What makes a brand “global?” According to the former head of marketing for Starbucks and Nike, a global brand “can travel worldwide, transcend cultural barriers, speak to multiple consumer segments simultaneously, create economies of scale, and let you operate at the higher end of the positioning spectrum – where you can earn solid margins over the long term.”
Based on this definition we have yet to see any Chinese companies develop brands with global appeal. Even current “success stories” have brand names like “Haier,” “Huawei,” and “Tsingtao” that are more challenging for some Western consumer to pronounce than childhood tongue twisters.
But despite the current void of Chinese global brands, I remain optimistic that Chinese firms will create globally competitive brands. This will be due to an evolving domestic business environment that is beginning to reward competitive brand positioning combined with an emerging class of Chinese business leaders who recognize the importance of building a strong globally recognized brand.
Yesterday: A Culture of “Short-termism” and “Growth at all Costs”
The responsibility of marketing in any company is to strike the right balance between driving sales today and building a long-term brand for tomorrow. In the years of double-digit economic growth, Chinese firms focused almost exclusively on sales to drive corporate growth. Marketing was all too often focused on the next product launch rather than building a brand asset for the future. While researching for my book, China public relations executive David Wolf shared a common joke used to describe the way many Chinese firms perceived marketing:
“‘Branding’ means designing a new logo, ‘marketing’ is the equivalent of purchasing ads on China Central Television (CCTV), and ‘P.R.’ does not stand for ‘public relations’ but rather ‘pay the reporter.’”
While the joke is certainly a generalization, it does help illustrate how, for many Chinese companies, marketing was considered to be an expendable expense. As a result of its firms’ previous growth strategy, China has been able to produce many large companies – 95 companies on the Fortune Global 500 ranking originate from China – yet very few are recognizable outside of China. This is changing.
Today: Competing On The Margins, Branding Becoming a Necessity
The domestic business environment, where many Chinese firms once thrived, has changed dramatically in recent years. Labor costs have increased significantly and competition has heated up across industries from both Chinese and foreign firms, meaning competing on low prices alone is no longer an effective business strategy.
One result of a more challenging operating environment is that Chinese firms are now looking outside of China, especially in the United States and Western Europe, for advanced capabilities such as advanced technology, managerial talent, and increasingly global brands to help strengthen their competitive position within China and gradually overseas.
For example, the Chinese dairy company Bright Food invested $58 million in New Zealand’s Synlait milk in part to use the overseas brand name to help differentiate itself in the eyes of Chinese consumers after the 2008 dairy scandal. Additionally, Geely’s 2010 acquisition of Volvo cars enabled the Chinese automaker to gain access to a premium global car brand and improve its competitive position in the world’s largest auto market.
Beyond overseas brand acquisitions, there are several Chinese companies that have built strong global brands within their respective industries. Some examples include Haier in home appliances, Huawei in telecommunications, and Xiaomi in consumer electronics. While these firms are far from achieving brand recognition among everyday global consumers, global competitors surely recognize their brands and are strategizing every day to prevent them from taking away their market share.
Tomorrow: Chinese Firms Build Global Brands
At the same time as Chinese firms are placing more emphasis on branding to improve their competitiveness, their employees and consumers are also becoming more internationally exposed. The boom in Chinese outbound tourism, overseas study, and immigration are creating a generation of both global and globally minded Chinese at the individual level.
Companies in relatively newer industries like biotechnology, Internet, and consumer electronics, are often run by executives who possess this international experience and understanding of why they need to concentrate on building a brand from day one. Meanwhile, Chinese consumers interacting with the world mean more opportunity for Chinese brands to make their way in front of international consumers.
(Just ask any of your Chinese friends, regardless of where they live, if they have heard of Tencent’s mobile application, “WeChat,” and you will see what I mean.)
Ultimately, we will see more Chinese brands weave their way into our everyday lives. It will start with a few exceptional cases, which we are already seeing. For example, last month I traveled through Europe for a book tour to promote China Goes West. When I arrived in London, my first stop on the tour, the customs agent asked me what the purpose of my visit was. This was just after Alibaba, China’s e-commerce giant, had completed an extensive global roadshow and media tour to promote its initial public offering in New York. For any regular newsreader, it was hard to miss the name “Alibaba” in the headlines. After explaining the topic of my book, he remarked, “you mean like that Alibaba company?” I guarantee it won’t be the last Chinese brand name he can recall in his lifetime.