Marketing: How Nike Figured Out China

The Chinese government may have a love-hate relationship with the West--eager for Western technology yet threatened by democracy--but for Chinese consumers, Western goods mean one thing: status. Chinese-made Lenovo (formerly Legend) computers used to outsell foreign competitors 2 to 1; now more expensive Dells are closing the gap. Foreign-made refrigerators are displacing Haier as the favorite in China's kitchens. Chinese dress in their baggiest jeans to sit at Starbucks, which has opened 100 outlets and plans hundreds more. China's biggest seller of athletic shoes, Li Ning, recently surrendered its top position to Nike, even though Nike's shoes--upwards of $100 a pair--cost twice as much. The new middle class "seeks Western culture," says Zhang Wanli, a social scientist at the Chinese Academy of Social Sciences. "Nike was smart because it didn't enter China selling usefulness, but selling status."

The quest for cool hooked Zhang Han early. An art student in a loose Donald Duck T shirt and Carhartt work pants, Zhang, 20, has gone from occasional basketball player to All-Star consumer. He pries open his bedroom closet to reveal 19 pairs of Air Jordans, a full line of Dunks and signature shoes of NBA stars like Vince Carter--more than 60 pairs costing $6,000. Zhang began gathering Nikes in the 1990s after a cousin sent some from Japan; his businessman father bankrolls his acquisitions. "Most Chinese can't afford this stuff," Zhang says, "but I know people with hundreds of pairs." Then he climbs into his jeep to drive his girlfriend to McDonald's.

Zhang hadn't yet been born when Nike founder Phil Knight first traveled to China in 1980, before Beijing could even ship to U.S. ports; the country was just emerging from the turmoil of the Cultural Revolution. By the mid-'80s, Knight had moved much of his production to China from South Korea and Taiwan. But he saw China as more than a workshop. "There are 2 billion feet out there," former Nike executives recall his saying. "Go get them!"

Phase 1, getting the Swoosh recognized, proved relatively easy. Nike outfitted top Chinese athletes and sponsored all the teams in China's new pro basketball league in 1995. But the company had its share of horror stories too, struggling with production problems (gray sneakers instead of white), rampant knock-offs, then criticism that it was exploiting Chinese labor. Cracking the market in a big way seemed impossible. Why would the Chinese consumer spend so much--twice the average monthly salary back in the late 1990s--on a pair of sneakers?