Understanding shoppers' needs is vital

The logic also applies to Chinese consumer brands that want to expand overseas. Shanghai Tang, a Hong Kong clothing chain that was well-known for its high-end cheongsam (a traditional style of dress), has made its foray into Western markets by establishing stores in cities such as New York and Madrid.

Most Westerners marveled at the delicacy of the cheongsam. But they had to think twice before buying one, because where would they wear it?

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Another garment brand, Hermes, made a different choice. In 2008, it invested to create a China-tailored brand known as Shang Xia and opened its first store in Shanghai. Hermes said it aimed to revive Chinese crafts, including ancient styles of porcelain, cashmere and furniture.

"If you examine the products of Shang Xia, you will find they are a combination of traditional Chinese crafts with modern Western touches in their material and design. They are not just for artistic collections; they can also be used in everyday life," she said.

One major challenge for the brand, according to Zhu, is how to appeal to Chinese and Western consumers simultaneously. Western consumers want to see Chinese elements in Shang Xia's products while for Chinese consumers, it's just the opposite.

Nonetheless, Zhu and many other researchers agree that Chinese consumers are becoming ever more sophisticated.

Thanks to the Internet, Chinese people can now view the latest European fashions and check discounts on Amazon. Many more opt for online shopping agents to grab the latest products

"China has changed. It's no longer just a place for companies to outsource production. The market is big, diverse and has tremendous potential. Thus, 'Made in China' is being replaced by 'Made for China'. Foreign companies have to truly understand the needs of Chinese consumers and build quality products and services to meet these needs," Zhu said.