In the automotive world badge engineering is done to spread one single vehicle platform across many overlapping brands. That way unaware consumers are fooled into thinking there is a wider variety of vehicles for sale, when in fact some are the same.
GM specializes in this, whose prime example is the GM360 line of SUVs, all made as variation on the same theme: Chevrolet Trailblazer, GMC Envoy, Oldsmobile Bravada, Buick Rainier, Isuzu Ascender, and Saab 9-7x.
On the shoe world, badge engineering is something more nefarious, more like badge theft than anything else. Buy a pair of brand name sneakers from an unknown seller for cheap and most likely it's counterfeit.
Customs officials in many countries are always on the lookout for counterfeit items, and some government agents in South Korea found a new way a Chinese shoe maker is exporting their badge engineered shoes to their smaller neighbor.
Hongfa Shoe Manufacture puts their own label over Nike's, and boxes of shoes go through customs as cheap sneakers. Once a seller gets the cheap tennis shoes the labels are easily removed to turn the unknown Hongfa into a more desirable (and profitable) Nike Air knock-offs.
Why can't Chery think of this? Put their Chery badge on the Chery QQ, then when a consumer takes it home, the Chery badges are peeled away, and everybody thinks you are driving a Daewoo Matiz!
Image credits: Hongfa shoes: www.missyusa.com; Chery, Daewoo and Chevrolet: Wikipedia.