How China can build brands

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How China can build brands

By Peter Marsh

Goodbaby is a Chinese manufacturer of children’s  “utility” products – push chairs, infant car seats and the like – with a growing reputation. With 11,000 employees and seven research centres in Asia, the US and Europe, the company dreams of establishing a name that resonates as strongly as Coca-Cola or BMW. Much the same is true of Chinese equipment giant Sany – which thinks it’s on the way to cementing its global brand through the purchase of Germany’s Putzmeister concrete machine maker. One of Putzmeister’s truck-mounted machines is pictured above.

But for all China’s progress in creating some big and powerful companies, observers are divided as to whether Chinese groups such as Goodbaby can create global brands that compete with the dominant corporate giants. By forming an impression in people’s minds, brands make it easier for companies to sell their products and services, whether to individuals, businesses or governments.  The stronger the recognition – and the more countries where the impact is significant – the greater will be the impact on revenues.

For the past 70 years, US companies have led the way in brand building, followed by businesses based in other English-speaking nations and Europe. For all Japan’s economic surge since the 1950s, many of its top companies (excluding a few outliers such as Toyota) have yet to really make their mark in establishing global monikers. In recent years, China has made its presence felt, thanks mainly to the rise of a handful of internet, telecoms and retail leaders. The question now is whether China is likely to continue in this direction.

Of the companies behind the world’s top 100 brands, according to rankings by the WPP advertising group, 54 are from the US, 14 from China, seven from Germany, five from Japan and four each from France and Britain. The remainder are shared out between eight countries. Heading the list – based on financial data and consumer surveys – are seven big US firms including Google, Apple and Microsoft. The top Chinese companies are the internet behemoths Tencent in eighth position followed by Alibaba at number 14.

Many of the top companies in the WPP specialise in IT and telecoms – business fields  that fit into areas where Chinese expertise is becoming more entrenched.  Khairy Tourk, professor of economics at Renmin University, points to gradual progress by Chinese businesses in getting their names accepted in the west, in a similar way to Samsung and Hyundai. “China is in the same place that South Korea was 25 years ago,” he says.  According to Georges Haour, co-author of Created in China: How China is Becoming a Global Innovator , Chinese companies “learn fast” about building a far-flung presence, often imitating  ideas from the west.

For three reasons, however, Chinese companies’ move towards international brands may turn out weaker than some think. The first is the dead hand of government.  For all the talk in recent years of the country embracing “Chinese style” capitalism, under president Xi Jinping the Chinese communist party has tightened its jurisdiction over most parts of the Chinese economy, including not just state-owned businesses but private ones. Four top companies with aspirations on building global operations –  Anbang, HNA Group, Dalian Wanda and Fosun – have been subject to sudden and unexplained crackdowns, including the detentions of senior executives. This hardly seems an environment helpful to evolving global brands with the minimum of restraints. Second, consider culture. For most of its long history China has been happy to wield technological or economic clout close to home rather than exploit this on an international scale,  in the manner of European countries with their taste for empire building. The lack of a long-term record in establishing any sort of global presence is reinforced by relative lack of familiarity with the English language, which seems likely to continue as the world business lexicon for some time.

Third, Chinese companies may choose not to put much effort into creating global brands simply because they feel there are more potent ways for them to increase sales and profits. China expert Jonathan Fenby says he has discerned “no real push from the top” to create Chinese business names that will resonate with consumers everywhere, and that it may be easier for companies to establish market power simply by using the brands of their foreign offshoots.

The rash of Chinese acquisitions of foreign companies underlines the point, whether these are in the domestic appliance industry, as in Haier’s takeover of General Electric’s white goods unit, chemicals (Syngenta of Switzerland was bought by ChemChina) or in industrial equipment, including the deal in which Putzmeister became part of Sany. One of Sany’s other products – a mammoth crane – is shown above.

Goodbaby has joined in, through the purchase of companies such as Columbus in Germany and Evenflo in the US, which has brought in brands including Cybex and and Snugli to add to the company’s home-grown names. As a former schoolteacher, Goodbaby founder and chairman Song Zhenghuan will know from his history books that that many political rulers and military leaders have used an indirect approach to build power – the Trojan horse being a good example of the tactic.  He – and other Chinese business leaders – may well conclude that they should follow a similar path when pursuing worldwide growth.

 

 

By |November 17th, 2017|Categories: Observations, Opinion|0 Comments

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