In the past few weeks there’s been a discernible increase in the volume of media reports and articles about Chinese brands entering western markets or rather, Chinese companies buying western brands.
For someone who’s been closely involved with Chinese brands in Europe it has been fascinating to witness the eruption of interest and different viewpoints on the subject.
Why all this media attention, and why now? The rhetoric, I think, has been turbocharged by a confluence of disparate events: heightened Chinese M&A activity, populist market surveys and academic commentary.
In the M&A area, there is Dalian Wanda’s announcement that it is buying a British luxury yacht brand and will invest £1bn in building a 5-star luxury hotel in London. The announcement came almost immediately after Shuanghui International’s proposed £3bn takeover of the USA’s Smithfield, the world’s largest pork producer.
Earlier this year, a market survey in the USA gained an inordinate number of column inches (its sample size of 1,500 respondents relative to the country’s population is miniscule) when it revealed that nine out of 10 Americans can’t name a single Chinese brand.
Since then the media chatter has been heightened with the publication of a new book ‘Brand Breakout’ about the strategies emerging market (EM) brands are using to challenge established Western brands.
The two academic authors adopt a studious gung-ho (if I may be permitted the oxymoron) optimism about the likely success of EM brands which rather goes against the grain of ‘brand China’ pessimists and detractors.
Who, and where, are they?
This media focus has inevitably led to the questions I’ve been hearing, and answering, about Chinese brands for the last few years. The questions follow a predictable pattern and segue into one another, starting with ‘Who are they?’ leading to ‘Where are they?’ and subsequently parse into a seemingly killer question, ‘Why haven’t the Chinese produced a global brand?’
Arguably they have: Haier, Lenovo and Huawei come to mind, but because of their low awareness levels among western consumers they aren’t considered to be household brand names and thus, oddly, not really ‘global’ brands.
The heightened media scrutiny of Chinese brands in western markets resulted in yours truly being invited by Monocle 24 Radio to engage in a short debate with Simon Kuper, author and regular Financial Times columnist (listen here)
Simon was quite right in some of his observations, especially that the ‘Chinese Dream’ bears no inspiring equivalence to the ‘American Dream’ (however tarnished that has become in recent years with rising inequality and wage deflation squeezing the incomes of middle class and blue collar worker alike). America has been the supreme dream catcher when it comes to creating lifestyle aspirations and preferences, of which its brands – from Apple to Oreos, Nike to Neiman Marcus – are both its positive proof and tangible expression.
Many people struggling to earn a crust or fill a rice bowl in developing markets would probably prefer to live in the USA rather than China. For that matter many of the uber-wealthy Chinese are also voting with their feet, buying property in North America, exporting their financial assets, investing in businesses and sending their children in droves to be educated there.
After the short 10-minute interview on Monocle I realised that Simon and I had approached the issue from two entirely different starting points. He took what I’d call a geocultural-strategic approach, while I took one focused on China’s deficiencies in marketing-branding skills. Both approaches are equally valid when trying to explain why China has not yet produced a global brand but it seems to me there are multiple approaches one could and should take: strategic, cultural, economic, business, marketing, educational, and psychological.
Each of them, in my view, are a piece of the jigsaw in helping to provide a partial explanation as to why we’ve yet to see a Chinese brand go global in the sense they are a universally recognised household name, as well as why we can expect to in future.
Multiple approaches can’t be explained in a short, rapid-fire, sound-bite driven radio interview, so I intend to deal with them all in turn, one-by-one, in a series of posts on the CEMS360 blog over the coming weeks. That question about Chinese brands going global merits detailed examination. It is far too interesting to pass over cursorily, too important for western economies and brands to overlook, and far too involved to do it justice in one blog post.
To my mind the question ‘Why haven’t the Chinese produced a global brand?’ is founded upon an underlying ‘given’, a mistaken assumption that China is at a relatively advanced stage of economic development where it is in a position to do so; almost as if China should be churning out global brands as fast as it manufactures Christmas decorations, plastic buckets, smartphones, digital tablets and solar panels.
This assumption, I think, derives from a feeling that China ’s manufacturing prowess, exporting heft and capitalist economy (ok, it is ‘state-capitalism’) have been around for almost as long as the West’s developed, mature economies.
It is a trick of the mind, a perceptual time-warp, the old perception versus reality trope addled by our internal memory. In a 2012 global survey done by the Pew Research Center, 42 percent of respondents mistakenly cited China as being the world’s leading economy. Only in two countries (Mexico and Turkey) did more than half those surveyed say correctly that the USA was the world’s preeminent economic power.
We have simply become so accustomed to reading about China’s rapid economic rise and transformation into a global powerhouse: about its annual (until recently) double-digit GDP growth rates; its transition into the world’s second biggest economy; the distinction of becoming the second biggest luxury market; the second biggest movie market, and so on, that we forget it is still at the same economic development stage as Japan was in the 1970s and Taiwan and South Korea were in the 1980s.
And yet despite its incredible economic transformation in the last 30 years and its current development stage, there seems to be a prevalent feeling, especially amongst western media commentators, that China has somehow underachieved by not producing a global brand.
Familiarity breeds forgetfulness
It certainly feels that China’s low-cost exporting prowess has been with us for a very long time, but it spans a mere quarter of a century. That is about one-sixth of the time it’s taken the West to develop its own capitalist system. It is roughly one-quarter of the time that a ‘modern’ Western consumer society has existed, on the back of which brands like Coca Cola, P&G, Unilever, Ford, GM, GE, Microsoft, BMW, Volkswagen, Louis Vuitton, etc, have been able to build and refine their highly sophisticated consumer marketing and branding expertise.
We tend to forget, too, that China’s consumer middle-class, now numbering 256 million, only really started to appear 20 or so years ago. It is only now that China is developing an economy where 46 percent of its GDP growth is based on consumption rather than infrastructure and manufacturing investment.
Moreover, it is in the last decade that real wage growth has risen dramatically, allowing Chinese consumers to indulge their new-found taste for luxury brands (‘mass’, ‘niche’ and ‘premium’) whilst being offered a semblance of brand choice in an expanding retail environment which supports hypermarkets, supermarkets, shops and boutiques, and more recently still, serving them through thriving online e-commerce websites.
Rebalancing China’s economy
The ‘rebalancing’ of China’s economy from an export and investment-led economic model to a consumer-driven society has only just begun in earnest. The new leadership under Xi Jinping and Li Keqiang has signalled opaquely that they will accelerate that transition. More than half of western countries’ GDP is weighted towards consumption, varying in a range of 55 to 72 percent of their total economy.
The point of all this economic historiography is to show that Chinese brands are playing catch-up while learning from their home market.
Strategic wisdom suggests they have to secure market share, revenues and profits within their domestic market first before venturing overseas. They need proven products, business models, management experience and to accumulate a healthy war chest before competing globally against battle-hardened multinational companies and brands.
They are learning, quickly
At the same time, they are learning within their market the basic art and science of marketing and branding first-hand as their own consumer base mature into sophisticated, savvy buyers. To start their ascent up the brand learning curve, Chinese companies benefit from the experience they gain in serving their new consumers in a thriving domestic market.
For the past few years, as their home market has developed, Chinese firms have been quickly acquiring the skills of online and offline marketing and the basic principles of branding. But because that skills acquisition is (a) within a specific national and cultural framework and (b) in a still-developing economy, it is somewhat less mature compared to the west’s highly developed consumer markets.
Yet still more to learn
Chinese brands, as I will argue in a later post, still have a lot to learn about marketing and branding in western markets if they are to grow into genuine global brands that have the distinction of being known as household names with an ability to compete head-to-head against the well-established incumbent western brands.
As suggested earlier, in forthcoming posts I intend take a closer look by using a multidimensional approach (strategic, cultural, economic, business, marketing, educational, and psychological) at the constraints Chinese brands confront in their bid to go global, as well as the enablers that can get them there.
But for now I’d like to leave you with this thought, a quotation I’ve borrowed from George Orwell: “Whoever is winning at the moment will always seem to be invincible.”
This is the first part in a series on the CEMS360 blog examining the question “Why haven’t the Chinese produced a global brand?”