Despite signs of a fragile economic recovery, the climate in the West has been one of austerity in recent years. You’d imagine that this was a cause for concern among the world’s leading luxury brands ― most of which are based in Europe or the U.S. However, sales in the luxury sector have been booming, and much of this can be attributed to demand from Asia.

Much has been reported about the demand amongst Asian professionals for luxury products and Korea has been a major contributor to this trend.

A recent report from the U.S. business consultancy McKinsey & Co. revealed that sales of luxury goods in Korea have risen by at least 12 percent year-on-year since 2006. And with Goldman Sachs reporting that China will become the number one consumer of luxury goods globally by 2015, the growing appetite for luxury in Asia looks set to maintain sales growth for the world’s leading high-end brands.

But is there trouble on the horizon for the luxury industry’s established players? Both Dior and Gucci Group have seen sales dip in Korea this year and, whilst the growing middle classes across Asia seem intent on spending more of their wealth on high-end goods, there is no guarantee that those goods will continue to come exclusively from the likes of Louis Vuitton or Burberry. More and more Asian luxury firms are starting to emerge as genuine competition to the ubiquitous Western brands ―many of which have suffered from mass-scale counterfeit production and have lost some of their exclusivity.

Couronne, the Korean luxury bag maker, posted sales of $40 million in 2012 ― a figure that they expect to grow by up to 40 percent this year.

New brands are also being created. Spectator, a Korean luxury clothing brand that embodies Korean design and cultural figures, has recently outsold famous brands such as Alexander McQueen and Balenciaga in the Shinsegae Department store in Seoul.

In China, there is the emergence of Stella Luna, a luxury footwear brand, and Shang Xia that sells anything from homewares to clothing ― both of which have recently opened prime locations in Paris.

In India, Manish Malhotra is flying the flag for Indian fashion with close attention to quality craftsmanship and detailed designs. In the cosmetics sector, Forest Essentials skin care products are made from natural ingredients to the highest standards.

These brands all have a great potential to become highly competitive in the global luxury industry since their foundations are solid and their core values are anchored in what all luxury brands must have: excellence in design, in craftsmanship, in manufacturing and in raw materials. And this is why the leading firms should be worried.

The industry in the West is relying almost exclusively on the strength of their brands to protect them from competition, an approach that has worked until now. However, this could be their undoing in the Asian market if they are not careful. A recent report from Bain & Co. showed that Chinese adults now consider the style and quality of a product to be more important than who makes it.

Heritage and history can only protect a brand for so long and if the established names fail to innovate or produce products that speak directly to the Asian market, then they may be faced with the same fate as the U.S. car makers in the 1960s and 70s whose share was eroded by Japanese competitors.

In the 1970s, no-one would have thought that wine from Australia, New Zealand, Chile or the U.S. could become competitors to French or Italian wines. With money and the correct strategic mindset, combined with patience and the right know-how, what at one time seems implausible can become a very real possibility with the potential to upset the status-quo. Resting on past performance and ignoring the threat of new competitors is a dangerous game, and the lack of innovation and aggressiveness displayed by many established groups seems to suggest they are ignoring the lessons of history.

Regardless of whether Western brands react quickly or decisively enough to this new challenge from emerging markets’ brands, it is clear the battle for growth in the luxury industry will take place in Asia. Korea is a good example of how the market is developing. Demographics are changing with the traditional luxury-goods customer being overtaken by younger consumers. At the Shinsegae department store sales to 20-30 year olds rose 74 percent annually from 2005-10, compared to a 9 percent increase for 50-60 year olds. The younger the customer, the more ready they will be to buy into new, innovative labels.

With a growing market and the emergence of more new and desirable Asian brands, Western luxury goods manufacturers face a real challenge. In a world where consumers are increasingly ready to adopt new products and names, the need for the big brands to innovate is greater than ever. So far there is little sign of this happening.

By Michel Phan

The writer is director of the MSc in Luxury Management & Marketing at EMLYON Business School, France. The opinions reflected in the article are his own. ― Ed.