... and why that may be about to change
Lenovo CEO Yang Yuanqing attends a news conference in Sao Paulo (Nacho Doce/Reuters)
Here's a little thought exercise: Think of a Chinese brand. Any Chinese brand. Go on, I'll wait. Give up? Don't feel too bad: According to a recent poll conducted by HD Trade Services, 94 percent of Americans cannot think of a single brand from the world's second-largest economy.
Strange, isn't it? Japan and South Korea, countries China zoomed past in the GDP-rankings, boast globally-respected brands across a variety of industries. Even Sweden and Finland -- mere minnows in comparison to China -- offer IKEA and Nokia, respectively. Given China's incredible transformation into an economic powerhouse over the past three decades, why doesn't the country have more recognizable brands?
Before we tackle that question, it's worth exploring why having globally recognized brands even matter for a country. As David Wolf, managing director of the Global China Practice at Allison + Partners, a PR consultancy, says, "there are two ways to add value to goods and services in a competitive industry. The first is through innovation, and the second is through branding. When you create a brand, you're creating a distinction that people are willing to pay more for than just by its own virtue. That's added value -- and added revenue -- without much additional cost per unit."
Brands, then, benefit a country's economy with no downside. So why is China struggling in this area? The answer lies at the nexus of history, economics, and culture -- with a bit of geography thrown in.
Let's start with geography first. China, as you've no doubt heard, is very, very big. It's the fourth largest country by land mass in the world and has more people than anyone else. As a result, Chinese companies have a large domestic market to play with, and don't always need to attract overseas markets in order to be profitable. In addition to its size, China's economy -- for one that is still somewhat centrally planned -- is actually highly fragmented, with local provinces and municipalities acting almost as independent economic units. Accordingly, across a broad swathe of industries and markets, there are a lot of small-time players in China, making it difficult for one company to amass the scale necessary to invest in global marketing campaigns.
Secondly, in comparison to countries like Japan and South Korea, state-owned enterprises (SOEs) play a dominant role in the Chinese economy, comprising 35 percent of all business activity
and reportedly 43 percent of all profits. China's banks loan money to SOEs on favorable terms, allowing these companies to operate inefficiently and still survive. It's no wonder, then, that they have less need for marketing and branding. Wolf relates a common joke among China business observers: "for most SOEs, 'branding' means getting a new logo, 'marketing' means buying ads on China Central Television, and 'P.R.' stands for 'pay the reporter'"
Indeed, Chinese executives across a variety of industries often don't see the point in investing time and money into building their brands. As Scott Markman, the president of the Monogram Group, a brand consultancy, put it, "building a brand is messy, it takes time, it involves soliciting and following advice from outside counsel, and the vast majority of Chinese managers are deeply suspicious of things in which basic proof of effectiveness is difficult to provide," Wolf adds that few Chinese companies treasure innovation, preferring to follow rather than to lead. "The typical approach is to avoid sticking your neck out first; wait till the other guy does it, and see if his head gets chopped off."
"For most SOEs, 'branding' means getting a new logo, 'marketing' means buying ads on China Central Television, and 'P.R.' stands for 'pay the reporter.'"
In spite of these roadblocks, there's evidence that Chinese brands are beginning to make an impact in foreign markets. Beijing-based computer manufacturer Lenovo, which made a splash in 2004 by purchasing IBM's PC-unit, is a prime example; the appliance manufacturer Haier is another. While these companies have yet to become household names in the United States and elsewhere, they've embraced marketing and brand-awareness to a degree unusual for a Chinese firm. And -- by experiencing financial success -- they could serve as role models for skittish firms unsure how to approach foreign markets.
Chinese brands still have a long way to go, not least in battling the perception that Chinese-made goods are inexpensive and low-quality. But, as Markman points out, Japanese and Korean firms faced the same perception a few generations ago; even Japan's world-class auto industry once produced cars that were considered inferior by American consumers. It's no less unlikely that, in the not-too-distant future, Chinese goods will enjoy a similar surge in appreciation.
They may soon have to. As wages rise, Chinese goods will become more expensive, and companies will find that they can no longer compete solely on price. As a result, branding will necessarily play a larger role than before simply out of necessity; Chinese companies will have to find a way to distinguish their higher-quality goods in a highly competitive marketplace, and building popular brands is the best way to do that.
Achieving these changes will be a challenge. But it shouldn't come as a big surprise if, in 10 years, a few Chinese brands are as familiar to Americans as Samsung, Toyota, and Mitsubishi are today.