Index of Paper Presentations for the Parallel Sessions - Academy of ...

(―Premium Brands Luxuriate in China‘s New Wealth‖, 2010). They invest highly in products such asluxury automobiles which formed about 30% of HNIs‘ total expenditure in 2009, whereas in 2008 it wasonly 27% of their total expenditure (World Wealth Report, 2010). These wealthy consumers were noteven greatly impacted by the global recession of 2007-09. During 2009, only about 8% loweredexpenditure on luxury products and 44% indulged in greater consumption of these products (Atsmon, et.al., 2010). Such encouraging buying behavior has kept brands such as Diesel optimistic as it plans to opennew stores in the coming years in China (―China‘s Luxury Consumers: Moving up the Curve‖, 2008).The second segment that constitutes the luxury market is the Chinese middle class that has becomeextremely affluent. This class embraces conspicuous consumption with demand for those brand namesthat symbolises status. Consumers in this class are optimistic about their quality of life and are eager tospend on luxury. In order to encourage this demand for international brands, the Chinese economy hasreduced tariffs on imported luxury brands. This can be seen in the case of imported watches. The tariff onwatches was reduced from 28%-40% in 2004 to 11% in 2006 (―Luxury Brands in China‖, 2007). HongKong has a distinct advantage as it has low rates of corporate income tax. This facilitates the entry ofluxury brands in China through Hong Kong, thus making the city a centre for distribution networks(―China‘s Luxury Consumers‖ Moving up the Curve‖, 2008). Even in the case of FDI, limitations havebeen removed as it is no longer necessary that a joint venture should be established by a foreign companyto enter the market (―Refined Strategies: Luxury Extends its Reach across China‖, 2010).Another factor that has encouraged the growth of luxury brands in China is its abundant resource of cheapmanpower. In the past, luxury brands preferred to avoid specifying that the products were manufactured inChina. However, due to low cost labour, many brands like Armani have started their manufacturing andassembling operations in China. These brands use lower manufacturing costs, but good quality to theiradvantage and no longer shy away from specifying that the place of manufacture is China. Thus it can beseen that the Chinese economy has reached a position where it can afford to decrease the taxes andrestrictions on luxury products. It has made China one of the most desirable luxury markets in the world(see Figure 4).Figure 4: Effect of Economic Development on Luxury Consumption in ChinaEconomic Reforms in 1978Entry of MNCsIncreased IncomeLow Cost ofManpowerGrowthofPrivateIncrease inLuxuryConsumers