Can Chinese Consumer Brands Have Global Influence?

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Chinese Famous Brand Logos. Source: Google

How many of the above Chinese brand logos can you identify? (answers at bottom)

 

Yesterday I attended the Bookworm International Literary Festival book talk by Jonathan Fenby – renowned China Scholar and author of Will China Dominate the 21st Century and moderated by Sinica Podcast Founder Kaiser Kuo. The room was packed with old (and young) China Hands, expats, intellectuals and journalists, although not so many Chinese.

The consensus of the author and all but two brave souls in the audience was that China would NOT dominate the 21st century. Moreover, without addressing its internal problems, over the next 85 years China as the country we know it today may falter, and so much of the talk and following Q&A session focused on China’s internal politics and challenges of deepening domestic economic reform.

I posed this question to the speakers “over this century will Chinese private enterprises and companies etc. increase their global influence to become dominant and will China’s consumer products and (future) famous brands be able to positively impact the way people around the world see China?”

Jonathan’s response was that Chinese companies are already expanding globally, yet the problem is and will continue to be how Chinese manage their operations overseas, as implementing Chinese management practices into other countries cultures is unlikely to succeed. I completely agree with this and believe private Chinese companies will adapt and eventually implement the world’s best business practices, however for China’s SOE I’m not so positive.

In his answer to my question Kaiser Kuo highlighted that Japan has many world famous electronic brands, yet China to date has none and so this would indicate that Chinese brands wont become big brands. He also pointed out that Chinese don’t place a high value on intangible things associated with a product such as brand equity and simply focus on the functionality and price etc of goods.

On Kaiser’s first point I disagree, It’s still too early in the game to determine whether Chinese consumer products will make waves overseas. I believe over time they will and many companies such as Lenovo, Xiaomi, Tencent (Wechat) and Alibaba already are.  On Kaiser’s second point I agree that in general terms Chinese companies don’t place value on intangibles, however Chinese consumers most certainly do and are willing to pay more for brand names that stand for status and quality (whether perceived on inherit). Hence the surge of international fashion and luxury brands into China over the last decade.

Last year while Mao Suit was on hiatus, I wrote an essay on this very topic of Chinese brands going overseas for the Journal of Australia-China Affairs.  After yesterday’s discussion, now seems like a perfect time to publish that essay on Mao Suit. Although its quite long, I hope it raises some readers find it interesting. You can find the original here, starting on P91.

 

CAN CHINESE CONSUMER BRANDS HAVE A GLOBAL INFLUENCE?

Introduction

These days it’s impossible to ignore China’s growing sphere of influence on the world and its true that the proverbial butterfly flapping its wings in China can send tidal waves around the world.

Everyday, reports of China’s ascendancy to global dominance and China becoming the world’s number one market for mobile phones, Mercedes Benz or minerals etc. permeate the news.  Similar stories describe China’s claims to the world’s largest airport, dam and high-speed railway network etc. – the list goes on.

With China’s newly found status also come regular pilgrimages to Beijing by the world’s political and business leaders – all eager to pay tribute, reinforce their interests and stay relevant. One only need witness the national flags on display at Tiananmen Square each day to know which Country’s leader is in town, or lurk in the lobby of Beijing’s Park Hyatt Hotel to encounter Fortune 500 company CEOs traipsing through.

Each nation has its own unique collection of animals, architecture, brands, cuisine, natural wonders, or even way of life that identifies it to the rest of the world. Whether Grand Canyons or Great Walls, pandas or pasta, sushi or surfing, over time each thing (plus many others) comes to represent a particular country and culture.

Besides military might and economic endowments, a nation’s influence on the world may also be considered through its products and brands that are respected internationally as being ‘best in class’. In this regard France is best known for fashion and wine, Japan for cars and electronics and the United States for a whole spectrum of products from iPhones to Coke-Cola and Nike sneakers.

Despite China now being a Super Power with enough muscle to shape the world’s economic and political climates, outside the country, China may still be better known for Communism, Kung Fu and Sweet and Sour Pork, rather than any leading brand or consumer product category.

According to American author, entrepreneur, marketer and internationally recognized branding expert Seth Godin:  “A brand is the set of expectations, memories, stories and relationships that, taken together, account for a consumer’s decision to choose one product or service over another. If the consumer doesn’t pay a premium, make a selection or spread the word, then no brand value exists for that consumer.” 

Without a doubt, made in China products find their way into most households around the world, yet products (and services) purchased specifically because they are of Chinese origin, a Chinese brand or espouse Chinese values are few and far between.

Would you recommend a Chinese airline, car, hotel chain, liquor, mobile phone, shoe brand, etc. to your friends?

This essay aims to highlight the ways Chinese consumer brands are venturing overseas, what is motivating them to do so and how they are faring. It also discusses international consumers attitudes towards Chinese products and the key issues that need to be address before Chinese brands may take on the world.

Brand building in the context of history

To put things in perspective, its important to first consider the context in which the worlds leading brands emerged. While many modern day brands were founded well over a hundred years ago, ‘brands’ and the marketing and ‘branding’ of them in the Developed World only emerged in the second half of the Twentieth Century and continues to evolve to this day.

During this time, the People’s Republic of China was a young nation recovering from war and experiencing the tumultuous era of Mao, The Great Leap Forward and The Cultural Revolution. This was a time when life had far greater priorities than choosing one’s favorite brand products. While the West was developing logos and tag lines for the hippest sneakers and sedans, in China, even one’s choice of clothes was limited to a blue, black or a khaki Mao Suit. Commercial brands were not at all suited to this period of Chinese history.

After opening to the world in 1978 and finally joining the WTO in 2001, China began to develop its own brands and also relaxed rules on foreign brands entering China. Fast forward to 2013 and Chinese consumers have well and truly embraced both their own and international consumer products, with branded goods being one of the most highly contested sectors of the retail economy.

Today, the domestic growth opportunities for Chinese brands are still one reason that prevents them from venturing overseas. With 1.3 billion consumers to please and GDP growth still at around 7% in 2013, many Chinese brands simply can’t be bothered chasing profits overseas until they have exhausted all domestic growth opportunities.

Chinese brand’s performance internationally

Its not that Chinese companies aren’t active overseas – they most certainly are, its just that to date, Chinese brands haven’t had much positive impact on consumers around the world.

In 2012 international marketing agency JWT conducted this survey of attitudes of people around the world to a variety of Chinese things including Chinese brands. When measured in terms of their impact value and affect on people, Chinese brands performed poorly and were generally perceived negatively.

The survey highlighted the fact that Chinese products are regarded as low quality, mass-produced and lack innovation and design qualities. Moreover, many considered Chinese brands to be counterfeited or unsafe and worse still, hundreds of respondents couldn’t identify any Chinese companies or brands at all.

According to another study, due to higher living standards over recent years, even within China trust in Chinese brands has been eroded and where possible Chinese consumers are opting for international brands across numerous product categories. The tainted Chinese baby milk powder disaster in 2008 that resulted in the deaths of several infants and caused Chinese demand for foreign milk powder to skyrocket is a perfect case in point.

Every year, international branding agency Milward Brown composes a report on the world’s most valuable brands. Taking into account over 10,000 brands and accumulating quantitative data from over two million consumers worldwide.

Somewhat surprisingly, in 2013, twelve Chinese brands performed well enough to be featured in the top 100 most valuable global brands.  China Mobile was the top Chinese brand, coming in at tenth place, meanwhile technology companies Tencent and Baidu ranked 21st and 33rd respectively. Four Chinese banks, two insurance companies, two oil companies and Moutai – China’s most famous rice liquor were the other brands to make the cut.

What stands out about all the Chinese brands on the list is that they are hardly household names around the world. Compare this to other brands featured on the list such as Apple, Colgate, FedEx, Google, or Nissan, etc. that are easily recognizable worldwide.

In composing their list, Milward Brown considered each brand’s merits including:  its unique selling proposition, capacity to set trends and saliency amongst consumers. While the study stands out for its thoroughness and worldwide research, it only indicates a measure of a brand’s global value rather than its influence and its recognizability. 

Perhaps a more relevant study of the influence of Chinese brands around the world would be to survey and measure how many non-Chinese people would recommend and evangelize the benefits of Chinese brands.

 

Factors that Influence the Consumer Opinion of China (US & UK). Source: JWT

 

Chinese brand’s overseas activities aimed at Chinese

The business model of airlines, banks, oil companies and alike demand they operate across international borders and in all these sectors Chinese companies are active globally. Yet, for other sectors, motivations for international activities can be varied and not necessarily targeted at citizens of the country the activities are based in.

The massive Chinese Diaspora, combined with ever increasing amounts of Mainland Chinese tourists travelling overseas have given Chinese brands cause to conduct their advertising and marketing campaigns outside of China, but with the aim of generating sales back home.

In many countries across the world this is plain to see. In late 2012, anyone exiting Sydney’s Kingsford Smith Airport was greeted with a series of massive billboard for Chinese Moutai rice liquor, Air China and Bank of China. This rapid-fire succession of China-centric advertisements were in more prominent positions and had significantly more impact than the next-in-line billboards for Rolex watches and Dior’s latest perfume.

While it’s easy to comprehend the Air China, and Bank of China billboards targeting Australians who travel and need international financial services, the Moutai advertisement was more perplexing. While Australia may be ‘pivoting’ towards Asia, its nonsensical to think that Australian consumers are going to disown their beloved beer and bourbons in favor of Chinese rice liquor. So why the advertisement?

What’s much easier to fathom is that the Moutai billboard is there to target incoming Chinese tourists who literally, straight out of the airport will see their Motherland’s beloved liquor and subconsciously (or not) think to themselves  “Wow, Maotai is available here too, it must be a big global brand.” Then, upon return to China, sooner or later they will purchase some.

It’s a similar situation at airports and major destinations for Chinese tourists around the world. International travelers exiting from Buenos Aires Ministro Pistarini Airport in February this year were warmly welcomed to Argentina with an oversized Industrial and Commercial Bank of China advertisement!

With Chinese international tourist numbers increasing rapidly, British newspaper The Times of London, described China’s new middle class as “on their way to becoming the most powerful social bloc on the plant”. Given this, Chinese brands will definitely continue to increase their international advertising for the foreseeable future.

 

Industrial & Commercial Bank of China Advertising at Arrivals Gate of Buenos Aires International Airport

Chinese brand’s overseas activities aimed at capturing new markets

Another more obvious situation where Chinese brands are expanding their activities overseas in wholehearted attempts to develop market share and generate profits in other markets. One Chinese brand leading this charge is electronics maker Lenovo.

According to the June Asia Pacific edition of Fortune Magazine, this year Lenovo is set to become the world’s number one PC maker and has its sights set on the global smartphone and tablet market currently dominated by Apple and Samsung. By taking on an international mindset, adopting Western management practices and even doing product placements in Hollywood movies such as Transformers, Lenovo may well be in the running to become China’s first truly international consumer product. [1]

In the technology sector Lenovo will also have competition from brands such as Hisence.  In Australia, Hisence television sets are becoming popular and the brand is has become a naming sponsor of Melbourne’s Tennis Center where the Australian open is held every summer. How many Australians recognize Hisence as a Chinese brand is yet to be determined.

In 2009, China’s biggest sports brand Li Ning attempted to take on the US sneaker market by setting up an office in Nike’s hometown of Portland Oregon and sponsoring big name NBA players like Dwanye Wade. Despite spending big money on marketing and hype, Li Ning made the fundamental mistake of not getting their product design right and couldn’t convince American consumers to abandon their beloved Nikes and Adidas.

Interestingly enough, Li Ning was back at it again during the London Olympics and the companies ‘tick’ like logo appeared not only on Chinese sports team’s jerseys, but on other nationalities as well, including the Spanish men’s basketball team that reached the gold medal play off.  The question remains if this sponsorship exercise was aimed at a global audience (who probably don’t recognize the logo anyway), or was just a way to gain face and install the message in China that Li Ning is a big brand with global reach.

The boldest international move made so far by a Chinese fashion company was in 2011 when down jacket brand Bosideng bought a piece of prime real estate near London’s Oxford St. and then opened a massive flagship store nestled amongst the world’s most iconic fashion brands.  Whether or not the store is a commercial success remains to be seen, yet, with the Chinese Government rumored to be supporting the store, it can act as a benchmark and case study for research and feedback on how to build ‘brand China’ around the world.

 

London Olympics Spanish Mens Basketball Team Sponsored by Chinese Brand Lining. Source: Google

 

Chinese companies’ acquisitions of international brands and overseas investments

One other vehicle for Chinese companies to expand overseas is through investments and acquisitions of existing foreign brands and companies. Although costly, by choosing this method, the Chinese company gains immediate access to foreign markets and absorbs existing expertise, personnel, IP and trademarks etc.

Deals of this nature that caused headlines include Geely’s purchase of Volvo in 2009, Li and Fung’s acquisition of British Tailoring Brand Gieves and Hawkes in 2012 and Wanda’s purchase of Sunseeker Yachts this June.  Part of Lenovo’s success also came from the acquisition of IBM’s Think Pad laptop brand back in 2005.

In this same realm are Chinese entrepreneurs and company’s taking significant investment stakes into other industry sectors such as wineries in the Bordeaux region of France and cotton and wool farms such as Cubby Station in Queensland Australia. These are seen as ways of Chinese companies to secure their supply chains and vertically integrate their business operations.

However, accompanying the rise of Chinese investment around the world, many countries are concerned about Chinese ownership of land, food supplies and control over infrastructure and telecommunications etc.  In the United States and Australia, Chinese telecom equipment company Huawei has been denied market access over fears that the company is connected to the Chinese military and a threat to national security.

Perhaps Huawei felt some soft power diplomacy was required to foster better relations with Australian politicians while they’re in Canberra and in an interesting move, Huawei now sponsors the Canberra Raiders Rugby League Football Team.

Roadblocks and the future of Chinese brand’s international expansion

Over the long term if China is to be successful in conquering overseas markets with its consumer brands there are fundamental structural issues it must address.

The JWT report into Chinese brands identified Chinese management styles as a major hindrance to operating overseas. Cultural norms of business in China such as hierarchical decision making and establishing friendships with local Government to facilitate things don’t apply in other countries. This seems to leave Chinese companies floundering in unknown waters over getting things down and operating in foreign markets.

Another crucial element that international companies and retailers build their brands around is the product’s cool-factor, trendiness and sex appeal. This is particularly true of fashion, cars, electronics, alcohol and multiple other categories, where the final determinant for purchase may well be how that brand is perceived by your peers.

Considering that setting design trends requires high levels of creativity and innovative thinking, its no wonder that China is yet to become a leader in any of these ‘cool’ product categories. You just have to take a look at China’s education system and traditional career values to understand why.

China’s rote learning education system does not encourage creativity and usually sets out to destroy and punish it. It also doesn’t help that Chinese parents prefer their Children to pursue ‘serious’ professions such as becoming bankers, lawyers and doctors, rather then creative disciplines such as fashion design.

Now China’s economy is maturing and it next phase (and challenge) is to move up the value chain away from cheap manufacturing to value added products and services. This will require a shift away from ‘made in China’ to ‘designed in China’ type thinking and wont come easily.

‘Copied in China’ is also a major issue with the proliferation of counterfeit products and lack of IP protection severely tarnishing China’s design and product development reputation and discouraging new innovations and design efforts.

But it’s not all bad news. Chinese certainly are able to be innovative and throughout history, things such as paper, printing, gunpowder and even the compass were all invented in China. In recent years China’s tech sector has been hailed for innovative web platforms such as the social media site Weibo, applications like We Chat and the next Steve Jobs may even come from China.

 

Chinese Brand Shangxia's Flagship Boutique in Paris

Conclusion

China is now a global Super Power and has an undeniable influence over world economics and politics. Yet, when it comes to Chinese brand’s international reach and influence over global consumers, China is left looking flat.

Chinese companies are operating overseas, but they have not yet managed to impress many consumers around the world who tend to rate Chinese products as low in quality and design. Still, Chinese brands are extending their influence across the world through advertising, entering new markets and by acquiring other existing international companies and brands.

To some degree China’s slow development of top brands is explained by her history and the current stage of economic development she is in. However, China also has a set of cultural circumstances such as education, management style and protection of IP that are also holding it back from developing world class brands.

Throughout the ages China has been responsible for some of the most important inventions the world has ever seen and so there is hope yet that China will rise to the occasion and create some amazing brands that excite consumers enough to recommend them to their friends. China, the world is waiting!


Sources:

[1] Helft, Miguel, (2013), “Can Lenovo do it?”, Fortune Magazine, Asia Pacific Edition, June 10, 2013, Number 8

Other sources added as direct links within the essay rather than listed here.
Chinese brand logos (from top to bottom, left to right):

Bank of China, Powerland (fashion brand), Weibo (social network), China Southern Airlines, Moutai (liquor), Shangxia (luxury brand), Xiaomi (mobile phones and electronics), Lining (sportwear) and Septwolves (fashion company).

 

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