Chinese brands have come a long way since the days of Mao where coats and boots came in two colors and consisted of dubious quality. Rising in complexity and caliber, brands such as Haier and Chery are not content to rule the middle kingdom and instead seek to invade new markets. Forget bringing your brand to China, are you prepared for the onslaught of Chinese brands in your home market?
With increasing consumer incomes in China–not to mention more miles of highway constructed every year, US brands like McDonald’s, Starbucks, KFC and Pizza Hut are exploding in China. In fact, McDonald’s has over 800 restaurants in China and has plans to open 5,000-10,000 outlets total.
“The opportunities are endless,” says Jeff Schwartz, CEO of McDonald’s China. A blue ocean of opportunity for sure, but McDonald’s should be very wary of seeing Malan Noodles or Lihua Fast Food in its home markets in the near future.
China, it seems, isn’t content to simply be the factory to the world. In fact, Chinese companies have ambitious plans to move up the value chain and reach past providing the physical products behind global brands.
Case in point, a recent New York Times article mentions Taiwanese company Asustek’s efforts to build its own global brand. Asustek laptops are currently built under their own brand name and also under those of acquired brands Gateway and Packard Bell. In addition, Asustek is no stranger to innovation as the NYT article notes the company practically created the netbook category with the launch of Eee PC.
Chinese brands are also coming alive in B2B markets. According to a Business Week article on top 20 Chinese brands, Huawei Technologies is giving Cisco Systems all they can handle competitively.
The article mentions that Huawei “is spending heavily on research and development–in the global market for routers and other telecom gear. So far it has made great strides in developing countries, and it’s going after more developed markets such as Western Europe.” Broad Air Conditioning in China is also another brand to watch as they penetrate markets with natural gas powered air conditioning and are also testing solar powered units.
To be sure, a brand is much more than just a nameplate. Chinese companies wishing to compete in Western markets must not only create awareness and adopt a customer mindset, but also match very sophisticated operational (i.e. packaging, sales, customer service, daily routines etc) and strategic processes (i.e. brand management) already in place for most Western companies. In addition, talent management will also play a significant role in whether Chinese brands can successfully penetrate Western markets.
A final consideration; flush with cash, some Chinese companies are forgoing organic brand building and instead buying global brands such as Thinkpad and possibly Hummer.
Chinese brands are coming to a market near you–in droves. Meanwhile, complacency is no longer an option for Western brands.
Sun Tzu once wrote, “Invincibility lies in the defense; the possibility of victory in the attack.” Brand managers in Western countries would be wise to heed his advice.
Questions:
* Chinese companies are moving up the value chain and building global brands. Should Western companies worry, or is this much ado about nothing?
* Brand experts, other than those listed above, what processes must Chinese brands adopt to fully compete in Western markets?
* What global brands–perhaps on the decline–are fodder for Chinese purchase and invigoration? Which Western brands should be wary of Chinese brands?
Tags: brand management, Branding, China, Chinese brands, Marketing Strategy
Paul,
If we Americans are to continue promoting free trade, it is inevitable that foreign brands will grow in significance here. Chinese brands will have to compete not only in price but more importantly in terms of value, quality and trust. Last year’s debacle re: Chinese product safety did not make their entrance into the U.S. marketplace easier.
Instead of worrying, American brands need to step up to the plate and compete in every area–price, value, and quality. To some extent, they already have an edge in trust.
Good post, Paul. You’re right: the Chinese have decided to push their own branded products, as well as desirable Western brands they’ve purchased, into foreign markets. As you pointed out, it’s one thing to push known brands with a Western heritage that have new innovative features and quite another to push Chinese brands into sophisticated developed markets in the U.S. and Europe. Haier, is a good example of this. While the brand is #1 in China’s appliance market, its introductions into the U.S. have lagged. This seems to be a consumer perception problem. Its Korean counterpart, LG, does very well here. However, Korea has been selling consumer products in the U.S. for quite some time, quite successfully, because they understand what it takes to design, market and package for this market. Crucially: they are not plagued by the Chinese perception problem of sometimes shipping shoddy or unsafe goods overseas, either. So, a quality manufacturer like Haier might be paying the price for public perception of Chinese brands overall.
The Chinese are not in tune with the marketing, advertising and packaging of products for developed markets, either. Companies like Haier, however, have employed Americans in the U.S. to help them get up to speed quickly. They are not averse to considering buying U.S. brands or licensing arrangements with them to get them where they want to go. But they very much want their own flagship brand “Haier” to succeed, as well. Breaking new ground might be a great way for them to achieve that with products like their solar-powered AC units, for example.
We should also be aware of two other factors: dominant U.S. and European design and marketing firms have opened offices in major Chinese cities to help Chinese brands get the insights and assistance they need to secure a foothold in these mature consumer markets. Given the economic situation in both the U.S. and Europe and growing unemployment, I expect Chinese companies to also lure great design and marketing talent to work for them in China, as well. A Western “brain drain” will be a huge gain for the Chinese, who lack is sophisticated marketing expertise.
Having said that, they will have the added onus of conquering worldwide perception of sometimes using cheaper materials and/or shoddy manufacturing processes, that come along with the “Made in China” label now, so marketing new brands for recognition will be a tougher, more challenging task as a result.
I actually lived in China for 10 months and have a few Chinese brands that I would love to see in the USA, especially a beverage called WangLaoJi which is an herbal tea beverage.
In fact, I would love to see the tea brands in China have a larger presence in the US market. I’m a big proponent of decreasing soda intake and all the iced tea companies they have over there would be perfect for the US market to help Americans transition out of soda.
I don’t think American businesses should worry too much if the Chinese companies look at what demands are not being met in the American market.
Just as not all companies in the US operate the same way, so not all Chinese companies operate the same way. Yes, there have been problems with product quality from some Chinese companies. But that does not mean quality is a problem at all Chinese companies.
Consider that the Chinese government has been spending a good deal of money sending Chinese businesspeople and government officials to the US, Canada, and Europe to learn how to do business in the West. Each group spends several months in the US. In addition, many Western companies have been doing business in China for 30 years.
The US is an attractive market because of the size of our consumer market. US companies need to compete with world class companies having world class products from wherever they come. Certainly US companies have had to learn to compete with products from Japanese, South Korean, and Taiwanese companies. Newer competitors are from India and China.
With more competitors, the marketplace is more dynamic. Monitoring the global environment is critical because new competitors can come from anywhere.
I think that Chinese companies should start to worry about the very low appreciation about their attitude towards environment, civil and animal rights. Yes, in a connected world, these will be the tougher obstacles for Cinese companies, along with poor safety standard. In the Western world, chinese means cheap, right or wrong but this is it.
American companies should always be aware of who is coming into their markets. As things grow and change, we have to keep up. If not we become a company that has no relevance in today’s market.
Dr. Wright
Wright Place TV Show
http://www.wrightplacetv.com
Great post. In fact, many Chinese friends and I were always talking about this issue. Why China has so few good brands. We are proud of Haier. I have even bought one small fridge in my office. However, should Haier differentiate itself in the market of small appliances or go bigger?
There are so many brands with huge potential. However, admittedly, the business operation and quality control needs to improve dramatically before any of those brands can survive global market. — Western market is much more picky about quality comparing to our domestic consumers. The regulations and law enforcement are much harder to bypass. — Those are all much more serious than a Chinese company could imagine, letting along the existing negative imagine widely propagated by the western media.
But thinking another way, what happened in China in the recent 20 years has been so fast and so beyond any Chinese’s imagination, it might still be possible that we can see more and more Chinese brands here some day some where. The question is when and where. I am waiting.
Great post. In fact, many Chinese friends and I were always talking about this issue. Why China has so few good brands. We are proud of Haier. I have even bought one small fridge in my office. However, should Haier differentiate itself in the market of small appliances or go bigger?
There are so many brands with huge potential. However, admittedly, the business operation and quality control needs to improve dramatically before any of those brands can survive global market. — Western market is much more picky about quality comparing to our domestic consumers. The regulations and law enforcement are much harder to bypass. — Those are all much more serious than a Chinese company could imagine, letting along the existing negative imagine widely propagated by the western media.
But thinking another way, what happened in China in the recent 20 years has been so fast and so beyond any Chinese’s imagination, it might still be possible that we can see more and more Chinese brands here some day some where. The question is when and where. I am waiting.
Lewis, thank you for taking the time to post a comment.
Product safety is definitely an issue of primary concern for products coming from China, and as I recall, the issues came from things as various as toys, dog food and toothpaste to medications. That said, it is also my recollection that a fair percentage of these products were branded by Western companies which puts the ultimate onus for product safety on these already established brands.
I also love your quote, “American brands need to step up to the plate and compete in every area–price, value, and quality.” Absolutely concur.
Claire, you bring up some excellent points. Let me tackle just a few.
First, perception of quality issues will be important for Chinese brands to minimize. Press articles over the past 1-2 years haven’t helped. That said, there was a time when products made in Japan weren’t all that terrific in quality -many moons ago– and now those quality issues are almost non-existent.
I also liked your point about Chinese companies hiring marketing executives with branding, advertising, packaging etc expertise. There will be many opportunities for marketing executives to help Chinese brands gain market share.
In some respects, the next skill set marketers may need to adopt is the need to speak Mandarin!
Jeff, thank you for commenting. From my reading, I have seen that major US softdrink manufacturers see a majority of growth outside of soda sales. Fruit juices, bottled water, tea drinks, vitamin enhanced drinks etc are gaining market share. This is a roundabout way of saying that your wish to see WangLaoJi – or some derivative thereof in US markets, may be closer than you think!
Camille, I loved all your points, but I’d like to drill into one in particular. You said, “With more competitors, the marketplace is more dynamic. Monitoring the global environment is critical because new competitors can come from anywhere.”
As markets are more tightly woven together through globalization processes, and of course, the more people get out and travel, I think you’ll see an increase in demand for products that could once only be found in home markets. Case in point, as emerging economies grow and middle classes gain more disposable income, one logical outcome is a growth in tourism. So tourists will be exposed to new brands and perhaps clamor for those brands once they get back home.
In addition, you’ll have expatriates like Jeff Machado (see above) who get exposed to in-country brands and become brand loyal. If and when they return to their country of origin, they may ask, “why can I not have the brand I like in my home market”?
So indeed as travel restrictions fall and tourism becomes more pronounced, your statement, “new competitors can come from anywhere” becomes more true each day.
Thank you for commenting!
Gianandrea, you said, “In the Western world, Chinese means cheap, right or wrong but this is it.” This may be a current perception for some, but I’ll disagree to an extent.
From my extensive research I have seen Chinese companies steadily climb up the ladder in product quality. In fact, for some very technical products (such as electronics) that must be mass produced with quality, China is one of the few countries with such capability.
I also won’t disagree that in an effort to keep their factories humming, some Chinese companies have strayed from their core competencies and jumped into other markets that have little or nothing to do with their strengths. This strategy tends to produce sub-optimal products. That said, Chinese companies are starting to realize that if they want to be the “best” at X, Y or Z, they’ll need to focus on their core and innovate.
This is my take; give them 5 years or so, I think you’ll see a drastic turn around in overall perceptions regarding Chinese product quality.
@ Dr. Wright, you said, “American companies should always be aware of who is coming into their markets.” Easier said than done, right? Especially when US companies are fighting a nasty recession, the tendency is to look inward.
@ Fang, you are absolutely correct that for now, most Chinese consumers don’t know know what they’re missing in terms of product quality. However that will all change very soon as more Western brands enter Chinese markets. I will paraphrase James Fallows who said, “Chinese will soon no longer be happy with crappy.” Consumer expectations will certainly rise.
There is much opportunity for improvement for Chinese companies and brands. I have a feeling though that when they get it mostly right, “look out”!
Paul, this is really much more important then Twitter.
Or MarketingProfs. 
I was teaching chinese students for a semester. What I’ve learned in that amazing experience:
1. China is big. Bigger than USA and EU. We’re talking about such a variety of people and places, that it is amazing we even have 1 single name for them.
2. Since they’re so big, they have very bad and very extraordinary people and companies. Some produce bad toys and others produce the very best of whatever.
3. Since they present arround 20% of the world population, it will be weird if they don’t make it to the top 100 brands with at least 5.
Now to the questions:
* Chinese companies are moving up the value chain and building global brands. Should Western companies worry, or is this much ado about nothing?
Owners of some western companies should worry, since their business will most probably shrink one day. Companies as people must not worry, since some of them will get another job (working for chinese company most probably) and others will remain where they are?
* Brand experts, other than those listed above, what processes must Chinese brands adopt to fully compete in Western markets?
HRM processes mostly. Marketing strategies they can buy. But they need to work on their employees and organisational culture. If they want to work in west, they need to have people from west that are quite different (not better, just different). And they must learn how to give western people freedom while keeping their people in another form they’re used to.
* What global brands–perhaps on the decline–are fodder for Chinese purchase and invigoration? Which Western brands should be wary of Chinese brands?
Each and every one. Including small businesses like Kainoto.
Yet, I’ve liked some responses here – yes, China has to build on their reputation to get back customers. Many people in my area are heavily avoiding Chinese products. Actually looking at each item to check where it is produced.
And I think western PR won an important victory on short to middle term here.
Hi, Paul,
We cross-posted your contribution over at The Global Small Business Blog:
http://bit.ly/YcUBx
Thanks for letting me know about this.
Regards,
Laurel
Paul, most if not all of us use tech product built in China and they work well. But mass audience perception is that China make low quality products or fake. And only Chinese are to blame for this. You mention food, dog food, toys. When this attitude disappear in 5 years, maybe, overall perception will significantly change in better.
Dusan, thank you for lending your considerable expertise to this post. You were right to point out that no matter which country, there will always be individuals who do the right thing and those that don’t. Scandal, lack of ethics and poor decision making is not confined within country boundaries.
I also enjoyed your comment on the need for Chinese companies to build HRM processes to tackle Western markets. I don’t want to paint all Chinese companies with a broad brush, but human capital management seems like an area where Chiense companies can extract much more value.
Final point; flush with cash, Chinese companies will be buying brands or investing in their own. I agree that it’s just a matter of time before they own 5-10 slots in the top 100 brands.
@ Laurel; Appreciate the cross link and that you had a few good comments on the topic on your blog!
@ Gianandrea; I believe you are correct in that China needs some brand repair in the next five years to fix quality perceptions. Maybe the United States can also use this same five year timeframe to fix our “brand” in the global financial markets?
@Gianandrea (and others): do you think it is about chinese bad products or western PR? I’m sure there’s a lot of bad products made in USA and EU as well. Why is it that there’s so much buzz about bad china products?
You’re great!
@Paul: Thxs for staying so loyal to us and commenting every thought.
Dusan, thanks for the nice words. I try to respond to each commenter because in my mind it takes a bit of bravery to leave a comment. Sometimes readers think they don’t have anything substantial to add, or don’t want to subject their opinion to critique. I’ll speak for myself in that I believe the conversation is mightily enhanced by the perspectives of others because of our countries of origin, experiences, and even genetic makeup. So, love these posts or hate ‘em, I really want to hear the perspectives of my fellow business executives. The conversation is richer because of your input!
Dusan, I think that China is underdelivering for a significant amount of safety and health features. Then, as they produce for many global corporation, these corporations should be blamed too, because of lack of control.
And in a world that we hope to be more and more discerning about human rights, China has a long way to go to match a decent level of freedom.
Don’t you think that consumers will want to know how a product has been manufactured? The environment impact, how workers are treated, etc. these are all factors which will impact on consumers’choice.
Rising is too bad anti virus software . Kaspersky is great ..!!
For years we have been reading about China growing up in the business world. It’s exiting to see how their brands are climbing the value chain.
Paul, well said! US needs to fix his brand in financial market as well as redesign the national debt…
Great postings reg Chinese brands of consumer products and the Western Concern. MAY I TAKE THE SUBJECT A LITTLE FORWARD!So far as Heavy Engineering Products(Capital Goods, Machinery, power plants etc) and Developing-World (markets) are concerned chinese companies appear to be quite stongly poised to take on. Obeservations in this regard are two: (1)technical capability for manufacturing is great(or should I say “threat”)vis-avis westeren /EU Suppliers. where they probably need to improve upon is in System Integration,( and/or packaging).
(2)work-discipline and industrial productivity is high. It, therefore, may not be surprising that they can efford to sell things ‘competitively.
Big country, great intellects, hence perception of Quality and Trust too has wide variance. this said,”chinese are comming” is a factor cannot be ignored any more.
BK, thank you for commenting. China’s manufacturing prowess is unparalleled for durable hard goods (electronics, clothing etc). They are also coming on strongly (via IP gleaned from Joint Ventures) to auto and heavy machinery manufacturing. There was a time, maybe 30 years ago that Japan was in a similar stage, and now Toyota Motor is the largest car company in the world. We should definitely be on the lookout for Chinese brands!
Love the article and strongly agree.
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Thanks, Paul. It’s very impressive to see such an article of Chinese brands and products. We are also working on this area, and try to bring our Chinese branded products into the global market. In fact, in China, there are so many unknown brands which have good quality and huge potential. I will try to dig them out and through our system, as a direct channel, to bring all these products into the global market.
Ryan, For Western companies, complacency isn’t an option! Thank you for commenting.