Chinese Brands Do Not Reflect the Country's Economic Might - Yet

We've heard this story before - and it does not end well for anyone who doubts the capacity of the companies in question to compete globally.

When Japanese and Korean businesses first entered international markets, their products were often derided as inferior. There was, without question, a cultural bias involved, especially as the US and its European allies had won a couple of world wars which confirmed - in their minds - the inherent superiority of their position.

What a difference quality, determination and clever marketing make.

Which is precisely where the Chinese find themselves. The rush to competitive strength has not been without problems; quality of such dubious reputation that consumer safety is a constant concern. And that covers both product issues with drywall, toys and food products as well as financial questions about the efficacy of Chinese firms listing on western markets where their reporting is so suspect that the vast majority have been forcibly de-listed by outraged exchange regulators.

But that was then. The growth and power of the Chinese market and of the country's productive capacity has bought it time to work out the kinks. China, understanding that, has also driven a hard bargain: in return for market access, enterprises - and entire industries like film and aeronautics - have been required to surrender crucial intellectual property, agree to joint ventures with Chinese firms and otherwise share their knowledge in order to give the Chinese options to better compete. The result is that brands and reputation can, are and will grow. Huawei and Lenovo are but the leading avatars of a coming wave of product and service providers with global aspirations and increasing capability.

The only remaining question is when - not if - the branded perception will catch up with the functional reality. JL

Martin Roll reports in Harvard Business Review:

China leads all emerging markets with 89 companies on the latest Fortune Global 500 list of the world’s largest. Yet it does not have a single representative on Interbrand’s list of the top 100 global brands.
Also, while China’s outward-bound foreign direct investment (FDI) has grown from an annual average of below $3 billion before 2005 to more than $60 billion in 2010 and 2011, only one third of Chinese companies have seen international revenue meet expectations, according to Accenture.

To many skeptical consumers in developed markets, Brand China still means lower quality. As has been the case elsewhere in Asia, companies in China traditionally focused on asset-intensive industries and low-cost manufacturing and paid little attention to intangibles such as brands and human capital. To become major branded players away from home, Chinese companies must address their challenges in three strategic ways.
1. Seek partnerships with Western brands. Whether through joint venture, merger or acquisition, the right partnership can give a boost to a brand’s tangible offering or intangible appeal. A significant part of telecom equipment maker Huawei’s leap from regional player to global leader, for example, was due to its partnerships with Motorola in 2000, 3Com in 2003, and Symantec in 2008. Western brands also want access to China and recent global market turmoil has exposed many targets for astute Chinese brands.
2. Redesign the organization. Hierarchies can be debilitating when those at the top of the pyramid do not understand the challenges of those on the ground. A local, adaptive culture, not just presence, is vital for Chinese brands to make the right decisions overseas. Beijing-based telecom security company NQ Mobile has gone so far as to create a separate headquarters in Texas for its developed-market business, managed by an American co-CEO and entirely comprised of American employees.  Hiring foreigners in high-profile roles, such as former Google VP Hugo Barra at the helm of electronics company Xiaomi, can also create a more open line of communication with governments who must be won over as well.
Boardrooms at home in China must also begin to reflect a cross-section of cultures and skills. Since positioning is vital in new markets, today’s boards must include Chief Marketing Officers, not just directors with operations or finance backgrounds.
3. Rebrand from the inside out. “Branding” is a widely misused and misunderstood term in China (and Asia), where most executives believe it refers to how a company uses its logos, packaging, and advertisements. Not that a simple redesign or name change can’t do wonders for a Chinese brand overseas. Since messaging app WeChat was re-branded from Weixin to appeal to international audiences, it doubled its overseas users in just six months and parent company Tencent holdings became the fastest-rising Chinese brand, according to Interbrand.
If they intend to flourish overseas in the long-term, however, Chinese brands must pursue more than just superficial redesigns. When Accenture asked 250 senior executives of Asian companies expanding overseas to compare their source of competitive advantage today and in three years, 55% cited high quality products and services, while 47% cited high-value innovation. Only a small minority thought low-cost operations would be an advantage in three years’ time.
Chinese firms must shift toward high-value, high quality, innovative products and services – a path that requires patience and persistence as Japanese and Korean firms spent many decades cultivating their international brands. Samsung is one of the best examples.
Overcoming China’s own barriers. The Chinese government also sometimes stands in the way of building brands overseas. Politicians in the U.S. have effectively barred Huawei from bidding for telecom contracts there, claiming that Chinese authorities could commandeer its equipment for cyberespionage. That may say more about the xenophobia of U.S. politicians than anything else, but other obstacles are more clearly Beijing’s doing.
Government measures intended to cool an overheating economy, such as tightening loans and freezing IPOs, are holding back companies that need capital to grow. Some have turned to overseas exchanges — like 58.com (China’s Craigslist) which recently went public on the New York Stock Exchange.
Chinese marketers also know that building a global brand in the social age requires a presence where they can reach overseas consumers — yet popular global social media sites such as Twitter, YouTube, and Facebook remain blocked by the Great Firewall. As a result, more Chinese companies are requesting special permission to create Facebook pages which will only be seen outside the mainland.
Chinese businesses are slowly becoming more attentive to the power of branding in capturing consumers and returning larger profits on their investments. Instead of wearing themselves down on razor-thin margins to compete with the next supplier, firms are looking to increase returns by investing in their brands. To remedy the knowledge gap and transform their image abroad, successful Chinese brands must seek help from the outside through foreign partnerships, decentralizing and diversifying leadership, and cultivating a new perception of Brand China.