Brand China: Hamstrung by regime or perception divide?
“We get these endless things from the government saying there should be more innovation and brand building… But there isn’t anything behind it. The problem is that no one really wants to invest in innovative design. It’s very market-led. So if reports come to the stores that red shirts are selling, they’ll tell their in-house designers to design more red shirts. This means the designers don’t get a chance to do anything… They spent 60 years driving creativity out of the system. To reintroduce it in 10 minutes is a bit hopeful.” Paul French, chief China market strategist at market research firm Mintel.
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China’s quest for world-beating brand held back by regime
Selling Chinese-label goods at home is one thing: but to gain global recognition, the country must rediscover the arts of creativity and risk-taking
Jonathan Kaiman in Beijing
Source – The Observer, Guardian online, published Sunday 1 September 2013
China is the world’s second-largest economy but it has yet to develop the breakthrough global brand that will consolidate its status as a true commercial superpower. The names of Chery, Xiaomi and Baidu are synonymous with cars, mobile phones and internet search in China but they do not resonate abroad in the way that Ford, Samsung and Google straddle the globe. Likewise, there is no Chinese equivalent of Sony, Boeing or Coca-Cola, despite the ambition of the political hierarchy to convert a nation of 1.3bn people into a consumption-driven juggernaut.
That lack of a worldwide champion means that Made in China lacks prestige as a label, despite the country’s importance as the world’s factory floor, making everything from iPads to Topshop garments. And that reputation as a global manufacturing hub is one of the problems, nurturing a perception that China is synonymous with cheap, low-quality goods. Newspaper headlines in the west declaim stories about China’s toxic baby milk, lead-contaminated toys and fake pharmaceuticals.
But this is changing, as China’s leaders force that economic shift from export-based growth to consumer spending. They are pumping money into research and development so that Chinese brands can compete with foreign rivals in a burgeoning domestic market. Furthermore, many of these companies have taken that baton and are running towards foreign markets, with the hope that global success will result. Much of the push comes in the form of state subsidies – according to the state-run China Daily newspaper, the country spent £105bn on research and development last year.
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A number of Chinese companies have delivered high-quality products abroad, mainly through combining with other international conglomerates. For example, computer maker Lenovo bought IBM’s PC division in 2005 and five years later Geely Automobile bought Volvo from Ford. But analysts say China’s quest to deliver a global brand, while fuelled by an abundance of cash and ambition, may face insurmountable obstacles such as a rigid corporate culture and a top-down approach to innovation. The draconian education system encourages rote memorisation over creativity, while its political system discourages risk-taking and going against the grain.
“There’s a conflict of interest that China has – one which supports as well as deters innovation – and that is central government control,” says Bill Dodson, the Shanghai-based author of China Fast Forward: The Technologies, Green Industries and Innovations Driving the Mainland’s Future. He adds: “China says OK, we’re going to identify 20 companies to go out and become global brand champions, and we’re going to give them whatever money and resources they need to do that. But if the companies become too big for their britches, or snap back at central government, or become too autonomous, there’s a reining in.”
Analysts point to Japan and South Korea’s success in developing global brands as evidence that China could soon follow. Before the 1980s, Japan’s manufacturing base endured the same derision as China’s, but that was before brands such as Sony, Nissan, Toyota and Honda established themselves globally.
South Korea’s capital, Seoul, was once reliant on foreign aid to overcome the devastation of the Korean war. It is now one of the world’s most technologically advanced urban centres. Samsung, founded more than 70 years ago as a trading company, is now one of South Korea’s two most successful conglomerates. Its subsidiaries deal in everything from theme parks to life insurance. Taken as a whole, it produces a fifth of the country’s global exports. Its other global superpower, Hyundai, was founded in 1947 as a construction firm and began exporting cars to the US in the 1980s. This month, it unveiled a £31,000 concept car, the HCD-14 Genesis, which it hopes will take on the world’s top brands.
Among China’s biggest hopes for a global breakthrough is car maker Chery, founded in 1997. Its most popular model is the QQ City Car, a pod-like hatchback that seems ubiquitous among China’s middle-class families. The company has established joint ventures with a number of foreign brands, including Jaguar Land Rover and in 2011 it exported around a quarter of its production total.
Yet Chery has yet to create an image that will turn heads in New York and London. “While Chery is enhancing its hard power actively, it also pays close attention to fostering soft power,” boasts the company’s English website, taking a cue from the country’s diplomatic rhetoric. “With vigorous culture of innovation, Chery has realised the great-leap-forward development and has received deep concern and great attention from the leaders of the country and the Party.”
Sceptics say that Chinese brands like Chery will never surpass foreign rivals unless they can embrace fundamental principles of innovation – open communication, risk-taking – that require more than cash. This extends to creative industries, such as music, film, and fashion. “We get these endless things from the government saying there should be more innovation and brand building,” says Paul French, chief China market strategist at market research firm Mintel. “But there isn’t anything behind it. The problem is that no one really wants to invest in innovative design. It’s very market-led. So if reports come to the stores that red shirts are selling, they’ll tell their in-house designers to design more red shirts. This means the designers don’t get a chance to do anything.”
“I don’t think anyone in government understands creative industries,” French adds. “They spent 60 years driving creativity out of the system. To reintroduce it in 10 minutes is a bit hopeful.”
Chinese companies are trying to buck that trend. For instance, Huawei, the world’s largest telecoms equipment maker, headquartered in Shenzhen, has more than 140,000 employees, nearly half of whom work in R&D. The company applied for 54,000 patents in 2012, 14,000 of them outside China.
However, Chinese technology upstarts will struggle to make inroads into western markets, judging by Huawei’s sometimes faltering progress, because of the political problems they face. Huawei has been barred from operating in the US because of security concerns and its UK operations are the subject of a review by Britain’s national security adviser, Sir Kim Darroch.
Robin Li, boss of Baidu, China’s leading search engine, announced a plan to crack the Japanese market in 2007. Last year, when diplomatic tempers flared amid a territorial dispute over a series of islands in the resource-rich East China Sea, Baidu’s main page displayed a cartoon illustration of the islands beneath an oversized Chinese flag. Japanese consumers were incensed. The company has lost more than £60m on the project.
WeChat, a smartphone instant messaging app similar to WhatsApp in the US, has taken off in south-east Asia and recently launched an advertising campaign in India featuring Bollywood stars. WeChat has a leg up on its competitors because of its easy-to-use interface and sophisticated integration of features: it combines an Instagram-like photo-sharing tool, a voice-messaging service, and an array of social functions designed for meeting strangers. Yet in January, users discovered that sending politically sensitive terms across international borders returned the words “the message you sent contains restricted words. Please check it again.” WeChat developer Tencent called the incident a “glitch”.
“In terms of China’s consumer internet, more than any cultural factors, the biggest barrier would be the regulations and protectionism surrounding the internet,” says Kai Lukoff, co-founder of TechRice, a blog about China’s tech sector. “You have this iron curtain 2.0 that separates the internet culture in China from that of the rest of the world. So … when Chinese companies go abroad, they feel woefully out of place.”
Yet that has not stopped them from trying. This week, popular smartphone maker Xiaomi pulled off a coup by hiring Google’s former vice-president for Android product management, Hugo Barra, to help it expand its global presence. The two-year-old company has established a reputation for producing high-quality, low-cost Android phones. The low-cost smartphone market is drawing Apple’s interest, but Xiaomi is ahead, having already expanded to Hong Kong and Taiwan.
Experts say Chinese companies in newer industries such as smartphones stand a better chance of gaining traction abroad. “In western markets we have all these legacies, the infrastructure, built in: the desktop PC, the landline, the fax. In China, they could just leap ahead to the latest and greatest,” says Rebecca Fannin, the author of Silicon Dragon: How China is Winning the Tech Race.
Chinese companies have gone to great lengths to avoid the stigma associated with their country’s brands. “They produce a lot of stuff which western people like and use, they’re just not under a Chinese brand name,” says Sam Lipoff, a doctoral student at Harvard Business School who researches innovation in China. Domestic conglomerates often acquire foreign brands, and encourage them to maintain their native identities.
Some of these deals have been extremely ambitious, such as the acquisition of British yacht maker Sunseeker by the Dalian Wanda conglomerate. Herborist, a Chinese cosmetics firm, has taken a different tack, marketing its products internationally as “made in Shanghai”, evoking images of bustle and grandeur, rather than dark industrial-belt factories.
“This begs the question: what makes a company Chinese?” Lipoff says. “That its workers are in China? Or its offices? Or it sells to Chinese customers? Or has a Chinese name? This is an important thing to think about.”