Globalizing Chinese brand names
Jian Er
2004-09-01

The determination of Chinese enterprises to raise themselves from the lower rung of the value-added chain and establish international recognized brand names is not in doubt. But the road to achieving those goals is going to be long and challenging, according to experts and senior executives who attended the fifth China Daily CEO Roundtable themed "Globalizing Chinese Brands" in Hong Kong yesterday.

Those challenges touch on wide ranging issues, including corporate governance, management vision, investment foresight and, as many participants agreed, the willingness to revolutionize the established mindset that has dominated Chinese corporate culture for years.

To succeed in the international marketplace, Chinese enterprises must strive for originality in design and excellence in quality, the experts said.

They also must learn to respect intellectual property rights as rampant piracy of ideas and of products has virtually choked off major investment in research and development by many mainland enterprises.

The question raised repeatedly at the conference was why would a Chinese enterprise want to develop their own products to benefit unscrupulous pirates?

Despite the daunting challenges, the need for brand building is reverberating through many corporate boardrooms in China. As Professor Wang Zhile, director of Research Centre for Transnational Corporations under the Ministry of Commerce, said, the production process at the bottom of the smile curve makes little value, while design and marketing processes stand at the upper-end of the curve and have much wider profit margins.

Citing Nike as an example, Wang said that Nike mainly engaged in design, marketing and sales activities and outsourced all of the production process. Typical Nike shoes are sold at about 700 yuan (US$84) in China, but the production cost is estimated at only a few yuan, Wang said.

Despite the earnest desire to establish famous brands, Chinese companies can hardly make their way to the recognition of globally well-recognized brands. Furthermore, Chinese brands are even less recognized and respected than their foreign peers in China.

According to Wang, Haier, the country's leading electrical appliance company, was ranked 95th earlier this year on the 100 most influential global brands list issued by World Brand Laboratory, a world brand evaluation organization. It is the only Chinese brand listed in the ranking so far. Another brand ranking conducted by Fortune China in February this year showed that only two Chinese brands Haier and Guizhou Maotai made their way into the top 25 brands in China, with foreign brands filling the remaining 23 positions.

Wang outlined a number of reasons for the absence of famous Chinese brands on the international market. "Many Chinese companies are struggling to survive in a fiercely competitive market and rarely think of setting up their own brand names, while other big companies have little experience in establishing brands," he said.

In addition, State-owned enterprises usually turn to local governments for protection when they are confronted with competition from foreign rivals, while numerous private firms are copycats and never have their own designs.

One formula that Chinese companies can use to develop their own brands, Wang said, is to first co-operate with foreign partners and learn advanced management skills. The second step is to expand their businesses to overseas markets through organic growth or merger and acquisitions.

For instance, TCL International, the world's major TV maker, had expanded its international presence aggressively by acquiring foreign companies and forming major partnerships with western firms in recent years. It recently combined its TV-making assets with those of France's Thomson to create the world's largest television producer, and earlier this year it set up a handset venture with France's Alcatel.

"I believe the 'outgoing' strategy will be the right path for Chinese companies not only to expand their businesses but also to establish well-recognized brands," said Wang.

Toa Charm, general manager of Kingdee International Software (Hong Kong) Group, agreed and said one of the major reasons for his company going public in Hong Kong in 2001 was that Kingdee wished to attract personnel familiar with international practices and marketing skills in an effort to build Kingdee into a world-recognized name.

"We came to Hong Kong and learned from foreign companies to improve our management. Most important of all, we have to have an international mindset," said Charm.

But before expanding internationally, Chinese companies have to strengthen their core value first, according to Ye Feng Ping, executive director and vice president of China Unicom.

"Going out or building brands is not merely about market share or sales. Rather, it should take into account the company's long-term vision and strategy," Ye said.

Zheng Hong Qing, director of China Travel Service (Holdings) HK Ltd shared similar thoughts. "It usually takes multinational companies years of efforts to establish a global brand name. Chinese companies should not be rushed and should take a down-to-earth attitude to improve the quality of their products or services first," he said.

In addition, Zheng said there was a lack of a culture in the community of respect for intellectual property rights and also belief in credibility that would be a challenge in setting up one's own brand.

Meanwhile, Zhou Li Qun, chief executive officer of China Everbright Ltd; Nancy Payne, general manager and senior vice president of Fleishman-Hillard Hong Kong Ltd; and Liao Qun, vice-president of Strategy and Planning, China Banking at Citic Ka Wah Bank Ltd agreed that a company without transparency and corporate governance could hardly build up a trustworthy brand, as branding is based on the company's fundamentals.

Liang Kai Ping, vice-president of Shum Yip Holdings, cautioned that piracy would probably be a major barrier for companies' strengthening investment to improve their original design capacities. "The Chinese Government should speed up efforts to clamp down on piracy and further enhance its protection on intellectual property rights, which is also crucial for building Chinese brands," he said.

Matthew De Villiers, chief executive officer of FutureBrand, Asia Pacific, said the lack of personnel who understand brand-building in the market was another barrier. He said companies should strengthen education on brands and marketing.

Frank Chen, managing director of Interbrand China, said that training was vital and that the Chinese Government should play an active role in helping companies strengthen their knowledge of marketing.

Quoting Singapore's government as an example, he said the Chinese Government should consider financing companies' R&D.

In addition to personnel and piracy, Joseph Wang, chairman & Chief Executive Officer of Ogilvy & Mather Greater China (Southern China) said that Chinese companies should pay close attention to innovation as many Chinese brands as well as many other businesses in China at the moment are doing nothing but copying.

According to Ogilvy's recent survey on young Chinese consumers, they have more respect and admiration for Nike than Li Ning because Nike has real personality and diversity.

Sharing his experiences helping Chinese companies promote brands, Richard Tsang, managing director of Strategic Financial Relations Ltd, said that Chinese companies usually failed to associate their brands with life style, as most successful foreign companies did not sell how good their products are but conveyed messages that their products meant a certain kind of life style or personality.

Janice Chan, managing director of M&C Saatchi (Greater China), said that a logo not only means the image of a company or a product but also meant quality and services as well as promises.

A made-in-Japan product was considered cheap some 40 years ago, while nowadays it contains positive meaning, Chan said. She said she believed the same thing would happen to Chinese products, although it would not be achieved overnight.

 
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