Friday, 28 January 2011

The Chinese wear Prada

Prada, the Italian fashion group, is reportedly going to seek a listing in the Hong Kong Stock Exchange. Nothing electric about this, except that you would have thought that they would list in Milan. European fashion houses are ,well, snootishly European. So the move to list in Hong Kong does raise eyebrows.

This is the magic of China. As even a casual visitor to China knows, every brand is ruthlessly copied and pirated on a big scale. You can easily buy any fashion brand, indistinguishable from the original, perhaps even made in the same factory as the original, at one hundredth the price. Despite this, every fashion house's fortunes these days are driven by demand in Asia, chiefly from China. The nouveau riche in China like to spend. And spend on outrageously priced brands which you can then flaunt. There's a certain pleasure into walking into a room of Prada wearers and knowing that everybody elses is a fake and yours is the real thing. Flaunt your original.

But if your main driver of growth is there, does it mean you have to list there ?? You can list anywhere in the world and still attract an international investor base. These days, investors are mainly institutional investors who invest in most of the major markets in the world. Even if you list in London, you could have an investor base that's entirely non British.

There is a symbolic angle to listing in Hong Kong. You can say that it reflects the growing importance of China to the company. But that's just pure show. It doesn't matter one inch in the actual operations of the company or the performance of its stock.

The move also reflects the growing attractiveness of Hong Kong as a financial centre. It always was a major financial hub. But it was dented a bit by the fears of what China might do to it. But 13+ years into Hong Kong becoming a part of China, the world is fully convinced that China does not intend to tinker with Hong Kong's economic apparatus at all - one of the wisest moves Deng Xiaoping and the leaders that followed have made. Hong Kong's markets are free, transparent and highly liquid as say New York or London is. And its also free from the regulatory heavy handedness of a Sarbanes Oxley. And its on the doorstep of mainland China. Presto. Hong Kong is soaring and competitors like Singapore are left by the wayside.

Its still a tiny trickle - the number of western companies seeking to list anew in Hong Kong. I don't think it will turn into a flood - I still can't see the practical benefits of listing in one place over another (other than avoiding onerous stuff like Sarbanes Oxley). What is more likely to happen is more and more companies making Hong Kong or Shanghai as their Asian base, or even their global base (as HSBC has done).

Fashion industry is all about show. You want to flaunt your wares. No wonder, Prada is enamoured by the symbolism of its move. As long as the Chinese don't take violent objection to the slightest hint that its the devil who wears Prada.


Ravi Rajagopalan said...

However HSBC pulled back recently on moving to Hong Kong in terms of company domicile. I am sure that had everything to do with the new leadership and nothing to do with economics or politics.

One of the smartest things China could do would be to crack down very heavily on IP theft of companies "home listed" in Shaghai or Hong Kong. China has practised economic nationalism quite overtly. If it sent out a signal to the effect that anyone copying Prada could be shot (literally, in China's case) it could send a number of IPR heavy companies in all shades of business rushing to move to Hong Kong. Comments?

Vishal said...

I must tell that the pictures that you are putting along with the posts are just awesome. Perhaps, shows the great repertoire that you have.

Just a bit curious about copyright laws in China. They don't have it? I did not know. Interesting to know that one still takes the pride of wearing the original in a group. Same happens in this part of our own country where I live. :)

zeno said...

Why is that still China and HongKong havent appointed you as their Brand Ambassador?
Won't the fake prada's think even the original prada as fake just like them?

Deepa said...

LOL like crazy on your cheeky last line. You won't believe how many times in a day would u hear 'China' in a conversation here in this country. I guess the western world is just trying hard to get used to the communist country, whether they like it or not.

Ramesh said...

@Ravi - Rather difficult to formally say that they would protect IP of only Chinese listed companies. In any case, I don't think they can crack down on it - the scale at which it is happening is so great that its probably not even physically possible to control.

@Vishal - There's no such thing as copyright or IP in China. Anything that can be copied, will be.

@zeno - Can't be a votary for China if you don't like the food ; and alas I can't eat most of it !! The fake/real conundrum is an interesting one - carrying off the original is an art and the well heeled Chinese are very good at it.

@Deepa - The same thing happened in the 80s with Japan. America has a way to go overboard . China is a formidable competitor, but its a long long way away from surpassing the US. China won;t grow at this pace forever. Sooner or later it will hit the same stumbling block that others face. To then grow you need innovation, enterprise, creativity, ability to attract the best minds from around the world, etc etc - all of which China is poor at.

Anonymous said...

i doubt if any frm US wud object to the last line as dragon is a devil everywhere except china :) at times i believe some of the sculptures we see in our histpric temples cud be due to chinese influence!!! To my unsuspecting eye the "Yaazhi" in our temples looks more like fattened dragon suffering dwarfism. Ithuku mela sonna ummachi kanna me the eskape

Striver said...

Reminiscing still from my recent short trip to China, that country could carry off anything I guess. They will beat the devil out of Prada!

Ramesh said...

@Gils - at your creative best. Now where did that yaazhi come from ....

@Striver - Wonder if you bought a Prada while you were there !!

rads said...

Almost everything and anything you see, including designer brands is labelled "Made in China" in the US. No wonder cashmere which was 400$ for a sweater is now just 40$. No offense, but the word "China" on products is read as "cheap" by many over here. On the other hand, there are also ppl who go for it jus to save the bucks and get a designer label. I never wore Prada but I'm sure most of it is manufactured in China anyways :D n i think the company neither gains nor looses by opening an outlet in China coz I don't think the Chinese wud jus throw off their bucks to "flaunt" when they could as well get a fake for 1/100th the price(they're safe as long as a prada wearer is not nearby which i guess is wht happens often)

Ramesh said...

@Rads - Yes the Chinese label has the connotation of poor quality and low price. That's the brand image and often true, but not always.

Oh The Chinese love to flaunt their wealth as well. Despite all the fakes, you wouldn't believe the numbers that buy horrendously overpriced stuff.

sandhya sriram said...

i guess, already i am like really behind on this post. but there is a miniature of this which you can see in thirippur and many of them finding their way to chennai.

Many of these great brands you can find in some dingy shop in chennai as exports surplus. alteast, for the fear of the size of the bribe to be paid to the policeman, people cut the brand tag out at times.

even if china brings an IP thing, it would only make the enforcement authority more rich. nothing more.

coming back to your post, thanks ramesh for opening a completely new perspective to everything - everytime. i wish there as special edition newspaper published every day called Ramesh Times with some beautiful pieces like this. how lucky we would all be:-)

Striver said...

Nope. Me no devil and me don't flaunt. So, me no buy Prada!

Ramesh said...

@Sandhya - Yes, fakes are here too, but then the scale of this in China is altogether different. Thanks for the very kind but thoroughly undeserved appreciation

RamMmm said...

LOL, the last line was indeed cheeky. Like they say in Tamizh, prick like a needle into a banana. The others have spoken. No comments, otherwise. :-) So, looks like you have seen the movie. :-D

Ramesh said...

@RamMmm - No haven't seen the movie; just heard of it. Really a hopeless case, I am !

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