There is a problem with the China brand. This problem is well-known and limiting international growth for thousands of brands. Ask anyone in your country or the wealthiest consumer market in the world (U.S.), what they think about Chinese brands and you will get a variety of answers, than ask them to name one Chinese brand. Chances are they will not be able to name a single Chinese brand. That is a problem.
Why do brands from China have a hard time gaining traction internationally? When we compare the top 100 brands in the world verse the top 100 brands in China, we see no overlap. As a matter of fact, the only ‘Chinese’ brand on the 100 brands in the world is only Chinese by name. #36 is the Hongkong and Shanghai Banking Corporation, better known has the brand HSBC. This brand is now based in London and has little brand ties to Hong Kong or Shanghai. On top of all that, this brand does not show up on the top 100 brands in China list, meaning China does not consider HSBC a Chinese brand.
The Chinese Brand Problem
So, why do brands from China have a hard time gaining traction internationally? Brands are built on added value, real and perceived value. Anyone can build a product, but building a brand requires research, time, and management. All things that cut into profits. For the last 30-40 years Chinese companies have only had one goal and that goal was to make profit. One of the only (and easiest) ways Chinese companies could compete at the international level was on price. The major problem with competing on price is it leaves very little room to create a brand or add additional value.
Do you pay more for BP petroleum? Do you pay a premium for your electricity? What about tap water? The problem with price competition is over time the product becomes a commodity. I don’t pay extra for electricity because it is all the same. There is little or no branding involved in commodity trade, we buy the cheapest based on supply and demand. What happened in China over the last 30-40 years is manufactures competed on price to the point that Chinese made products became low quality and cheap in the mind of consumers.
When I was growing up in the 90’s and early 2000’s, when a product broke we would joke that it was ‘Made in China’. The truth was most of the time we were correct. Chinese products the world over became known for being low quality and cheap. Fast-forward 10 years to 2015 and Chinese brands are now faced with an international community that believes Chinese brands are of lower quality and cheap. This is the major problem holding back many superior Chinese made brands.
When I was 18 and going off to college I needed a new computer. I went to Best Buys and shopped around, after a while I found two laptops that fit my requirements, one was a HP and the other a Lenovo. At the time, I didn’t know Lenovo was a Chinese brand. The few brands that have had international success seem to have distanced themselves from being a ‘Chinese brand’. Lenovo in the US is marketed and sold like any other computer system and many consumers have no idea it is a Chinese brand. At the time, had I known it was a Chinese brand, I would not have considered it in my top choices.
According to China US Focus, “The lack of understanding of the American marketing culture has become a problem for many Chinese brands that ventured out to the U.S. For example, a client we engaged in early 2015 has stellar marketing materials on their Chinese online and offline platforms. Yet their relatively new American marketing team, comprised mainly of expats with limited experience in the American market, has found it difficult to quickly win the hearts and minds of the American consumers.”
Above is just one example of the struggles Chinese brands face when going abroad. Companies are unable to hire and retain quality talent that has experience in international markets. Below is another side of the story, brands like Huawei are being compared to Apple and Google, but nobody has ever heard of them.
According to Newsweek (2009), “Huawei may be the best company you’ve never heard of, and that’s a big problem for China. Founded in 1988 by a former People’s Liberation Army officer with less than $4,000 in startup capital, Huawei has grown from a small importer into a growing giant—revenue rose 43 percent last year to more than $18 billion [..]. Even a decade ago, China watchers were touting Huawei as one of the companies most likely to become China’s first big global brand. [..] It made BusinessWeek‘s latest list of the world’s 10 “most influential” companies, alongside Apple, Wal-Mart, Toyota, and Google. Yet Huawei is by far the least internationally recognizable name on the list.”
When consumers finally hear about these major Chinese brands, its too late. According to TechChrunch (2013), “After two years of dealing with espionage accusations, Huawei CEO Ren Zhengfei recently told French publication Les Echos that he wants the telecom equipment manufacturer to pull out of the U.S. market. Huawei’s problems stem in large part from Ren’s past association with the People’s Liberation Army, but they also serve as a warning about potential marketing issues for other Chinese companies that want to break into the U.S.
[..] Ren, who rarely grants media interviews, declared that he is giving up after two years of issues with the U.S. government, including concerns from the U.S. House Intelligence Committee that the telecoms equipment manufacturer may be spying on behalf of the Chinese government.”
How Can China help repair the China Brand image?
Millward Brown puts forth a provocative idea, “Imagine a time when you are shopping for a television, refrigerator, car, or personal care product, and you find that the brand you aspire to own (not the one you choose because it is offered at the lowest price) is a Chinese-designed brand.” This is an interesting idea, but we are far from that day. I know some of the amazing brands like Tencent (WeChat), Alibaba, Xiaomi (小米), Huawei, and more, but talk to anyone outside of China, that doesn’t have a direct interest in China, and you will see most people have never heard of these brands.
What can the government do?
One program the government is implementing is called the ‘The Brand Development Fund’. This fund is run by the Ministry of Commerce and gives preferential treatment to local companies that seek to grow their brands internationally. According to Newsweek, “Beijing has ordered state banks to make tens of billions of dollars in loans available to firms eyeing the global market.”
According to China US Focus, “[Change] requires a more open decision-making process, greater awareness of global and cross-cultural communications within the institutions, and ongoing consultation with the intended audience. A promising trend is that an increasing number of Chinese students are now studying marketing, communications, history, and literature at American universities. The Chinese government should tap into this reservoir of talent and entrust them with the roles of designing and executing the country’s international PR campaigns.”
“The Chinese government should embrace the art of branding and play an active role in the creation and management of China as a brand,” said a report by Interbrand (2008). “The government can drive a series of initiatives such as quality policies, market research, fair trade, industry organizations, and environmental awareness to build equity in China as a country that puts quality first.”
China must actively manage all aspects of its international brand. This includes tourist. One of the major brand problems China is facing now is unruly tourists. Almost every major Chinese holiday brings a new story of misbehaving tourists. These stories are bringing a major backlash on all things China. From brands to tourists and more, foreigners are shying away for ‘China’, much like Lenovo distancing itself from China many foreigners and Chinese tourist alike are distancing themselves from ‘China’.
The Chinese government must actively work with PR agencies, travel agencies, overseas news outlets, television and entertainment companies to cast China and Chinese brands in a better light. One recent example of the government looking to soften its own brand image can be seen below.
What can brands do?
There are a few different opinions about how Chinese brands can succeed internationally. The most common include investment in brand building activities (advertising, PR, etc.) or acquisitions. These two strategies have both opportunities and obsolesces.
Chinese Brand Development
Building brands takes money or time, and sometimes both. According to Garrison Everest, “Typical brand development programs can cost anywhere from $10,000 to $500,000 depending on the size or the stage your company is in. Today’s consumer behavior demands your brand stand for something. Your brand must stand out from the phonies and make your customers believe that what you offer is authentic, special, unique, and trustworthy.”
The truth is brands that don’t provide a new experience take time to develop. A good example is fast-casual food brand, Chipotle Mexican Grill. Chipotle was founded in 1993 over 22 years ago, but it wasn’t until recently that the brand became well-known. The reason this brand took off in the last 5 years is because they offer an authentic, special, and unique experience. They stand for something, while providing quality food and service. They have done this consistently for 22 years and now it is paying off.
If Chinese brands are looking to expand internationally, they will need to consider the full range of brand development and understand that trust, in any brand, takes time. Apple, Tiffany & Co., BMW, and Jack Daniel’s are all well-known brands because they are trusted. Chinese brands must take the time to build trust by providing a consistent and superior offing.
Do you know who owns the following: 7 Days Inn, Motorola Mobility, AMC Entertainment, Segway, or IBM (P.C. Business)? One way Chinese companies are expanding abroad is through acquisitions. According to Valentina Romei on FT, “The amount invested by Chinese companies for mergers and acquisitions abroad in the first 10 months of this year has already reached what was invested in the whole of last year, which was in turn 7 per cent higher than in 2013.”
Buying an international brand is one way to expand overseas, but it is not without its problems. According to Ana Swanson on CKGSB, “The acquisition of A123 systems, an american manufacture of lithium ion batteries, by a Chinese auto parts maker named Wanxiang triggered vehement opposition in the US.
Lawmakers protested that the technology being sold to the Chinese had been developed with $132 million of taxpayer money. Retired military officials warned that the transfer abroad of the company’s advanced products, used in energy grids, unmanned aerial vehicles and pulsed power weapons, could put American national security at risk.”
What we are seeing in this case above, and many like it, is the other side of the China brand image problem, which is the rise of a new super power. Currently, China is stuck in no-man’s-land. They are either seen as cheap or dangerous, both views that are seriously hurting brands looking to expand abroad. Take for example what happened with the IBM deal. According to Valentina, “Not all Chinese foreign acquisitions have gone well. When Lenovo acquired IBM’s PC division, the company struggled with integration issues, substandard services and with the exodus of technical employees, so that market share and profitability fell.
What is the future for Chinese Brands?
According to Millward Brown, “The bottom line for Chinese brands is that if they can meaningfully differentiate and deliver to expectations, they will have the credentials to get bigger.” China is here to stay and they are strong competitors. They will solve their branding woes and breakout into the international markets. The real question is ‘How will international competitors react to new products and services that rival their own?’
Through brand acquisitions or brand building, Chinese brands will develop and compete internationally. Will we see a wave of new products that find there place in international markets, like when Japan flooded the markets in the 80’s and 90’s? Or will something else happen? What are your thoughts? Leave a comment below.