Editor's note: Since last year, concerns regarding Chinese-made products ranging from toys and pet food to frozen dumplings have aroused safety and quality control worries in the US, Europe and Japan. These worries overshadowed Sino-US trade relations over the past year.

China Business Weekly is partnering with Sohu.com to look at quality control within China's leading manufacturers churning out Made-in-China products and exporting them to every corner of the world. In this issue, we take a look at dairy maker in Inner Mongolia, Yili Industrial Group Co Ltd.

China's top dairy producing giant, Inner Mongolia Yili Industrial Group says its well-known brand is its most important asset and protecting its value is one reason that the company has had no food safety scares.

In 2007, one of the world's top three brand assessment institutes World Brand Lab released a list of China's 500 Most Influential Brands. The criteria covers market share, brand loyalty and national market share.

Yili ranks No 1 in the dairy industry with a brand value of 16.73 billion yuan last year. Its archrival, Mengniu, also based in Hohhot, Inner Mongolia, followed and was assessed at 9.01 billion yuan. Brand value of Yili was rated at 12.01 billion yuan and 15.24 billion yuan in 2005 and 2006 respectively.

"Our brand value is a more realistic indication of our long-term potential than our (2007) sales revenue (19.21 billion yuan)," says the group's Executive President, Zhang Jianqiu.

In 2001 Yili became the first Chinese dairy producer to export its products and currently sells its products in 20 countries and regions including Singapore, Malaysia, Philippine and Oman.

Quality branding

"Quality and brand are the two top strategies that have given us the leading position in China's dairy industry," says Zhang, adding that the firm's reputation for high quality drives consumer loyalty.

"It also urges us to further improve our quality control and supervision," says Zhang.

"We have had no food quality accidents," adds Yili's President Pan Gang.

Yili's prominence was also built on stepping in where others had failed. In 2004 dozens of babies in south rural China died due to counterfeit milk power. Media reports and attendant fears caused the bankruptcy of medium-sized dairy producers and soon after Yili successfully capitalized on the tragedy by expanding into milk powder.

It quickly increased its market share quickly by leveraging its brand and reputation for quality and the infant milk powder industry remains Yili's most promising business. Sales income reached 2.72 billion yuan with year-on-year growth rate at 35.46 percent, much higher than its competitors and Yili's other business departments.

When mentioning Yili, Chinese consumers also cannot help thinking of its closest competitor, Mengniu.

Yili and Hong Kong-traded Mengniu occupied nearly 60 percent of the domestic dairy market last year, according to international market research company Euromonitor.

Ad strategy

However, insiders say the key tool for Yili's brand building is its barrage of multi-media advertisements - from print and broadcast to online - a common strategy for all local players, including Mengniu in China's tight dairy market.

In the rush to ensure a glass of milk, ice cream bar or cup of yoghurt in every hand, the dairy leaders are boosting their advertisement spending at a much faster pace than their revenue growth as they expand their markets and increase the range of products they offer, according to UBS Shanghai-based consumption stock analyst Kevin Yin.

"Advertisement expenses would be important for the dairy firms to enhance brand exposure and sustain market share," he says, saying that the average ratio of advertising and promotional expenses of total revenue for the two dairy producers was about 8 to 10 per cent last year, from about 6 per cent for the past couple of years.

"We expect advertising expenses will remain at a high level given three factors: first, a tough competitive environment; second, brand-building strategies; and new-product launches, also with the lead-up to the 2008 Olympic Games," says Yin.

Though Yili's 2007 profit soared 27.46 percent year-on-year to 439 million yuan, it suffered a loss of 115 million yuan. The company says in its filing with the Shanghai Stock Exchange that the loss is due to costs brought by its stock-incentive plan.

However, critics say Yili's huge investment on advertising and an Olympics sponsorship also contributed to the loss.

Olympic promotion

"Absolutely, we spent heavily on our Olympic sponsorship, nevertheless it is less than the public estimates," says Zhang. "And we believe it is worthwhile. It will enhance the Made-in-China image on the international market."

According to Pan, the company, founded in 1993, won the sponsorship due to its high quality and high-profile brand.

"The minimum entrance sponsorship fee for the Beijing 2008 Olympic Games is 130 million yuan," says Pan. "During the bidding, though a competitor bid 360 million yuan the organizing committee chose us because of the high quality of our products and brand," says Pan, who adds that that Yili paid 140 million yuan for its sponsorship.

The company's relationship with the Olympics goes back to the 1996 Atlanta Summer Games when it supplied the Chinese Olympic team with ice cream and also sold its wares at stadiums.

However, the experience wasn't successful because Yili's name didn't stick with consumers at the time, Zhang admits. He says that Yili was very young and immature at marketing and brand building at the time. "But we have grown up and have confidence to get what we want this time," he says.

Paris-based market study house Ipsos has carried out a tracking survey since October 2007 on Olympic-themed marketing initiatives by both Beijing 2008 sponsors and non-sponsors. It ranks brands in line with Sponsorship Performance Indexes (SPIs), including sponsor identity recognition, sponsor voice, wrong recognition, sponsorship fitness, brand image and enhanced willingness to purchase.

According to the fourth edition released early March, Yili's SPIs reached 30.7 and were boosted from the previous edition's fourth to third. Meanwhile, Mengniu has become the first non-sponsor of the 2008 Beijing Olympics to force its way into the top five with a rating at 28.9.

"Yili is facing a particularly tough battle in the months ahead, with Mengniu's focused approach clearly beginning to pay dividends partly to a popular national program 'Around the cities', a multi-city skills contest," says Jia Yanli, deputy director of Ipsos's public affairs research department.

Mengniu's ambush marketing strategy seems to be working, and Yili should be more focused, she suggests.

Still, Zhang says the Olympics will be a turning point for Yili in the international market.

Park Seung Ho, president of the Korea-based non-profit economic research house Samsung Economic Research Institute, says that the Olympics have historically provided a method for a variety of Asian domestic companies to become global brands.

"(Japan's) Sony did, (Korea's) Samsung did, and I think Yili can do it, given its current strength, promising market and brand recognition," Park says.