The economy of China is growing faster than that of any other nation on earth. Chinese manufacturers currently produce more than 70% of the world’s toys, 60% of its bicycles, half its shoes, one-third of its television sets and air conditioners, and half of its microwave ovens. Despite the accomplishments of Chinese manufacturing firms on behalf of such recognizable Western brands as Boeing, efforts to market uniquely Chinese brands have thus far stalled. However, that may soon change, according to a new book, The Chinese Century (Wharton, 2005).
“China has been a major beneficiary of (as well as a reason for) the decline of the brand in the retail market,” writes the author, business scholar Oded Shenkar. “With the exception of super-luxury brands whose identity is intrinsically linked to European manufacturing, all others are either manufacturing in Asia or are thinking about it. Asia, increasingly, means China.”
American firms have outsourced so much of their production to Chinese manufacturing companies that they have actually groomed their future competitors, according to Shenkar. Case in point: A Chinese firm named Lenovo was first established in 1984 to sell computer parts manufactured under the IBM label. By 1990, Lenovo was selling PCs under its own brand name. In May 2005, Lenovo purchased IBM’s computer division for $1.7 billion. Lenovo holds more than 25% of the Chinese personal computer market, which is four times the market share held by Dell in China.
Other Chinese brands to watch for include:
* Nice, a consumer product and detergent maker.
* Changhong Electric, a supplier of TVs to retailer Wal-Mart under the name Apex Digital.
* Xi’an Aircraft Company, a Boeing subcontractor.
* Haier, which recently considered a multibillion-dollar bid for the American home appliance maker Maytag.
* Huawei Technologies and UT-Starcom in telecommunications.
The sheer size and scope of the Chinese production model indicates that consumers may soon encounter Chinese brands in all the areas where Chinese firms are now doing production work for other nations’ companies, including those in furniture, motorcycles, and both low and high-end clothing. Italian clothiers may soon lose more than $1.2 billion in U.S. export revenue to China, Shenkar says, adding, “Even [Europe’s] top of the line firms that have been in business for centuries are now threatened.”
China may unleash not only new brands, but also entirely new product categories. For instance, a device called an Enhanced Versatile Disc-with high-definition, high-capacity optical storage-may soon replace DVDs.
Consumers, however, aren’t throwing out their Armanis for Ding Hows just yet. Chinese firms still face considerable challenges in establishing name recognition among Western consumers.
Chinese Acquisition of U.S. Firms
“The buzz right now is about China’s recent and probable purchase of American companies and its investing of resources in new companies to create international brand forces,” says Jay Wang, an assistant professor of marketing communication at Purdue University. “Buying or creating such companies is just a small step compared to establishing the brand with consumers around the world.”
According to Wang, the largest obstacle to China’s international corporate development is the nation’s communist political system, in which the government serves as a major stakeholder in all Chinese companies. Investor wariness over China’s chaotic banking system is also slowing the country’s rate of growth, as well as frustration over its currency model. China’s yuan had been pegged to the dollar, which worked to ensure Chinese goods were cheaper than American goods, regardless of the dollar’s performance. The Chinese government recently allowed the yuan to be traded, but only within a narrow range.
Another obstacle facing Chinese firms looking to establish brand-name recognition might be negative perceptions of either Chinese products or Chinese politics. Many consumers in the West regard the Chinese government as oppressive, environmentally reckless, and an egregious violator of human rights. Concerns about outsourcing and domestic job loss also color many Western consumers’ perceptions of China. Despite highly competitive pricing of Chinese manufactured goods, only 17% of Americans polled expressed a high degree of interest in buying products they knew were imported from China, according to a 2002 survey conducted by Leo J. Shapiro and Associates. Among those who responded that they were not interested, poor quality was the primary reason, followed directly by social concerns such as the treatment of labor in Chinese factories, the politics of the Chinese government, etc.
“Most Americans are comfortable buying U.S. brand clothing made in China, but strategic international branding is a different game,” Wang says. “If Chinese companies manage to brand strategically with consumers in countries with completely different political systems, this will prove we have entered a new frontier for branding and advertising.”
– Patrick Tucker
Sources: The Chinese Century: The Rising Chinese Economy and Its Impact on the Global Economy, the Balance of Power and Your Job by Oded Shenkar. Wharton School Publishing. 2005. 191 pages. $25.95.
Purdue University News Service, 400 Centennial Mall Drive, Room 324, West Lafayette, Indiana 47907. Telephone 1-765-494-2096. Web site www.purdue.edu.
Originally published in THE FUTURIST, January-February 2006