The Global Brand

China Ascending

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The Global Brand

The Global BrandCopyright © Millward Brown, 2008.

All rights reserved.

First published in 2008 byPALGRAVE MACMILLAN®

In the US �— a division of St. Martin�’s Press LLC,175 Fifth Avenue, New York, NY 10010.

The Global Brand

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China Ascending

�“The Global Brand�” by Nigel Hollis, chief global analyst at Millward Brown was first published in English by Palgrave Macmillan in 2008. The book was recently published (July 2009) in Mandarin by Beijing Normal University Publishing Group. For the release of the Mandarin edition, a team of our local experts from Millward Brown ACSR�’s Beijing and Shanghai offices co-authored a new chapter, �“China Ascending.�”

We have translated this exciting new chapter into English to share with you. �“China Ascending�” offers an excellent overview and insight into this rapidly growing market. The chapter also highlights some of China�’s fastest growing brands as well as global brands successfully expanding in this region. Many thanks to Peking Tan, Jason Spencer, Yee Mei Chan, and William Wei for sharing their expertise and insight.

About the authors:

Peking TanR&D Department Director, Millward Brown ACSR

Peking Tan (庼▦), based at Millward Brown ASCR in Beijing, leads R&D in China. He joined the company in 2003 and is responsible for innovation in the areas of data collection and analysis and modeling including SEM, ROI, segmentation and conjoint. One of his many accomplishments is the development of a robust online panel in 2004, which today is the main database of Lightspeed Research in China.

Peking helped author the new �“China Ascending�” chapter for �“The Global Brand�”, and translated the book from English to Mandarin. Peking holds a master�’s degree in psychology from Chinese Academy of Sciences, Beijing, and a bachelor�’s degree in biology from Tsinghua University, Beijing. He also lectures regularly at Renmin University, Peking University and Chinese Academy of Sciences in China.

Jason SpencerManaging Director, Millward Brown ACSR

Fluent in Mandarin, Jason Spencer has spent 14 years living, working and studying in China, Taiwan, Hong Kong and Singapore. Although Jason is Australian and arguably a native English speaker, his broad experience in Asia enables him to uniquely interpret research data and apply it to the marketing and business needs of leading clients in Greater China.

Jason, based in the company�’s Shanghai office, joined Millward Brown ACSR in 2003 after working for several years as a researcher in Hong Kong, Taiwan and China.

China Ascending

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Yee Mei Chan Group Account Director, Millward Brown ACSR

Yee Mei, who is based in Millward Brown�’s Shanghai office, leads an account team of 20 researchers. She has been with the company since 2003 and has extensive experience in market research working with FMCG and technology clients. She is also familiar with the regional markets, having worked on projects spanning Singapore, Malaysia, Indonesia and now China.

Originally from Singapore, Yee Mei is Fluent in Mandarin, English, and Cantonese. She is passionate about working with clients to uncover and deliver insights to solve their business needs.

William WeiAccount Director, Millward Brown ACSR

William Wei�’s research and consulting experience spans a wide range of industries including FMCG, automotive, consumer electronics, and chemical products in the areas of marketing, sales, supply chain management, and new product development. William joined Millward Brown ACSR in 2004 and is based in the company�’s Shanghai office. Prior to joining the Millward Brown, he worked as a business analyst for at the Shanghai branch of Thomas Group Consulting Inc., a NASDAQ-listed American management consulting firm.

William, who is fluent in English and Mandarin, holds a master�’s degree in international business management from the University of International Business & Economics of Beijing.

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The Global Brand

China AscendingEven in the face of the current global financial crisis, most data show that the Chinese economy continues to grow, and the numbers are staggering: China, with a population of 1.3 billion, has over 100 million middle�–class consumers, 300 million Netizens1, and more than 600 million mobile phone users. The potential of China as a market has caused brand managers from all industries around the world to sit up and take notice. There is a lot at stake in China.

When China�’s economy reopened to international trade in the late 1970s and early 1980s, brands from Western multinational companies (MNCs) didn�’t have to work hard to appeal to Chinese consumers. The superiority of Western brands was not questioned; they were believed to be high quality and worth the premium prices they commanded. However, attitudes have changed in the 30 years since Deng Xiaoping first initiated China�’s economic reforms. Increasingly sophisticated Chinese consumers now give careful consideration to where they will spend their money, and local brands in China provide MNC brands with serious competition.

China�’s homegrown brands are growing along with China�’s economy. Five Chinese brands (China Mobile, Industrial and Commercial Bank of China, China Construction Bank, Bank of China, and China Merchants Bank) are included in the 2009 BrandZ�™ Top 100 Most Valuable Global Brands2 ranking. Other Chinese brands, such as Haier, Lenovo, Li Ning, Huawei, Baidu, and Taobao3, have become huge brand properties that are competing successfully against foreign brands both at home and abroad. These successful Chinese brands are exploring the international market with hopes of fulfilling their ambitions of becoming global brands.

In this chapter, we will focus on two issues.

1. The unique aspects of Chinese consumers and the mainland China market that managers of multinational brands need to understand to succeed in China.

2. The opportunities and challenges for Chinese brands in exploring the global market.

The Diversity of the Chinese MarketIn terms of land area, China is as big as Europe; in terms of population, it is much bigger. However, as

Nigel Hollis states in Chapter 6 of �“The Global Brand�”, the Chinese market is not a single homogenous market. Rather, it consists of many distinct regions that differ in terms of language, geography, and levels of market development. Currently the most common way of segmenting the Chinese market is according to the size of the population centers and their rough level of economic development. This segmentation results in markets known as Tier 1, Tier 2, Tier 3, and Tier 4.

Nanjing Road, Shanghai

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China Ascending

Tier 1 markets are big cities4, such as Beijing and Shanghai, with populations close to or exceeding 10 million and city consumption power over 200 billion Renminbi (RMB). Tier 2 markets are smaller cities with populations between 2 million and 10 million and city consumption between 20 billion and 200 billion RMB. Tier 3 markets are less developed cities with populations ranging from 100,000 to 2 million and consumption capacity ranging from hundreds of millions up to 20 billion. Tier 4 markets, where over half of the Chinese population lives, are the rural areas.

In 1978, China�’s leader Deng Xiaoping launched a series of reform measures that allowed peasants in rural areas to buy and sell their products freely in small open markets. As China�’s leadership saw the incomes of rural citizens improve with no deleterious effect on the social order, they began to unleash similar reforms in Special Economic Zones, Shenzhen being the best known of these. After this action was also successful, restrictions on commerce were lifted in most eastern seaboard cities, which, because of their location, were well placed to trade with the outside world. Over the years, reforms gradually moved westward into the cities of China�’s less developed interior.

Most consumer categories penetrated Tier 1 markets first and then moved to lower-tier markets. For example, Tier 1 cities have become important markets for automobiles, LCD TVs, and other luxury goods, while penetration rates for these products are still low in Tier 3 and Tier 4. In general, there is more emphasis on price in Tier 3 and Tier 4 markets; consumers in these markets are more frugal, and take notice of even small price differences.

Distribution channels are at different stages of development across the various market tiers. In Tiers 1 and 2, the major distribution channels are big supermarket chains and home appliance stores. However, in Tiers 3 and 4, traditional distribution channels such as wholesalers, small independent supermarkets, and mom-and-pop grocery stores predominate. Indeed, the management of traditional distribution channels presents a significant challenge to marketing and sales managers of MNCs.

Local brands enjoy a number of advantages in Tier 3 and 4 markets, including their familiarity with the established distribution channels and their understanding of what�’s important to local consumers. But increasingly, MNCs are focusing on these markets. As early as 1996, P&G embarked on road shows through tens of thousands of villages and towns. They offered personal care products such as soap, shampoo, and toothpaste, with packaging and prices appropriate for rural areas. In 2003, P&G mounted a campaign in rural markets introducing a new package of the shampoo Rejoice that would be available only in rural areas for a price of RMB 9.9 (U.S. $1.50). Having established a beachhead in distribution channels as well as production lines in the less-developed tiers, P&G continues to focus on rural areas and has highlighted this as a strategic priority in China.

General store in Tier 4 market

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The Global Brand

Consumer shopping habits vary with the retail environment. In Tier 1 cities, consumers tend to shop once a week in the hypermarket, but in Tier 3 cities, where hypermarkets are less common, consumers tend to shop more often in small- to middle-sized supermarkets.

The geography of China is vast and varied, and as a result consumer needs vary according to geographical factors. For example, dry weather in the north makes fabric softeners more popular there than in other areas. Therefore, in northern cities, manufacturers emphasize the role of fabric softener in preventing static electricity, while in the warm and humid regions in the east and south (where deodorant products enjoy a bigger market share than they do in the north), they communicate the benefit of keeping clothes smelling fresh.

The vastness of China also makes media buying a challenge. Forty-seven satellite TV channels cover the entire country, while there are as many as 2,000 TV stations at province, city, and county levels sending out more than 6,000 TV channels in all. On average, each family receives 60 channels. While the national channel, CCTV, has relatively high penetration, its ratings vary by region. CCTV gets high ratings in northern cities, mid�–level ratings in the east (where local and provincial channels do better), and low ratings in southern cities, where it competes not only with local channels but also those from Hong Kong. Marketing managers need to adapt their media buying to this fragmented media market to achieve optimal results.

Consumers�’ understanding and acceptance of advertising also varies across the different tiers of cities. People in Tier 3 and Tier 4 cities tend to value advertising for the information it offers about products, while people in Tier 1 cities tend to expect more entertainment from advertising.

Geographic and economic differences even seem to influence the way consumers respond to surveys. The results of thousands of Millward Brown LinkTM pretests demonstrate that consumers in Tier 1 and Tier 2 markets are more sophisticated and critical; they rate ads lower than people in Tiers 3 and 4. Within a given tier, feedback in northern cities is slightly more positive than that in southern cities. All of this variation in response underlines the diversity that exists within China.

The best way to grasp the current situation of China is to observe it firsthand. Not long ago, we helped Smith Kline and French (SK&F), a joint venture of the international pharmaceutical company GSK, conduct door-to-door interviews. Dozens of members of SK&F management visited Beijing, Langfang, (a Tier 3 market in Hebei province), and Yongqinghe (a Tier 4 market in Hebei province). They spoke to consumers and also visited the hospitals, clinics, and pharmacies where their products were distributed. Xu Weilun, the marketing director of SK&F, believed that this experience, which increased management�’s understanding of the variety of both distribution channels and consumer behavior in China�’s different market tiers, would help global management understand the levels of support needed by local marketers.5

Advertising billboard for Apple products, Beijing, July 2009

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China Ascending

In a Diverse Market, a Cohesive CultureEarlier we compared China and Europe in terms of size. Though as geographic units they are comparable in land area, that is the end of the similarity. Diverse cultures and peoples developed in relatively close quarters on the European continent. In China, however, even though different regions were at times subject to different governing regimes, and different dialects are spoken in different regions, a uniform culture exists. The teachings of the Chinese thinker and social philosopher Confucius (born 551 B.C.) were highly influential in the development of Chinese society, social values, and social behaviors. His teachings were critical in defining social roles such as father, mother, and now, consumer.

In the past 30 years of economic development, the major influence on Chinese culture came from developed countries in the West. In the early stages, Western culture was enormously attractive for Chinese consumers; however, now that the Chinese economy has developed, it seems unlikely that China will continue its westernization. On the contrary, we believe that China�’s traditional culture will exhibit its influence again, and an understanding of Chinese culture will be very important to those seeking to position brands in China.

What�’s in a name? In Chinese characters, quite a lot

One very distinct aspect of Chinese culture is the written language consisting of Chinese characters. The selection of a Chinese name can have a major impact on the success of an international brand in China. A brand name can be simply transliterated �— that is, represented by Chinese characters that reflect the phonetics of the pronunciation of the brand�’s name in its original language �— or it can be translated �— that is, represented by characters that convey the meaning of the brand name in addition to keeping the pronunciation similar. Well-known examples of translated names include: BMW (⸬泻, �“precious horse�”), Mercedes-Benz (⯣泿, �“running�”), Johnson & Johnson (㇉䞮, �“strong life�”), and IKEA (⸫⹅, �“suitable for home�”).

Global Brands / Photo by Christopher Sotire

Chinese Ribbon Dance / Photo by Christopher Sotire

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The Global Brand

Coca-Cola (♾♲♾⃟) is often cited as the best translation of a Western brand name. Not only is the English pronunciation maintained, but semantic richness is added above and beyond that which is intrinsic to the original name. The Chinese characters convey meanings such as tasty, refreshing, suitable for drinking, and last but not least, bringing happiness.

A variety of P&G brands have been translated according to this principle. Examples include Safeguard (咡匳∂, �“comforting skin best�”), Rejoice (歧㩣, �“blowing hair soft�”), Whisper (㔳咡⸬, �“protect and comfort treasure�”), and Pampers (ソ⸬抑, �“helping baby be comfortable�”). Laurent Philippe, a former president of P&G, Greater China, said this in an interview with McKinsey Quarterly magazine:

We do not see our brands in China as global; we see

them as Chinese brands, and that is something we

are proud of. Our global brands are known in China

by their Chinese names. �“Pampers�” means �“helping

baby�’s comfort.�” �“Whisper�” means �“protection, comfort, and a very precious item.�” �“Ariel�” is

about the bright and clear wave of cleaning, the power of cleaning. The Chinese names

trigger meaningful visuals or associations with benefits. Of course, these brands happen to

benefit from the breadth of our company expertise and know-how in the areas of branding

and technology. But we are trying to build Chinese brands for the Chinese consumer. I think

Chinese consumers see our brands, such as Ariel and Tide, as Chinese brands from a global

company with a great reputation.6

A brand that does not have its name translated into Chinese may encounter difficulties as a result. According to the BrandZTM Top 100, Google is the most valuable brand in the world, with extremely high market share and strong consumer loyalty in most countries. However, in China, Google trails the local search engine offering, Baidu. Our tracking research indicates that Baidu had overtaken Google by 2004, and that currently its market share is three times that of Google. There are many reasons why Baidu has achieved superior market share, including its local language search advantage and an interface designed to suit the browsing habits of Chinese consumers, but another factor may have been its Chinese brand name. Google had never translated its brand name, in China or anywhere else, while ironically Baidu came up with a Chinese name that had semantic connotations similar to Google�’s root name �“googol�” (which means 10 100).

Photo by Christopher Sotire

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China Ascending

In 2006, in an effort to get closer to Chinese users, Google adopted the Chinese name �“Guge.�” The sound of the name in Chinese sounds like Google in English but has the rather romantic meaning of �“valley song,�” something that is certainly not associated with the search engine�’s function. Seeing this move as a late reaction to get closer to Chinese consumers without really trying to imbue the brand name with meaning, many Chinese consumers started to criticize it and some even launched a signature campaign against the Chinese name.

The relationship between brand and �“face�”

Arthur Henderson Smith, an American missionary who lived in China for more than 50 years, wrote a book called �“Chinese Characteristics�”, which was published in 1894. In the first chapter, which is called �“Face Matters,�” Smith discusses �“face,�” the important principle of Chinese conduct, under which a Chinese person never does anything that would embarrass or undermine another person.

The basis of �“face�” is a personal relationship, in which consideration and respect are both given and received. A Chinese person might explain it this way:

1. In order to maintain face myself, I need the consideration and respect of other people.

2. To prevent other people from losing face, I need to give them my consideration and respect.

The results of our consumer research attest to the importance of face. An analysis of BrandZTM 7 data shows that in developed markets, such as Hong Kong, Japan, Korea, the United States, and Europe, the top driver of consumer bonding with a brand is emotional affinity, followed by popularity. In China, however, the order is reversed. Furthermore, when we drill down into the components of emotional affinity for China, the statement �“I want to be seen using this brand�” ranks much higher than �“appeals to me more than others,�” suggesting that consumers expect to gain face through their brand choices. (See Table 17.1 for the relative importance of these statements across countries.) In part this may be a reflection of the current stage of consumer-brand relationships in China (where, in early stages, consumers appreciate brands for the status they convey), but the importance of face in China makes the respect and the opinions of other people at least as important to a brand user as his or her own feelings.

When choosing automobiles and other durables, a brand�’s reputation is extremely important, because the brand will only provide face when other people know the brand and its price. Therefore, a brand targeting high-end consumers must not only enhance the brand�’s reputation through advertising, but must also deliver the message that the brand is high-end.

Unveiling of Google name change to �“Guge�”, Beijing, April, 2006

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The Global Brand

Our research on the refrigerator market in China revealed that because kitchens are small, people tend to place their refrigerators in the living room. In this location, the refrigerator is not only used to store food, but to represent the personal taste and lifestyle of the owners. Thus, models with an attractive door design as well as a large capacity are likely to be favored by consumers.

In promoting brands in China, marketers must be attentive to face. In particular, when communicating with consumers, brands cannot make other people lose face. One important implication of this rule is that jokes that might be effective in advertising in many countries will not work in China. When humor comes at the expense of another person, it causes that person to lose face; therefore it is unacceptable in China.

The individual versus the collective

According to Confucius, individualism should be de-emphasized in order to promote a stable society. Westerners have some difficulty understanding this emphasis on collectivism, but the Chinese accept it without question as a necessity for living. As a result, Chinese people have a different understanding of the concept of �“self.�” In Western culture, the Children read The Confucian Analects, Changchun, China

Degree of Importance

�“I want to be seen using this brand�”

�“Appeals to me more than other brands�”

U.S.

Japan

UK

Hong Kong

Europe

Korea

China

India

China

Thailand

India

Korea

Hong Kong

UK

U.S.

Europe

Most Important

Thailand JapanLess Important

Source: Analysis of BrandZTM data based on CPG categories.

Table 17.1 Importance of Factors Related to Emotional Affinity

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China Ascending

concept of self focuses on an individual, while in China, the focus is on a more collectivist self, a self that is closely connected with a social circle including family members and working peers.

In most parts of the world, sporting goods are strongly associated with individual sports heroes. To some extent this is true in China, but in general, Chinese people prefer athletes that reflect more selfless values, values that resonate with what they feel Chinese society represents. High-profile athletes with strong individual (i.e., �“individualist�”) character may generate publicity but are not often looked up to as role models.

The types of sports celebrities most admired in China are those that keep a low profile and are diligent in their service to their sports. Wang Nan, a top player in table tennis, continues to push herself to improve despite being ranked very highly. Athletic teams that model a collective effort analogous to Chinese society are also appreciated. The Chinese women�’s volleyball team of the 1980s generated much admiration for being a symbol of China opening up and for representing the country successfully and with humility at international events.

Even though the concept of individualism is attractive to Chinese consumers, the way it is integrated into their aspirations is very different than in other cultures. Chinese consumers want to be individuals, but not in a way that alienates them from the people around them. This dichotomy of attitudes was captured well by an Adidas campaign in 2008. A series of out-of-home ads using simple line drawings illustrated the individual efforts of a large crowd of Chinese citizens literally supporting and holding up their chosen athletes to succeed at the highest level of competition, the Olympics. The individual people in each crowd were painstakingly drawn to be different from each other, highlighting individual contribution being channeled into collective success.

Ads in other categories also highlight this concept of respecting and acknowledging the individuals who sublimate themselves to the greater good. In promoting Fenbid, a brand of pain reliever, SK&F drew on the stories of the unknown heroes in Chinese life. The first is Shi Qinghua, a teacher who founded the Guangai School (in the suburbs of Beijing) to help 103 children who could not obtain education for various reasons. He suffered from achy joints and muscles caused by hard work, but by using Fenbid, he was able to overcome the pain and continue to devote himself to the greater good (the children�’s education). Another ad continues this theme by telling the story of a lawyer, Guo Jianmei, who devotes much time to pro bono cases. By focusing on self-sacrificing heroes and associating them with the brand, Fenbid was able to tap into an existing Chinese sentiment to build brand equity in China.

Adidas Olympic outdoor advertisement, Shanghai, 2008

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The Global Brand

Chinese Traditions Rising Again During the early stages of China�’s economic reforms, Western culture held enormous appeal for Chinese consumers. However, as China�’s status has risen in the international community, pride in traditional Chinese culture, customs, and concepts is re-emerging.

Chinese medicine provides one example. The theories of Chinese medicine are generally consistent with those of traditional Chinese culture. Both rely on the concept of unity and balance between nature and humanity. Disease, therefore, is considered to be a state of imbalance, which Chinese medicine addresses with a balance of cure and care. The ideal proportion is considered to be 30 percent treatment (cure) and 70 percent preventative (care).

Chinese consumers believe that Western medicine addresses the symptoms of illness without getting at the underlying root problems. A combination of both the Western and Chinese traditions, however, results in both relief of symptoms and restoration of internal balance. This approach is most appealing to consumers. The Chinese emphasis on unity also helps explain the Chinese preference for �“all-in-one�” products.

This concept of internal balance has been successfully leveraged in the canned beverage market. Within Chinese traditional medicine, there is a concept of internal heat, resulting from ingesting too much food or drink with �“heaty�” properties. Wanglaoji is an herbal tea drink that contains �“cooling�” properties; such products are believed to help adjust internal balance by providing cooling elements to offset the effect of foods that have heaty properties. Indeed, carbonated soft drinks (CSDs) are supposed to be heaty, and Wanglaoji has directly addressed this in its advertising campaigns fighting to gain share from CSDs. In 2009, according to the latest research on the beverage market by AC Nielsen, Wanglaoji passed both Coca-Cola and Pepsi to become the top brand in the Chinese canned-beverage market.

Other categories have been quick to identify their products with traditional Chinese medicinal ingredients that bring connotations of health, balance, and natural treatment. The brands most benefiting from this trend are the ones built on rich cultural provenance. Successful examples include Bawang shampoo and Yunan Baiyao adhesive bandages and toothpaste.

Adapting MNC Brands for China

Many MNC brands are integrating distinctly Chinese ingredients into their products. For example, a number of shampoo brands are promoting traditional ingredients: Hazeline incorporates black sesame and ginseng flower, while Head & Shoulders is formulated with lemon grass. Recently, Rejoice has been promoting a �“Chinese Recipe�” with ginger extract, and Gold Theragran multivitamins are using Rubimaillin (a traditional Chinese herb) to compete with local brands.

Goods on display at Herbal Medicine Street, Central District, Hong Kong

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China Ascending

Even KFC, the well-known American fast-food brand, has adapted its business model to succeed in China by adopting a distinctly Chinese menu, including items such as congee, Peking duck wraps, and Szechuan chicken. This strategy has worked well for KFC so far; there are about twice as many KFC outlets in China as McDonald�’s.

The success of the 2008 Summer Olympics bolstered Chinese national pride, and a number of MNC advertisers took advantage of the opportunity to reach out to Chinese consumers. Ads for Unilever�’s laundry detergent, Omo, which centered around foreigners�’ curiosity about Chinese culture, were well-received by local consumers. Johnson & Johnson also launched a series of advertisements that featured the mothers of Olympic athletes. Besides promoting the featured products, the ads also empathized with Chinese national pride. The upcoming Expo 2010 in Shanghai will provide another showcase for modern China and will provide new opportunities for international brands to get close to Chinese consumers.

Perceptions of Brands: Local versus Global

Analysis of the BrandZ data shows that among Chinese consumers, local brands are perceived less favorably than MNC brands, particularly in terms of product performance (see Chart 17.1). Whether these

KFC restaurant, Nanjing, Jiangsu Province

CHINESE MNC

Bonding

Advantage

Performance

Relevance

Presence

3

0

1

1

2

3

2

-2

-2

-6

Analysis based on 48 Chinese brands and 84 Foreign (MNC) brands in 10 categories Source: BrandZTM 2005

Chart 17.1: Performance Remains an Issue for Local Companies

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The Global Brand

perceptions are based on facts or outdated stereotypes, they represent an obstacle that Chinese brand owners must overcome if they are to compete effectively with MNC brands.

However, the data also shows that between 1998 and 2005, Chinese brands advanced significantly in the eyes of consumers. (See Chart 17.2.) The importance of low price as a reason for bonding with Chinese brands decreased, while other factors such as being trendy, popular, appealing, and functional increased in importance.

While competing with local brands in China, especially outside of Tier 1 cities, MNC brands need to make their brands accessible in terms of price, but they must be careful not to damage their brands in the process. The best way to maintain a brand�’s integrity is with a �“branding-down�” strategy that identifies different levels of offerings at lower price points in a way that does not negatively impact the brand equity �“upstream.�” Once a brand�’s equity is damaged, it is hard to rebuild its high-end image among consumers. The local brands in China need to shift their attention to brand-building and positioning if they are to bond with consumers on higher levels than just price and availability.

Globalization of Chinese BrandsAs global brands continue to stream into China, Chinese brands are growing as well. Five Chinese brands are listed in the latest BrandZ Top 100 ranking, and one of these, China Merchants Bank, was designated as the world�’s fastest growing brand in 2009 (in terms of brand value) by the 2009 BrandZ study. The value of the five Chinese brands in the Top 100 increased by 47 percent from 2008 to 2009, while the average increase across the Top 100 was only 2 percent.

Lead

ersh

ip

Differe

nce

Ration

al Affin

ityEm

otion

al Affin

ity

Popu

larity

Price

10

5

0

Chart 17.2: Reliance on Price is Declining for Chinese Brands

Analysis based on 22 Chinese brands

Source: BrandZTM 1998, 2005

1998

2005

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China Ascending

The next 10 to 15 years will be critical for Chinese brands seeking to enter the global marketplace. The continued globalization of the world economy seems inevitable, and as Chinese industry has developed its output to feed the demand from overseas markets, overcapacity has become a serious concern, especially in the light of the recent downturn in the world economy. It is imperative for Chinese manufacturers to seek new market opportunities.

Many Chinese brands have already marched to the global market with great determination and ambition. A few �— those that have pursued new opportunities through constructing factories and making acquisitions �— have already made great progress in business, but very few have made inroads into establishing strong brands. The government has also highlighted the need for Chinese industry to develop brands and to become global.

Barriers on the Way to Globalization

But just like the Japanese and Korean brands before them, Chinese brands will face many difficulties on the road to globalization. The following barriers need to be overcome:

» Low awareness in other markets

» Different competitive challenges

» The influence of �“Made in China�”

» Lack of international talent and experience

Low awareness in other markets

Compared with powerful global brands, Chinese brands have short histories, and almost all Chinese brands have very low awareness in markets outside of China. In overseas markets, mature industries are dominated by local brands or other international players, some of which have existed for decades or even centuries. Those brands are well established in consumers�’ minds; therefore it is an uphill battle for Chinese brands to enter mature industries.

Different Competitive Challenges

The advantages that Chinese brands enjoy in their home market will not serve them as they enter other markets in which they will face very different competitive environments. The requisites of brand building will change, especially for Chinese brands entering developed countries. For example, emotional brand connections play an important role in developed markets; however, Chinese brands are not adept at establishing these types of bonds.

The Influence of �“Made in China�”

For most consumers, especially those outside of China, a product carrying the label �“Made in China�” is considered to be a low-tech, low-priced product

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The Global Brand

of mediocre quality. Such negative associations with �“Made in China�” represent a significant obstacle for Chinese brands to overcome. However, associations between brands and their countries of origin run both ways. A few good brands can generate a reputation for the country they come from and enhance the perception of other brands from that country. For example, all Japanese home appliance brands benefit from the favorable perceptions of Sony and Panasonic. The performance of BMW and Mercedes-Benz creates favoritism for German automotive brands. Consumer preference for Chanel, Louis Vuitton, L�’Oréal, and Lancôme helps make France the top choice for skin care and luxury goods. So, as Chinese brands come to be recognized for something unique or noteworthy, a favorable image of �“Made in China�” will develop and facilitate the success of other Chinese brands.

Lack of International Talent and Experience

Currently, most Chinese brand management teams lack experience with global operations, the operations environment of overseas markets, and the needs of foreign customers. Lenovo tried to overcome this obstacle by purchasing the PC business of IBM and ThinkPad, thereby obtaining already existing brands, channels, and personnel. At the early stage of the acquisition, Lenovo made efforts to keep employees from IBM, while at the same time, they hired high-level executives from Dell, HP, and other MNCs.

Currently Lenovo is working to integrate cultures and improve international operations. To achieve these goals, the company has launched special programs such as �“Everyone Learn English�” and �“Smile Activity.�” The �“Everyone Learn English�” initiative requires that all management staff study English for at least one hour per day to enhance internal communication capabilities. The �“Smile Activity�” program is intended to help Chinese employees adapt to Western communication style and communicate more effectively across cultures.

Possible Paths to Globalization for Chinese BrandsAlthough Chinese brands do have challenges to overcome, they also have some advantages to capitalize on and some effective strategies they can employ. These are:

Choosing specific industries/products as breakthrough points

Chinese companies should identify product categories in which Chinese brands have already developed a reputation. At this stage, it would seem Lenovo and Haier are ahead of the curve, having developed some equity in developing markets such as Pakistan, Africa, and the Middle East where price is also a determining factor in building brand equity.

In exploring overseas markets, Haier found a niche in small refrigerators. These units are popular among U.S. university students, who use them in dormitories. Haier made some changes to accommodate the specific needs of students, making their refrigerators more suited to dorm life by creating models that also serve as computer tables. Chinese brands will need to do more of this to succeed in the future.

Restructuring cost is a powerful weapon

It is generally thought that global brands are upscale brands that sell for premium prices. However, this is actually true for only a few successful global brands; most sell at average prices for the markets they are in. Therefore, there is no reason why a proposition based on low price and value for money cannot be a

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China Ascending

platform for a global brand. Consider the example of Korean brands. Who would have considered buying a Hyundai 10 or 15 years ago? Relatively few people, but the situation is very different today. While trading on its low cost, Hyundai innovated to counter perceptions of low quality. In many markets, Hyundai was one of the first brands to offer three- and five-year warranties for new cars. This helped Hyundai to overcome poor brand image perceptions and make a name for itself on the global stage. Even today, the company continues to innovate in the area of customer service, offering to provide a money-back guarantee to customers in the United States if they lose their jobs as a result of the current recession.

Fusion of eastern wisdom and local culture

Chinese brands do not convey a clear image to consumers around the world. Generally, the imagery associated with China has more to do with culture and history than with beauty, creativity or fashion. Lacking these factors to arouse customer interest and stimulate sales, Chinese brands should rely on the rich imagery associated with Chinese culture to compensate. Mysticism, martial arts, Chinese medicine, the Great Wall, and the Entombed Warriors are all imageries that are clearly understood by overseas consumers. Chinese brands should think carefully about how to position themselves within what is already known and accepted.

Li Ning, a sports apparel company, has aggressive plans to expand overseas. The company cites its Asian/Chinese provenance as something that it will capitalize on to build a distinct position for itself in overseas markets.

Time and patience are needed

Globalization will take time and continued investment. It took more than 20 years for famous Japanese and Korean brands to achieve their current status. Careful planning and investment are needed, and the urge

to pursue quick returns should be avoided.

The Beijing Olympics impressed the world with China�’s many outstanding achievements; however, since then, quality control issues that resulted in milk poisoning, pet food poisoning, and lead in paint have deeply marred the image of China. These setbacks just highlight the long road Chinese brands must travel to achieve success on the world stage. To reach the final destination will take time, commitment, and continued focus. Many Chinese brands have already made this commitment in the domestic market. Given time, they are sure to achieve success in the

global market as truly global brands. Then �“Made in China�” can finally shed its pejorative associations and a �“Brand China�” can emerge.

Tan Wee Seng, former Olympic gymnast and current CFO of Li Ning Group sporting goods company.

Inside the Water Cube, Olympic Stadium, Beijing / Photo by Christopher Sotire

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The Global Brand

23rd Statistics Report of Internet Development in China, China Internet Network Information Center, March 23, 2009

2009 BrandZ Top 100 Most Valuable Global Brands

Haier is a major whitegoods manufacturer; Lenovo (previously Legend) is China�’s largest PC brand; Li Ning is a major supplier of athletic shoes and sportswear; Hauwei supplies equipment for networking and telecommunications; Baidu is a Chinese search engine; and Taobao is an online retail marketplace.

City consumption power is calculated by annual urban city consumption based on the population, economy, and consumption index of the city.

Interview with Xu Weilun, Marketing Director of GSK Consumer Healthcare China (TSK&F), May 2009.

Laurent Philippe, interview with Jacques Penhirin, McKinsey Quarterly, July 24, 2004, page 53.

The BrandZ study, commissioned by WPP and conducted annually by Millward Brown, measures the brand equity of thousands of global �“consumer facing�” and business-to-business brands, and has interviewed over 1 million consumers globally.

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Notes