the launch of Bianco Shanghai. After entering the China market the firm continued its Bianco Couture series from Taiwan (priced at RMB2,500-4,000) but also developed two major new product lines, Bianco Formal (RMB1,500-1,800) and the cheaper "Fans no Fence" (RMB600-700). The former focused on maturity and luxuriance, whilst the latter projected an image of character, youth, distinctiveness and energy.

With the one child policy in China particular importance is attached to children, making the market for children's clothes one that cannot be ignored.

The children's clothes label Les Enphants first entered the mainland Chinese market ten years ago and is currently the number one brand in Shanghai. The company has a total of 417 specialist stores and 20 directly managed stores in China. Company general manager Michael Lee reveals that Les Enphants had retail sales of RMB220 million last year and net profit in excess of RMB10 million.

Will it sell?

One important question facing the clothing industry in China is whether foreign fashions will prove most popular, or Taiwanese labels will win over local consumers with superior designs. In addressing this we must first look at why Tony Wear, Bianco, Mysheros and Les Enphants have gained such popularity in the mainland market, in men's, women's and children's clothing.

Walk along Huaihai Road in Shanghai and the answer becomes immediately obvious. In what is one of the busiest commercial areas of the city, we see a plethora of stores selling internationally famous clothing labels and filled with well-dressed modern Shanghai women shoppers.

It is said that Shanghai women hate to be told they are "unfashionable." Born in 1978, Ms. Zhang Wei, who is Shanghainese born and bred, an only daughter and has led a relatively comfortable life, comments: "Young women in Shanghai spend money without thinking. We're scared of being left behind or of being unfashionable, so there is a certain degree of fawning on things foreign." Ms. Zhang, who works in the clothing industry, points out that mainland Chinese consumers have faith in fashions designed in Hong Kong and Taiwan, but that European and US designs are generally seen as superior.

Executive president Wang Guihua of the state-run Chinese firm New Silk Road Models Co. argues that the high level of import tariffs means that European and US fashions are one third more expensive in mainland China than in their home markets, so that most consumers choose to buy them when they are overseas. As a result, demand for such clothes is very limited with only about 20-30% of the market, as local consumers tend to prefer fashions from Hong Kong and Taiwan.

Ever-changing tastes

As economic development has accelerated in China over the last few years, there have been many changes in the clothing fashions favored by Chinese consumers.

Many of us have heard stories of wealthy Shanghai residents walking the streets and even taking busses dressed in only pajamas. Today one rarely sees people in their pajamas and that is not because there are fewer eccentric rich people, but because there has been a change in the way people view clothing fashions.

On Christmas Eve 1999 the Bianco Group officially opened its first store in Beijing. Looking at the sleeveless gown on display in an 18-meter exhibition case, several women were heard to comment quizzically: "Who would wear something like that?"

At the time they were all wearing old-fashioned thermal underwear and simply unable to imagine anybody would wear a sleeveless gown in winter. Company president Coco Fang points out that the firm went to great lengths to educate local distributors on the need to persuade customers to take off their thermals. It was suggested that indoor heating and the fact that any trip outdoors would be restricted to a car and traveling from one venue to another made the wearing of difficult-to-remove thermal underwear unnecessary. In recent years the situation has improved somewhat and there has been a clear increase in the acceptance of Bianco fashions in the China market, an indication that the initial approach was at least partly successful.

The notoriously little-changing market for men's clothing has also become much more open.

Jack Chen, general manager of Tony Wear, indicates that in the past people in mainland China faced a lot of pressure about the clothing they wore and so often preferred to wear uniforms. Anyone wearing clothes deemed to be different would immediately be labeled a "capitalist roader." China started to open up in 1979 and today the most popular fashions and clothes of all colors can be found on any street.

Chen observes that the combination of culture from Hong Kong, Taiwan and Japan with Shanghai's own distinctive local culture has served to create a "New Shanghai Culture." However, the "New Generation" in Shanghai still likes to wear clothes and make up that tend to be "safe" and do not try to draw attention to themselves.

Children's clothes are less sensitive to fashion trends, tending instead to focus more on the material used and practicality. Michael Lee of Les Enphants indicates that the firm is planning to introduce more local and regional fashions, for example tracksuits, which are popular all across China. At the same time, Les Enphants refuses to move backwards by producing styles that are already dated to people in Taiwan and Hong Kong. For example, there are still many places in China where toddlers wear open crotch trousers, but Les Enphants is adamant that it will not produce such a line of clothes.

Attractions and dangers

The 4th Shanghai International Arts Festival was held at the end of last year and artists from around the world were invited to enjoy the sights and sounds of the city. Japanese artist Guroda Shigeki commented: "My first impression of Shanghai is that it is like a black hole, using its great powers of attraction to absorb everything."

What that artist saw as a black hole is an example of the China market in miniature. But is it necessarily true that such a large population is the same thing as a good market?

Amy Lee, general manager of Mysheros, points out: "Being first on board does not necessarily guarantee you a seat." Even if being a first mover gives an enterprise more opportunities to exploit, what is most important is choosing the right market position.

"Objectives must be clear and one needs to have a plan of action before starting to consider market niches. On top of that, it is necessary to have an exit strategy before jumping into the fray." So reflects Lee on the subject of entering the China market. She maintains that it is important for firms to not be blinded by the potential of a market that remains highly elusive. Lee openly admits that Mysheros spent its first three years in China learning how to operate successfully and only started turning a profit in 1996. She also maintains that all firms seeking to operate in China must first establish their own bottom line beyond which they undertake to withdraw. By proceeding blindly in the hope of striking it rich businessmen run the risk of losing everything. More than a few Taiwanese firms have discovered the truth of this observation to their own cost.

Others have found out that arriving at the right time is much more important than being there first.

As the mainland Chinese economy has boomed over the last few years the first generations of new rich and of female office workers have begun to emerge.

Wang Guihua, executive president of New Silk Road Models Co., indicates that Taiwanese clothing brands have achieved basic annual sales of around RMB20-30 million by focusing on white-collar consumers aged 30-40.

Coco Fang states that the rise of female white-collar workers in urban areas of China as a distinctive group was in fact one of the main reasons the Bianco Group decided to launch operations in mainland China.

However, the rise of this new market has also attracted many firms competing for a share of the same pie and many in the fashion industry complain of increasingly fierce competition. Amy Lee of Mysheros notes: "The pie has not got any smaller but the number of people wanting a share has certainly increased."

Taiwanese fashion labels have consistently chosen to focus on foreign brands as their main competitors, but as Lee suggests: "Although local labels understand local culture and ways of thinking, foreign firms tend to have a more long term perspective." Local labels tend to be priced competitively and so international brands are in the main considered future competitors.

From China to the global market

Jack Chen, general manager of Tony Wear, believes: "Only by making our own things and having our own character are we going to be able to compete in the long term and have the opportunity to better our competitors." On the basis of this sense of mission Chen is keen to promote his own label on the international stage. At the same time, foreign brands are particularly popular in a cosmopolitan city like Shanghai, so having an international brand makes it much easier to grab market share.

Bianco president Coco Fang concurs with this opinion and says: "The only chance we have in mainland China is with own brand products." It may seem on the surface that the way to go is as agents for well known foreign products, but managing someone else's brand is not particularly profitable and firms have little freedom of action, having to make do with little more than paving the way for others.

The Bianco Group has made the development of specifically oriental lines, materials and colors its central objective.

Fang notes that the firm's target market remains professional women. Modern women require clothes that are highly functional and presentable, but also comfortable, practical and easy to clean. For example, knitwear that can be machine-washed is a product that is both popular and practical. In addition, modern women have less time to go shopping and make price comparisons so Bianco provides a full range of accessories including handbags, shoes, belts and so on.

Fifteen years ago Coco Fang laid down three broad ten-year objectives for the company. The goal for the first decade was to "establish the firm in Taiwan." For the second decade it was to "develop in mainland China." The third will be "targeting the global Chinese market."

Michael Lee of Les Enphants believes that the firm's label is destined to go international: "As China becomes an increasingly powerful country Les Enphants will naturally become an international brand."

Low prices and high fashion

Despite all their efforts to develop their own brands, the mainland China market offers both opportunities and dangers to Taiwanese clothing companies.

Jack Chen points out that the market for copied goods in China is huge, with practically everyone wearing popular fashions. Sometimes, copies go on sale even before the original and although this helps to elevate brand recognition it also increases the pressure on brand managers.

As such, the life cycle for new products is extremely short. Some European brands introduce their products in China a season early, so it is necessary for these products to transcend current international fashions: "Only through brand management is it possible to avoid one's products becoming mere commodities."

What is brand management? Chen suggests that it is necessary to "create a lifestyle choice for customers." Brand management focuses on the projection of an image, store layout and decoration, the ability to manage distribution, customer services etc.: "Frankly, brand management is based on the same sort of thinking as religious proselytizing!"

As part of its program to develop a brand image Tony Wear spent NT$10 million in one year renting advertising space on elevated hoardings along Yen'an Central Road. Bill Hsueh, chief of the company's administration and information department, indicates that these adverts were in fact aimed at existing Tony Wear customers, in an attempt to solidify the company's customer base, by making them identify more closely with the virtual character and image of the brand.

When enterprise grows

Taking advantage of rapid economic growth in mainland China, many Taiwanese enterprises have found that after launching initial operations they expand quicker than expected, often surpassing all early forecasts and effectively throwing managers into confusion as to what to do next.

Bianco Shanghai chairman Rex Chang offers the example of a women's clothing brand introduced to mainland China nine years ago. Annual sales of two million units and turnover of RMB600 million were entirely unexpected and ultimately it proved impossible to manage company finances properly, leading to the tax problems the company now faces.

Coco Fang indicates that the Bianco Group has sales outlets across China: "From Shanghai in the east to Urumqi in the west, Hainan Island in the south and Harbin in the north." In dealing with such a huge market Bianco uses Shanghai as its base for controlling production and sales. It has divided the market into seven segments, and established 130 outlets in large urban areas such as Beijing, Shanghai, Zhengzhou, Changsha, Chengdu and Shenyang, of which half are directly managed outlets and half agencies. Rex Chang's strategy is to directly manage operations in major cities because profits are better there. In second-tier cities that cannot be directly managed operations are the responsibility of sales agents. In more out-of-the-way third-tier cities the firm relies on one-off non-returnable sales to earn relatively stable profits.

Chang wants to make use of the firm's experience in Taiwan in developing operations in China, to establish a division of labor between manufacturing and sales and systemized marketing mechanisms. Taking China as a base he is keen to develop the enterprise into a finished garments group with a multiplicity of brands, and then move towards developing markets in Europe and the US, turning Bianco into a globally marketed fashion brand.

Having suffered losses for six straight years, Tony Wear has also tried to develop multiple brands as a way of breaking with the inevitable limitations of having just one brand. At present the Tony Wear "brand family" includes Tony Jeans, which targets 18-25 year olds, and Tony Wear, aimed at 22-35 year olds. The firm also acts as an agent for Camel Active and the male underwear store Under Shop.

Commenting on expansion, Jack Chen is confident the company "will have ten times more stores this year than last." Tony Wear is planning to seek a market listing in Hong Kong within five years: "We already have a talented workforce; this is a once-in-a-lifetime opportunity and we are going to make the most of it."

In dealing with growth, Tony Wear has chosen to expand rapidly. In contrast Les Enphants has decided to readjust its strategy and re-launch itself. Michael Lee is frank about the reasons for this move: "We are now looking at the mainland China market in a much more prudent manner." Over the last few years many enterprises have viewed operations in China in too narrow a way and behaved like blind men trying to describe an elephant. Today businessmen are much more realistic about the potential of the China market and their ability to exploit it.

Lee is clear about ongoing readjustments to operations in China and laments the firm's earlier strategy: "If I had known then what I do now I'd never have let Les Enphants grow so big so quickly." As well as increasing the workforce, the number of Taiwanese managers will also be expanded from the current five to ten and management methods will be modified: "In the past Les Enphants focused mainly on directly managing its own stores. But China is just too big, so this year we will increase the number of franchise stores, establishing new outlets near hospitals and residential communities." Les Enphants has also learned a valuable lesson in the process of this expansion and despite being eligible to apply for a market listing has yet to actively push in that direction.

Les Enphants is the top children's clothing brand in Shanghai, but as a result of poor management the firm is only third or fourth in other cities. For instance, the rapid replenishment of stocks and provision of a variety of sizes requires effective management. Michael Lee says: "The most important task at the moment is to improve our management methods."

Picking a side

Many of the Taiwanese businessmen who flocked to mainland China have been forced to choose one side of the Taiwan Strait or the other. Commenting on the management of an enterprise in China, Jack Chen hints at the attraction: "The power of reality is far and away stronger than that of any regulations."

Taiwanese businessmen must navigate the strange and changeable environment of cross-straits politics. Given several years of economic downturn in Taiwan and the highly personal nature of politics in China, it is inevitable that wherever they choose to develop Taiwanese businessmen are in effect gambling on one side or the other. On this matter opinion in the fashion industry is divided.

Rex Chang predicts: "This year will be the biggest ever for Taiwanese businessmen moving operations to China." At the same time, it does seem likely that the remaining Taiwanese clothing brands will increasingly fix their sights on the mainland China market, despite the inherent dangers. To this end, Chang plans to establish a company in Guangdong, using existing distribution channels to act as an agent for the best Taiwanese brands.

The strategy followed by Mysheros in Taiwan and China differs markedly from that of Bianco's Rex Chang.

Amy Lee, of Shanghai Mysheros notes that the enterprise's firms in Taiwan and China operate independently. Because product styles and positioning are different, even design and manufacturing are separate. She explains that Mysheros Taiwan is already 20 years old and serves a market whose age distribution has aged with the company. However, the Chinese firm serves a much younger portion of the market.

The renowned children's clothes enterprise Les Enphants currently retains an R&D center and headquarters in Taiwan and in that sense the firm in China remains a branch company. Michael Lee refuses to accept the premise that enterprises need to bet on the success of either China or Taiwan: "Taiwan and China are mutually complementary" he suggests, but because they have taken a broadly similar path it is possible to apply much of what Taiwan has already experienced to what China is now going through. As a result, older managers who often seem out of touch in Taiwan can be very useful in China.

In order to cut costs Bianco transferred its production lines to mainland China in 1998, but its R&D center remains located in Taiwan. Coco Fang notes that regional protectionism in China is very strong, making it difficult to compete head-on. Some local king brands have a monthly turnover of as much as RMB1 million per store, something Bianco, with RMB450,000 per outlet in Shanghai, can only dream of matching.

Rex Chang says that although the Bianco Group wants to follow a path of "localization" it has no plans to change and adopt out-of-date or old fashions. It plans to introduce fashion elements from overseas and seek ways to persuade mainland Chinese consumers the company is a mainstream fashion commodity provider.

Taiwanese clothing companies are resolutely sticking to their guns in promoting own-brand products in China, as part of a broader strategy in which they continue to work towards the ultimate goal of becoming internationally renowned fashion brands.

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In recent years there have been major changes in the clothing fashions popular in mainland China, especially in cosmopolitan cities such as Shanghai where the latest fashions and brand names are all the rage.

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The bright lights and music flowing out of the Tony Jeans store on Huaihai road, one of Shanghai's busiest streets, attract passers-by.

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After ten years in China the Mysheros brand offers clothing in the medium price range focused on new white-collar female workers aged 25-35.

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Always up to date about the latest fashions, residents of Shanghai make sure they are dressed to complement their companion for the evening.

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In response to rapid changes in markets in both Taiwan and China, Bianco president Coco Fang already knows what fashions will be on offer next season. The picture shows an example of the new Bianco line of clothes for this summer.

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The renowned Taiwanese children's clothes company Les Enphants has already established itself as the "number one brand" for children's clothes in Shanghai. The picture shows the Les Enphants' Design Center in Shanghai.

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The one child policy in China means that parents tend to lavish attention on their children, as a result of which there is considerable space for further growth in the market for children's clothes.

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In the city of Shanghai, both the buildings and the clothes people wear are part of the modern landscape of a very fashion-conscious metropolis.