Foreign brands in China must adapt to local tastes to survive amid rising domestic competition

Synopsis

Global companies once relied on China for consistent growth and expansion. Economic challenges and strong local competitors now impact foreign brands significantly. Brands like Nike and Starbucks are losing market share to domestic rivals. However, some companies succeed by adapting to local tastes and preferences. Success in China now depends on understanding the market rather than global prestige.

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For years, China was the market that global consumer companies could count on for growth. American brands expanded aggressively across the country, betting that rising incomes and the appeal of foreign labels would keep drawing consumers. That formula is no longer working as reliably as it once did.

Some of America's best-known companies are finding themselves squeezed by a combination of economic headwinds and a new generation of highly competitive Chinese rivals. Domestic brands have become more sophisticated, more innovative and often more responsive to local tastes. At the same time, weaker consumer confidence has made shoppers more price-conscious. As a result, several American brands that once dominated their categories are losing market share in a country that was long viewed as indispensable to their global ambitions.

The trend cuts across industries. Sportswear giant Nike is struggling to regain relevance. Starbucks has ceded ground to local coffee chains. General Motors has been overtaken by Chinese electric vehicle makers. But the picture is not uniform. Companies such as Lululemon, Ralph Lauren and KFC continue to grow, suggesting that success in China remains possible for foreign brands that adapt quickly enough to a rapidly changing market.

Also Read | Nike to tighten online sales in China amid 'fragmented' marketplace

A tougher consumer market is changing the rules

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The challenges facing foreign companies are unfolding against a backdrop of weaker domestic demand in China.

Reuters reported recently that Chinese policymakers remain concerned about subdued consumer spending and weak domestic demand, problems linked in part to the country's prolonged property downturn. Economists surveyed by Reuters expect China's property investment to contract sharply again this year, underscoring the continued drag that the housing crisis is exerting on household confidence and spending. Retail sales growth has slowed and manufacturers continue to cite soft domestic demand as a major concern.

That shift matters because foreign brands traditionally relied on Chinese consumers' willingness to pay a premium for international products. As spending becomes more cautious, consumers are asking tougher questions about value.

Aaron Cheris, head of global retail practice at Bain & Company, told CNBC recently that many American companies have not adapted sufficiently to changes in the Chinese market. He argued that local brands often benefit from faster innovation cycles and stronger distribution networks, while foreign brands have been slower to evolve.

The result is a marketplace where brand prestige alone is no longer enough.

Also Read | India could overtake China in affluent consumers by 2036: Report

Nike's China troubles run deeper than geopolitics

Nike's struggles illustrate how dramatically the competitive landscape has changed. According to a CNBC report, Nike's China business has shrunk by about 30 per cent since 2021, even though China's sportswear market has more than doubled over the past decade.

The company faces intense pressure from domestic champions Anta and Li Ning. Reuters reported that both companies have capitalised on agile supply chains, extensive store networks and products designed specifically for Chinese consumers. It reported that Nike's China revenue has declined for six consecutive quarters and that the company is grappling with operational issues alongside softer consumer demand. Greater China still contributes roughly 15 per cent of Nike's global revenue, making the market too important to ignore.

Yaling Jiang, founder of consumer research firm ApertureChina, told CNBC that Nike has "just become irrelevant" in China. Reuters quoted Jiang making a related point, arguing that struggling foreign brands are often asking consumers to pay a premium without giving them a sufficiently compelling reason to do so.

The contrast with Adidas has been striking. Reuters reported that Adidas returned to sustained growth after overhauling its China strategy, dramatically increasing the share of locally designed products and tailoring merchandise more closely to Chinese consumer preferences. Analysts cited by Reuters believe Nike can recover, but only if it becomes more responsive to local tastes and market conditions.

The lesson extends beyond sportswear. China's consumers are increasingly rewarding brands that feel local, regardless of where those companies originate.

Starbucks confronts a new coffee economy

Starbucks is facing a similar challenge in a different industry. China became Starbucks' second-largest market more than a decade ago and was once central to the company's long-term growth plans. But local competitors have transformed the coffee business.

CNBC reported that Luckin Coffee now operates more than three times as many stores in China as Starbucks and has built its growth on aggressive pricing and a digital-first model. Reuters has reported that local chains such as Luckin and Cotti Coffee have steadily gained market share by offering lower prices and adapting quickly to changing consumer preferences. The competitive pressure became so significant that Starbucks agreed to sell control of its China operations to Boyu Capital while retaining a minority stake. Funds managed by Boyu now hold a 60 per cent stake in the business.

Molly Liu, chief executive of Starbucks China, said in a statement quoted by Reuters that the deal would drive the "hyper-localization" of the brand in China. Starbucks has also outlined plans to expand its store network substantially under the new structure.

The transaction is significant because it reflects a growing recognition among multinational companies that local expertise has become a competitive necessity rather than an advantage.

Beauty and consumer goods companies are learning the same lesson

The pressures are not confined to discretionary retail categories. Estée Lauder has warned that China is unlikely to return soon to the double-digit growth rates that once powered the global beauty industry. Chief executive Stéphane de La Faverie told CNBC that the company is focusing on ensuring its brands remain locally relevant in every market where it operates.

Procter & Gamble has faced similar challenges. According to CNBC, Chinese consumers have become more selective in categories such as premium skincare. Sales of SK-II have been affected by weaker travel retail demand and changing consumer behaviour. Yet P&G's recent experience also offers a counterpoint. The company says it has begun gaining market share in China again after introducing products tailored more closely to local preferences.

That pattern is increasingly visible across sectors. Companies that invest in localisation are finding opportunities even in a slower economy. Those that rely primarily on global brand recognition are struggling.

The automotive sector shows the scale of China's transformation

If consumer goods illustrate the challenge, the automotive industry demonstrates its magnitude. A decade ago, China was viewed as the most important growth market for Western carmakers. Today, domestic manufacturers are reshaping the industry. CNBC reported that General Motors' earnings in China have fallen from around $2 billion annually in 2018 to losses in both 2024 and 2025.

The rise of Chinese electric vehicle makers such as BYD and Geely has been central to that reversal. New-energy vehicles accounted for more than 65 per cent of new passenger car sales in China in July, according to data cited by CNBC.

Reuters reported that BYD's exports surged 71 per cent in the first half of 2026, highlighting how Chinese automakers are increasingly looking beyond their home market as they build global scale. The company now derives a growing share of its profitability from overseas expansion.

What makes the automotive story particularly important is that Chinese companies are no longer simply competing with foreign rivals within China. They are increasingly competing with them around the world.

Why some American brands are still winning

The struggles of Nike, Starbucks and GM often create the impression that foreign companies are broadly losing China. The reality is more nuanced. CNBC reports that Lululemon expects roughly 20 per cent growth in China this year, while Ralph Lauren recently reported 40 per cent growth in the market.

Industry analysts say successful foreign brands share several characteristics. They invest heavily in local teams, develop products specifically for Chinese consumers and move faster than traditional multinational operating models typically allow. They also give consumers a clear reason to pay a premium, whether through product quality, brand positioning or customer experience.

As Cheris told CNBC, the fundamentals still matter -- offering value, maintaining local relevance and ensuring products are available through the channels where consumers are shopping.

China remains one of the world's largest consumer markets. But the era when foreign brands could rely on their international status to guarantee success is fading. Increasingly, the winners are not determined by where a company comes from but by how well it understands the world's most competitive consumer market.