The Global Branding of China Inc. By Shruti Gopinathan A Course Paper Submitted to the Faculty and Class of the Milwaukee School of Engineering Master of Science in Engineering Management Doing Business With China, MG 8042B Section 101 Instructor: Dr. Carolyn “Kelly” Ottman Milwaukee, Wisconsin July 11, 2011
2 Introduction China’s accession to the World Trade Organization (WTO) in 2001 has opened afloodgate of developmental opportunities for their manufacturing sector, with the nation earningnumerous titles such as “world’s largest exporter”, “world’s second largest importer” and“world’s low cost manufacturer”. Consumers worldwide have become accustomed to the “Madein China” label on virtually every brand name product may it be a high fashion luxury brand or alow cost private label brand. Despite the fact that these products have their country of originlisted as China, they belong to a non-Chinese brand. The purpose of creating a brand is tocombine elements such as reputation, values and culture of the country/nation of belonging aswell as emotional appeal to the functional elements of a product in order to enhance its overallvalue. For example, French clothing and accessory brands are most coveted by consumersbecause they embody the image of luxury, elegance and free spirit. Similarly, in case ofautomobiles, German brands such as Audi, Volkswagen, BMW are instantly associated withquality, power and status. The companies that own these brands spend considerable amount ofresources with brand upkeep and promotion. When it comes to buying Chinese brands,consumers are faced with a certain level of skepticism attributed to the nation’s reputation formaking “cheap” or “copycat” products. The purpose of this paper is to explore the major challenges that Chinese companies faceselling their brands to the global consumer base, and to identify the specific steps taken by thecompanies and the Chinese government to improve China Inc.’s brand image. Furthermore, thepaper includes the author’s suggested action plans based on a comparative analysis of theliterature review and the author’s insights gained from a recent visit to multinational corporationsand cultural sites in Mainland China.
3 China’s Tryst with Brands China has received extensive international media coverage since Deng Xiao Ping’s OpenDoor Policy in 1978, allowing the country to gain economic growth through low costmanufacturing. Western companies with a cost leadership strategy have since then flockedChina to leverage the readily available resources and to meet the growing demands ofconsumerism. Literature review suggests that there exists a strong relationship between thecountry of origin of a product and the consumer’s purchasing decision: 1) Consumer’sstereotypes of other nations impact the price that they pay for a product or brand originating fromthe particular nations. 2) Chinese consumers lean towards brand names from developedcountries as opposed to developing countries (Loo & Davies, 2006). These two factors haveserved as major pain points in China’s progress in the area of brand management. In the book titled “China Price: The True Cost of Competitive Advantage”, the authorAlexandra Harney provides detailed accounts of the negative consequences of China’s “low costmanufacturer” position such as subjecting employees to harsh working conditions, pressures tocreate low cost products at the expense of poor quality, and the rising carbon emissionsimpacting the environment (Harney, 2009). The argument can be made that it is the brand namecompanies and the unending appetite of consumers for branded products who are responsible tosome extent in putting severe price pressures on the Chinese supply base, but these big namecompanies have achieved strong brand equity and brand loyalty for being around in themarketplace long enough. Additionally, news reports have painted unsavory images of Chinasuch as the government imposed ban on social media websites such as Facebook and Twitter andcensorship of search engines to curb citizen’s freedom of speech, past quality issues especially
4with food and pharmaceutical products and the piling of toxic wastelands in Mainland China.Such negative images of China in the global consumer mindset typically influence their buyingdecisions. Apart from being a manufacturing haven for Western companies, China also provides amarketing base of a billion customers. A recent survey conducted by leading investment andbrokerage group in Asia reveals that the growing middle class in China’s Tier 1-3 cities accountfor 15% of current global sales of luxury goods and will go up to 40% by 2020 (CLSA Asia-Pacific Markets, 2011). Chinese consumers have strong affinity for products originating fromdeveloped countries. Luxury brands appeal to Chinese consumers because of the high qualityworkmanship may it be a Louis Vuitton purse or a Swatch wristwatch. During a recent visit tothe Kimberly Clark Corporation’s Beijing Mill, the author observed that the Chinese promotionalcampaigns for female sanitary products featured Western families. The assistant mill manager,Adam Cheng explained that Chinese consumers succumb to the “craze for foreign” trend when itcomes to buying decisions. Gift-giving and the “Mianzi” or face value culture are other factorswhich heavily influence the average Chinese consumer’s buying decision for luxury brandsbecause they offer elevated social acceptance quotient. The author visited large shoppingdistricts in Beijing and found that the copycat brand name products sold in the Silk Market, PearlMarket or Yashow Market are typically purchased by foreign tourists, whereas the actual brandname stores are mostly visited by Chinese consumers. China’s Global Branding Strategies The Chinese government and enterprises have recognized that China’s double digiteconomic growth cannot sustain solely on their manufacturing prowess but with the competitive
5advantage of owning and managing reputable Chinese brands which will fetch Chineseenterprises high profit margins. Based on the literature review, the author explains below thethree most commonly employed Chinese global brand management strategies.Boosting National Image China has diligently worked towards creating opportunities to communicate to the worldthat they are capable of becoming the epicenter of innovation in the future and producing highvalue brands. Hi-tech construction of buildings in Shanghai, the progressive architecture of theNational Center of Performing Arts in Beijing, the high speed Maglev trains capable ofachieving 300 km/hr are just few of the striking examples of China’s road to boosting theirnational image. Major events such as the 2008 Beijing Olympics and the 2010 Shanghai WorldExpo served as suitable platforms for China’s brand development endeavor. Business Insidermagazine reports that Chinese retail brand “Li Ning”, founded by Chinese gymnastic Olympicgold medalist Li Ning gained significant momentum in the US markets after they offered tosponsor outfits for every CCTV-5 presenter at the Olympics. The Ministry of Commerce (MOFCOM) has instituted several favorable initiatives suchas setting up a “Brand Development Fund” to encourage local firms to promote their brands on aglobal platform (Gonzalez, Tan & Wang, 2011). Touted as the “biggest buying opportunity forChinese Traditional and Advanced products –once a year”, the China Brand Show, MOFCOM’sbrainchild, is a grand annual exhibition held at the Las Vegas Convention Center to promote top200 Chinese brands for household electrical appliances and electrical products, light industrialand consumer products.
6Raking on Product Placements Traditionally, brand promotion through product placements rested in the expert hands ofUS advertising giants and Hollywood bigwigs. Western companies spend ample resources forbrand promotion through seamless and creative incorporation of advertisements within musicvideos, movies and entertainment websites to influence buying decisions. Metersbonwe, aChinese sporting apparel brand became the first Chinese company to jump on the productplacement bandwagon by paying the studios to get featured on the immensely popularHollywood movie franchise series “Transformers 2: Revenge of the Fallen” and its sequel“Transformers: Dark of the Moon.” The latest sequel also features three other Chinese brandssuch as “Yi Li Shuhua Milk” –Chinese milk brand, Lenovo – Chinese desktop/laptop brand andTCL (Creative Life) – Chinese high definition television brand (Gilroy, 2011). Chinesecompanies are in the process of introducing the product placement within Chinese films anddaily soaps, although the viewers are still hesitant to accept this trend and may have negativeperception of the brand because of the blatant portrayal (Landreth, 2010).Revitalizing Heritage Brands Chinese political leader, Mao Zedong’s driven Cultural Revolution in the 1950s not onlydestroyed centuries ago literature and references to China’s rich cultural heritage but alsocrippled the operation of over 2000 traditional firms, which existed during the pre-PRC era andwere bestowed the title of “lao zi hao” or “time honored brand” during the Ming and Qingdynasties. In 2006, the Ministry of Commerce, renewed the status of these heritage brands;however due to the declining economic significance, 70% of the brands were barely able tosurvive and the remaining were filing for bankruptcy (Lim & Ma, 2010). The biggest challengethat these heritage brands face is the fact that the parent firms do not have resources to infuse
7technological innovation into their existing products. These brands particularly appeal to theolder generation of Chinese people because they believe the historical lineage enhances thebrand equality. Also, the heritage brands’ minimal global presence is attributed to the languagebarrier as they are difficult for foreign consumers to pronounce or interpret. Lack of intellectualproperty protection in China has hurt the heritage brands, since some of these are registeredunder the name of other enterprises who have failed to do their due diligence in preserving thequality of these brands (Lim & Ma, 2010). Therefore, the government agreed to provide financialsupport and subsidies to heritage brands for operational development and intellectual propertyprotection (Lim & Ma, 2010). Some lao zi hao firms have implemented marketing strategies to increase visibility oftheir brands. A Guangdong based herbal tea manufacturer, Wong Lo Kat, launched severalcreative marketing campaigns through social media and popular Chinese blogging websites topromote the “Wang Lao Ji” herbal tea, a lao zi hao brand that came into existence in the Qingdynasty and has been in the market for over 170 years. The campaigns appealed to theconsumers mainly because of its emphasis on the family’s health and wellness. Despite the factthat a can of Wang Lao Ji costs double the price of Coke or Pepsi, it has managed to take marketshare from both top name beverage brands and emerged as a leader in canned drinks with $2.5billion in sales (Rein, 2010). Critique/Action Plans Integrity is a key element of brand development, which Chinese companies must imbibewithin their own corporate culture. Li Ning, China’s leading sportswear brand, drew criticismfrom international consumers because their marketing campaigns were strikingly similar to thoseof competitors such as Nike and Adidas. Li Ning’s ad slogan “Anything is Possible” is merely
8an inversion of Adidas’s slogan “Impossible is Nothing”, as well as their logo bears resemblanceto the Nike Swoosh logo (Balfour, 2008). Chinese rich culture offers creative and inspirationalmedium for brand developers and designers to create their own unique identity. A successfulexample of the use of Chinese language in brand management is the cheery blue mascot from the2010 Shanghai World Expo, “Haibao”, which embodies the central theme of “Better City, BetterLife.” Representing the Chinese character “人” (translation: people), the mascot aims to captureglobal audience’s attention to the ocean city’s multiculturalism and the coexistence ofurbanization and humanity. Consumers worldwide are intrigued by the exotic nature of theChinese culture, which the local firms could turn into a “branding core competence” that willgive a unique look and feel to the products. Leveraging the multi-dimensional capabilities of technology is a huge competitiveadvantage for several companies outside China. Social media such as Twitter, Facebook andLinkedin are providing Western companies a broad advertising platform and increasedinteraction with consumers to promote their brand excellence. The advent of blogging hasopened numerous avenues for individuals and organizations to create collegial relationships. Forexample, Kohler Company, a US based privately owned manufacturer of plumbing products hasintegrated a blogging module to their corporate website, which allows customers, engineers,designers across the world to share their comments on Kohler products, plumbing technology,design features, etc. The blogging experience opens a form of dialogue between the companyexperts, current/prospective customers and plumbing product enthusiasts, which further creates acollegial atmosphere. Chinese corporate culture and the government should become more openminded to the needs of the global consumers and invest resources in sales and marketingactivities to make the local brands profitable in the global marketplace.
9 The author’s visit to Foton, a Chinese owned manufacturer of trucks and agriculturalmachinery revealed that joint ventures and partnerships with well-known multinational brandname companies allow for Chinese companies to gain global brand presence. Foton’s jointventure with Daimler AG brings in useful synergies to the development of their “Auman” brandof medium and heavy duty trucks with Daimler’s expertise in engine technology and creatinghigh-value and coveted automobile brands (eg: Mercedes-Benz ) for consumers worldwide.Another example is the rising global presence of computer manufacturer Lenovo, after itspartnership with IBM’s personal computing business division. Strategic partnerships withcompanies that have significant marketing expertise will allow Chinese entities to learn on adaptto the global consumer demands, market dynamics, and international business models as well asfacilitate cultural transfer. Based on the author’s interaction with Chinese origin business professionals from severalmultinational organizations, it was determined that the most preferred career paths for Chineseadults are law, civil service or engineering. Also, a recent article published in the China Dailyreveals that China’s rapid economic growth can absorb up to 600,000 MBA graduates per year;however owing to the shortage of MBA programs and quality management faculty, the numberof students enrolled in 2010 is only 36,000 (Changxin, 2011). Higher education in China mustintegrate elements of globalization and broaden the understanding of students regarding businessaffairs. Partnering with world class business institutes or recruiting top faculty members fromthese institutes can facilitate the process of developing strategic business thinkers in China.Chinese companies can establish electronic learning and distance education programs to developemployees who are interested to explore the management track and are open to advance theirexisting knowledge base.
10 Conclusion Handful of Chinese brands such as Lenovo, Tsingtao, Li Ning, Huawei have taken theright strategic steps in gaining global brand visibility. For an emerging superpower such asChina, with a middle class whose purchasing power is growing rapidly, it is necessary to createChinese brand name lifestyle and luxury products to avoid the outflow of Chinese income tonon-Chinese brands. The nation has to significantly revamp its national image amongst local andglobal consumers and convince them that Chinese brands are trustworthy and innovative. Chinamust create brands that will tap the nationalist pride amongst its local consumers who are eagerto share the success of Chinese industry and technology. Chinese business professionals mustbecome more familiarized with the core concepts of brand identity, user experience andsustainability. The existence of brands is imperative to give consumers the freedom todifferentiate themselves from others. China must understand that the younger generation is keento break away from the group culture to a more individualist culture, which means that everyproduct or accessory that they own will need to be custom specific. China must break away fromthe copy cat culture and learn to develop unique products. Leveraging the significance ofheritage brands amongst the older masses and re-packaging the same brands through crispmarketing campaigns are favorable towards China goal of becoming a branding genius. To fosterorganizational growth, Chinese business managers must exhaust all sources of communication tokeep abreast with the changes around them, and focus on user-specific products and services. Inconclusion, China has immense potential to progress in the area of brand management; butresource allocation and increased management expertise are crucial success factors.
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