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  • 1. Made in China 2008: The Challenge for Chinese Brands Going Global Creating and managing brand valueTM 创造和管理品牌价值
  • 2. Contents p01 Background p02 Executive Summary p04 “Made in China” in the Global Market p10 The Opportunity for Chinese Brands p17 Appendix: Methodology MADE IN CHINA 2008
  • 3. Background Now is the critical moment for Chinese business leaders to re-think the next stage of growth Chinese manufacturers have deeply entrenched in the image This report summarizes the key long been proud of selling their of Chinese products. An image findings from our research and goods to the world market and only further compromised by provides a tangible assessment earning China trillions in trade Chinese quality scandals and of the made in China label and surplus every year. Low-cost their subsequent media coverage the progress of Chinese brands. labor, massive infrastructure in Western nations. We hope these insights will investment, tightly-clustered help those Chinese companies industrial chains and Now is the critical moment for with international ambitions coordinated government Chinese business leaders to re- to identify the challenges and strategies have sustained think the next stage of growth. opportunities for going global China’s economic miracle. But This transformation must not and lay down a roadmap for the Chinese manufacturers now face only take place in areas such journey ahead. increasing challenges posed by as technology, quality control a weakened US dollar and the and international cooperation, subsequent decrease in orders but in brand creation and brand globally, as well as rising material management. Asian companies and labor costs. like Toyota, Sony, Samsung and Asian companies Hyundai which have already which have already While products made in China are struggling due to travelled the globalization path travelled the know that brand value is the key the downturn in the global to unlocking shareholder value. globalization path economy, a few Chinese brands know that brand value have continued relentlessly on their march towards the global In Interbrand’s third study of is the key to unlocking “Made in China”, we surveyed market. Some leading brands over 700 business professionals shareholder value. (i.e. Lenovo, Tsingtao, Geely) have made significant progress on their perceptions of products by setting up overseas plants and made in China and the potential making acquisitions. Growing for Chinese brands going confidence, world market overseas. While our primary experience and a stronger intention was to measure the Renminbi may justify these impact of the Beijing Olympics strategic movements. However, on perceptions of China, the as Korean and Japanese rivals infant milk powder scandal broke would report, the route to the in the middle of our survey, and global market is not an easy one. we were given extraordinary The negative associations of poor insight into the impact of both quality, low safety, and cheap are events. MADE IN CHINA 2008 01
  • 4. Executive Summary Quality and safety issues and a “low price” image still dominate the perception of products from China As we have seen in the past, of China’s creative flair and products made in China continue technological advances. After the Choose emerging to hold a ‘low price’ image. Games, responses in our survey markets as the first In reality, ‘low price’ is not in reflected a more positive image itself a negative association if of China with nearly a ten point foothold to global it can spur consumption. But improvement in perceptions expansion our research shows that the from one year earlier (summer ‘low price’ image has a high 2007). However, perceptions Demand from the North correlation with concerns of poor returned to pre-Olympic levels American and European quality and safety issues in the after the milk scandal emerged, markets has been the sustaining eyes of consumers. Simply put, if with 66% of respondents force behind China’s booming concerns over quality and safety indicating that “made in China” economy. However, the world remain, the Made in China label hurts a brand. financial turmoil, intensive will continue to hinder Chinese competition and trade protection brands from going global. is making it very difficult for A few categories have Chinese brands to move up the Attached to a menu at a restaurant in Hong Kong: the best chance to value chain and win further in succeed the developed markets. Our survey suggests that emerging markets may offer the best Chinese brands should continue opportunities for Chinese brands In light of th to benefit from globalization in the near term, as consumers e China as OEM production and global milk scanda in those markets may be more l, we would like to reass sourcing improve manufacturing pre-disposed to China’s lower ure our customers th techniques and ultimately raise priced value proposition. at none of our dair y ing industry standards for quality. In China is making great redients are sourced from a few technology categories such progress already,with growing China. as consumer electronics, PCs and cooperation in the Asia-Pacific 由于近来发生 mobile phones, products made in 毒奶事件, region and closer ties to other 我们特此声明 China and Chinese brands have developing markets, i.e. Africa, 绝对没有采用 任何来自中国 a fairly good reputation because Russia, and the Middle East. 的奶类产品。 over 50% of the output in these categories is from China. Brands such as Lenovo and Haier enjoy high brand awareness and are considered to be ambassadors The Olympics were an enormous of Chinese brands in the global success in impressing the world market. 02 MADE IN CHINA 2008
  • 5. the endorsement. The Chinese With the downturn of global Building a strong government should reconsider economy, the transformation and appealing brand its role in helping Chinese brands of the made in China label and the acceptance of Chinese personality is critical go global: as a thought leader brands overseas can not be in best business practices, as a supervisor of quality, made overnight. The first Chinese brands do not possess challenge is to improve the as an organizer of industry compelling brand personalities; quality and safety of all Chinese associations, and as a voice in in particular, a few attributes products. The definition and changing the country’s image (i.e. attractive, world class, enforcement of strict standards overseas. fashionable) are critical to and the active engagement in swaying consumers’ purchase environmental protection is a social responsibility for any global intention. Chinese brands Brand building is one have thus far failed to capture player, and a pre-requisite for consumers’ mind share for these of the first steps on changing consumer perceptions images. Therefore, Chinese the route to the global overseas. brands should consider how market. The Chinese government can to position their brand in the target market and start to build play a very special role in these up brand personalities beyond Today’s leading Chinese brands difficult times. Leadership means simply good value. must learn how to create and taking short term actions to spur manage their brand value on a domestic demand and enhance global scale. Now is the time for the competitiveness of exports. The government Chinese brands to re-think their But leadership also means creating a national agenda - like can play a role in global brand strategy, and follow the best practices of the world’s innovation in Japan, design in enhancing China’s Korea or engineering in Germany most powerful multi-national brand brands. While we are still several - that serves as a guiding light for Chinese companies eager to years away from a Chinese make their brand mark on global Interbrand’s annual ranking of brand appearing on Interbrand’s markets. Now is the time for the Best Global Brands suggests Best Global Brands, the lessons the Chinese government to set that a country’s image is a halo from the annual ranking are the bar high and build the next for brands from that country. clear – great brands know their foundations for success in the The same holds true for the strengths and weaknesses future. made in China label; if China’s and plot effective strategies to image can be enhanced, brands sustain and improve their value from China will benefit from in the future. MADE IN CHINA 2008 03
  • 6. “Made in China” in the Global Market The Beijing Olympics improved perceptions, though gains were quickly erased by the milk scandal Exhibit 1 I like to buy products made in China. I am interested in buying brands from China. Disagree 56% Disagree 55% Neutral 38% Neutral 39% Agree 6% Agree 6% value proposition, consumers Only 6% of hold strong opinions toward Image has not respondents agree Chinese products, the made in changed China label and Chinese brands. that they like to buy Much like our findings last year, Chinese products and Exhibit 1 shows global preference towards products made in China cheap is the top association brands for products made in China and Chinese brands. Only six percent of respondents agreed (See Exhibit 2). The association China’s annual export value is to the statement “I like to buy appears to be entrenched as it is over 1200 billion US Dollars and products made in China” and “I am dominant among all factors. is almost 8.8% of global trade interested in buying brands from according to the World Trade China”. Accordingly, over half of A cheap and low quality image Report 2007. Many Chinese respondents report that they do is the primary challenge for products are distributed to not like products made in China those Chinese brands with overseas markets on an OEM or Chinese brands. The survey the ambition to go global. basis, but increasingly under their shows that Chinese products and Furthermore, it makes them own brand names. The made brands have not won the hearts vulnerable to competitors in in China label is now known and minds of global audiences Southeast Asia, India, Africa and everywhere in the world for its yet, despite substantial presence in South America that offer a low low price reputation. Behind this global trade. cost sourcing alternative. 04 MADE IN CHINA 2008
  • 7. A respondent from Canada Quality and safety issues, noted, “I avoid buying products Concern over quality frequent product recalls, and an made in China at all costs. I don’t and safety inevitable negative reputation trust anything made in China are leading to distrust. Our for a variety of health and safety survey also shows that most issues. Just check the headlines By correlating the importance respondents are unsure or doubt of key attributes with attitudes over the last few years....” if the quality of products made in to the made in China label, our China is improving. findings point to quality and The second association, good safety as the major concerns value, may in fact be a strength (See Exhibit 3). in a weak global economy in which consumers will be more price sensitive. But, over the Exhibit 2 long-term, low price is a weak How well do the following attributes value proposition if products describe products made in China? lack intrinsic advantages such as cutting edge technology and advanced manufacturing Cheap 66% management. After all, value Good value 28% is an equation that suggests Practical 14% getting something for a good Smart 8% price. With only half the equation Innovative 7% complete, low price is just as likely to be seen as a threat to Friendly 7% the environment or fair trade Fun 6% as it is a symbol of efficiency. Youthful 6% Chinese brands need to stand for Attractive 5% more than low price if they are to High quality 5% compete globally. Fashionable 4% Well-designed 4% World class 3% Safe 2% Luxurious 2% MADE IN CHINA 2008 05
  • 8. Exhibit 3 Derived importance of attributes describing products made in China “Made in China” hurts Chinese brands High quality 60% Safe Unfortunately, current 59% Friendly 54% perceptions prevent Chinese World class 53% brands from achieving positive Attractive 51% associations. For all the hard Well-designed 49% work and investment put into Smart 48% the Olympics, 66 percent of Luxurious 46% respondents (the same as in Innovative 45% 2007) agree that the Made in Fashionable 44% China label hurts Chinese brands Practical 44% (Exhibit 4). Fun 43% A good value 43% Even among those respondents Youthful 36% who have travelled to China in Cheap 6% the past 12 months, the findings indicate similar perceptions. This suggests that familiarity and experience with China alone is not enough to win consumer The quality of products made in China is improving. confidence. Disagree 41% The Olympics: Neutral 47% the ultimate advertisement Agree 12% For the Chinese government, the Olympics was more than a grand athletic competition; it was a precious opportunity to demonstrate the new capabilities of China. Technology, culture and environment are the key 06 MADE IN CHINA 2008
  • 9. themes which China wants to Exhibit 4 convey to the world. Indeed, Do you believe the Made in China label helps or hurts Chinese brands the magnificent display at the today? Olympics impressed billions of people in the world, but the impact alone is not enough to Total sample 2008 improve China’s image. n=776 Hurts 66% The survey shows that only 10 percent of respondents agree Neutral 30% that the Olympics improved their impression of China (Exhibit 5). Even a $40 billion Helps 4% marketing campaign can not change a country’s image quickly. Perceptions of Japan and Korea took 5-10 years to Total sample 2007 change following their hosting of the Olympics in 1964 and n=700 1986 respectively. Furthermore, Hurts 66% when a major product quality Neutral 30% scandal erupts only three weeks later, the gains from the Olympic investment are even harder to see. Helps 4% Respondents who have travelled to China in the past 12 months n=139 Hurts 64% Neutral 30% Helps 6% MADE IN CHINA 2008 07
  • 10. Exhibit 5 Factors preventing The Olympics improved my image of China. Chinese brands from going global Disagree 37% Neutral 51% Globalization offers Chinese companies immense market opportunities in the coming decades. Going global is critical Agree 12% for large scale growth, but it is a complex question that even the most sophisticated companies struggle to answer. Developing a brand is not only costly but complicated, and suspicions of quality and safety for anything made in China make building a positive image very difficult. In addition, “No competitive advantage beyond low price” and “anti-Chinese sentiments” may also be factors which hinder number increased to 68 percent The milk scandal (See Exhibit 6). Chinese brands from going global (See Exhibit 7). erased all gains One lesson to learn from These hurdles are high, but this disaster is that a brand's not insurmountable. There If the Olympic Games made any basic promise to consumers are many opportunities for improvement in China’s image, can not be delivered purely Chinese brands to go global, but the milk scandal undermined through communications (i.e. Chinese enterprises must learn it virtually overnight. In the advertising). Chinese brands from the successful experience question of “Do you believe the should care for and protect of their neighbors (i.e. Japan, made in China label helps or hurts their brands by spending time Korea), who have faced similar Chinese brands today”, we found building on their core values and challenges before. that, before the scandal emerged, delivering on their promise to 59 percent of respondents consumers. After all, a promise is believed the label hurts Chinese only meaningful when it is kept. brands, but after the scandal, the 08 MADE IN CHINA 2008
  • 11. Exhibit 6 Do you believe the made in China label helps or hurts Chinese brands today? n=208 (Before milk scandal) n=564 (After milk scandal) Hurts 59% Hurts 68% Neutral 36% Neutral 29% Helps Helps 3% 5% Exhibit 7 What most prevents Chinese brands from succeeding in overseas markets? Low quality reputation 80% No competitive advantage beyond low price 53% Anti-Chinese sentiments 45% Poor communications (i.e. advertising, websites) 31% Lack of awareness 27% Inexperience in marketing/promotion 24% Don’t understand foreign consumers 22% Names difficult to pronounce 12% Moving too slowly 5% Insufficient investment 4% Not sold in enough locations 4% MADE IN CHINA 2008 09
  • 12. The Opportunity for Chinese Brands For any Chinese brand to succeed, every Chinese brand must take responsibility to deliver on its promises to customers In our study, Chinese brands is helping Lenovo increase its are expected to excel in the awareness around the world. Country of origin consumer electronics, IT and Haier Group, China’s leading matters...usually mobile phone categories appliance manufacturer, (Exhibit 8). Already, a few acquired local brands in the US brands are emerging as leaders in 2005 and is now the third- The country of origin label is and expanding with carefully largest appliance brand behind often a significant factor in a orchestrated and coordinated Whirlpool and GE. Acquiring purchase decision. Our survey acquisition. recognized and valuable brands shows over 40% respondents are has helped Chinese companies aware of it and like to check the In 2004, Lenovo acquired IBM’s earn substantial global attention products they buy (Exhibit 9). Personal Computing Division and initiated them into the global and the ThinkPad brand which brand arena. The country of origin is seen as less important in home appliances, personal computers and laptops, personal electronics Exhibit 8 and mobile phones (Exhibit 10). In the next five years, I expect a Chinese brand to be a global leader in… This offers a good opportunity for established Chinese brands to grow further in these categories. Personal computers and laptops 38% Personal electronics 36% While 60%-70% of respondents Mobile phones 35% feel that the country of origin Home appliances 35% is important in banking, Sporting goods 14% automobile and airlines, only 30%-40% feel it is important Entertainment 14% in white goods. This provides Shipping 12% a space for Chinese brands Banking 11% like Galanz which produces Automobiles 11% about 50 percent of the world's Fashion 9% microwave ovens (under 80 Packaged foods 9% different brands). In such a highly fast foods 7% concentrated market, consumers Airlines 7% have reason to accept that a Hotels 7% product made in China may be Wine, beer, spirits 5% the best choice. 10 MADE IN CHINA 2008
  • 13. Exhibit 9 How often do you believe consumers look for the country of origin on the label of products they buy? 2008 2007 Always 10% Always 6% Frequently 33% Frequently 32% Sometimes 36% Sometimes 43% Seldomly 21% Seldomly 18% Never 0% Never 1% Exhibit 10 In the following categories, how important is the country of origin (where a product is made) in your purchase decision? Banking 69% Automobiles 66% Airlines 60% Packaged foods 58% Wine, beer, spirits 53% Fast foods 45% Home appliances 42% Personal computers and laptops 41% Personal electronics 37% Fashion 36% Entertainment 32% Mobile phones 31% Hotels 30% Shipping 29% Sporting goods 28% MADE IN CHINA 2008 11
  • 14. Exhibit 11 Awareness first A Chinese brand will be a household name in my home country in the next five years. There is little doubt that future global rankings will herald a Neutral 43% handful of Chinese brands among the best in the world. A quarter of respondents believe a Chinese Disagree 33% brand will be a household name in his or her home country in the Agree 24% next five years (Exhibit 11). Who will this brand be? Some Chinese brands have already Exhibit 12 achieved substantial brand Please indicate your familiarity with the following brands: awareness overseas (Exhibit 12). Lenovo 46% Tsingtao 32% Lenovo may be China's Bank of China 24% first global brand Air China 23% Haier 23% CCTV 22% While a few Chinese companies China Mobile 17% may be stewarding their brands Chery 13% into the world economy, Lenovo, Alibaba 13% the world’s fourth largest PC Huawei 12% maker, may well become China’s China Eastern 10% first brand ambassador (Exhibit 13). TCL 8% Li Ning 8% This year, the Beijing Olympics ZTE 6% was the ideal venue for Lenovo to Unionpay 5% emphasize its brand name to the Geely 5% world as it was the only global Changhong 5% sponsor from China. Moutai 5% Aigo 4% Midea 4% Gree 4% Anta 4% Brilliance 4% Sany 3% 12 MADE IN CHINA 2008
  • 15. Exhibit 13 Quality, Quality, Please indicate how effective the following brands are as an ambassador Quality for China: Lenovo has already learned that Lenovo 37% successful branding takes more Tsingtao 24% than high awareness. Quality, Air China 23% safety and design are the must- Bank of China 23% wins for building a brand (Exhibit Haier 18% 14). Despite high awareness for CCTV 17% a few brands, delivering products of satisfactory quality is still the China Mobile 15% challenge for Chinese brands. Huawei 10% Alibaba 10% Perceptions of product quality Cosco 8% have haunted Chinese brands Li Ning 8% for years, producing shocking China Eastern 7% headlines in everything from Chery 6% foods to toys to pharmaceuticals. For any Chinese brand to succeed, every Chinese brand Exhibit 14 must take responsibility to How well do the following attributes describe the brands you typically buy? deliver on its promises to customers. One failure can High quality 68% destroy all the gains in consumer Well-designed 62% trust that billions of dollars and Safe 61% decades of work took to build. Practical 54% The Olympics and the milk A good value 52% scandal are vivid examples. Smart 49% Innovative 46% Attractive 45% Fashionable 37% World class 37% Friendly 33% Fun 29% Youthful 23% Luxurious 19% Cheap 8% MADE IN CHINA 2008 13
  • 16. low price. Great brands are highly nine markets identified by our Build up a brand focused on a few key audiences, respondents as high potential personality offer a balance of emotional and for Chinese brands are emerging functional attributes relevant markets, including Brazil, to their audience, and deliver on India, Russia, Eastern Europe, Among self-identified brand their promise in everything they Southeast Asia, Middle East and purchasers, brand personality say and do. Africa (Exhibit 16). (i.e. attractive, world class, fashionable) is critical to success, Trends for Lenovo reinforce the but Chinese brands do not The emerging opportunity for Chinese brands in currently possess personalities opportunity: emerging markets. The company that influence critical purchase reported that worldwide PC intention (Exhibit 15). emerging markets shipments grew 14.6 percent in its most recent quarter, citing What is generally missing from Emerging markets may offer the strong performance in China and Chinese brands is emotional best near-term opportunities for EMEA (Europe, the Middle East and attributes and benefits beyond Chinese brands. Eight of the top Africa), but flat in the Americas. Exhibit 15 Derived ranking of attributes among those who like to buy branded products Attractive 47% 50% Brand personality most desired Attractive World class 40% 45% Currently, Chinese Fashionable 37% 40% World class brands do not own Fashionable Luxurious 36% 35% Luxurious distinctive attributes Youthful 30% 30% Youthful Fun 25% 25% Fun Well-designed Smart 20% 20% Smart Well-designed 20% Innovative 15% Friendly Friendly 18% High quality 10% Innovative 18% Safe 5% High quality 17% Practical A good value Cheap 0% Safe 7% 0% 5% 10% 15% 20% 25% 30% 35% 60% 65% 70% Practical 2% Brand personality of products made in China A good value 1% Cheap 1% 14 MADE IN CHINA 2008
  • 17. Chinese brands have many positive associations is top industry organizations, and reasons to look to emerging of the agenda. With its deep environmental awareness: markets as the right next step. reach into the media and the with each new initiative, the With world-class manufacturing emerging influence of the government can build equity techniques, advanced internet, the government can in China as a country that puts technologies and attractive drive a nationwide initiative of quality first. These are the prices, Chinese brands speak to strict quality control, and guide ingredients of a recast ‘made needs in emerging markets. With a range of organizations and in China’, and a force like the increased regional cooperation departments towards effective government can bring about this and multilateral trade coordination. Quality policies, commitment to excellence more agreements, Chinese brands enforcement mechanisms, quickly. are finding market access easier market research, fair trade, than ever. And with American and European companies cutting spending in the face of a tough Exhibit 16 economic environment, it might be a good time for Chinese In which of the following markets outside China do you think Chinese brands to step up investment. brands have the best chance to succeed? Role of the Africa 48% Southeast Asia 48% government India 33% United States 31% Every product or brand must be Eastern Europe 31% labeled with its country of origin; Russia 28% it is a key point of reference for many customers and a barrier for Middle East 25% Chinese brands today. To conquer Brazil 21% hearts and minds overseas, the Australia/New Zealand 20% Chinese government will need to Mexico 19% embrace the art of branding and Korea 16% play an active role in the creation 10% Canada and management of China as a Japan 9% brand. England 7% Building a quality backbone France 5% that can lead to a new set of Germany 5% MADE IN CHINA 2008 15
  • 18. Conclusion The events of the last few months have been a roller coaster ride for the Made in China brand. From the peak of the Olympics to the trough of the milk scandal, Chinese brands are still on a bumpy journey to international recognition. While these are not regular occurrences, they illustrate the challenges, and opportunities, for Chinese companies in going global. Government and category leaders should work together to build up a fresh image of the made in China label, particularly in categories where the opportunity for growth is large. Just as Japan has done in automobiles and electronics, Switzerland in watches and finance, and Italy in fashion and design, China will ultimately establish its own reputation in key global markets, and build an image well beyond the world’s factory. 16 MADE IN CHINA 2008
  • 19. Appendix Methodology Interbrand’s Made in China were invited to participate by approximately two weeks after studies are designed to gain email or through links on: the end of the Beijing Olympics. a greater understanding of www.brandchannel.com The milk scandal first emerged global attitudes toward Chinese www.interbrand.com in the middle of September products and brands. We www.fortune.com - a coincidence which added believe these insights can help Our respondents excluded substantial insight to our study. businesses and organizations consumers from Mainland formulate global growth China as the goal was to strategies. Branding is a crucial collect feedback from foreign discipline for any organization, consumers. In addition, there and our research pinpoints the was strict control on the number aspects of branding that can of participants from Chinese inform best business practices. living overseas. This year’s survey included Our survey was fielded over a 776 respondents (see regional three work period, launching distribution below). Respondents in early September 2008, What is your home country? US/Canada 51% Europe 17% Asia Pacific * 15% Latin America 7% Australia/ New Zealand 6% Other regions 4% *Excludes respondents from mainland China MADE IN CHINA 2008 17
  • 20. ABOUT INTERBRAND Founded in 1974, Interbrand serves the world with 42 offices in over 22 countries. Working in partnership with our clients, we combine rigorous strategy and analysis with world-class design and creativity. We enable our clients to achieve greater success by helping them to create and manage brand value. We recognize the importance of brand in an increasingly competitive business environment and tailor our services to client needs. Our services include brand analytics, brand valuation, strategy naming and verbal identity, corporate identity, packaging design, retail design, integrated brand communications and digital branding tools. Visit www.interbrand.com and www.brandchannel.com for the latest brand thought. CONTACT Jonathan Chajet Managing Director, China Interbrand China C7-201, Red Town, 570 Huaihai Rd.W. Shanghai 200052, P.R. China Tel: +86 21 6192 5200 E-mail: ibchina@interbrandcn.com Creating and managing brand valueTM www.interbrand.com.cn 创造和管理品牌价值