The Trials Of Chinese Brands

E-mail Print PDF
AddThis Social Bookmark Button

Chinese companies want to breach Western markets with their own brands. Here’s how they plan to do it

Billion-strong China, with its 251 US dollar billionaires and at least one million millionaires, is without question the world’s second largest economy. If the indicators remain consistent the country is poised to overcome the US in 15 years.

China’s world power heft is going to eclipse the US by 2050, certainly dwarfing the EU and the G20. Barring a cataclysmic event, a Chinese century is written in the stars.

But observers are intrigued why, unlike Japan and Korea, Chinese brands have not impacted the global consumer market. Are they being left behind by the competition or are they overlooked by China’s policymakers?

Not at all. Instead, authorities in China are bent pushing domestic brands with the goal of beating the competition abroad. When this happens, everything we buy will be labeled as Chinese-made or (subtly) Chinese-owned. It has not happened.

There now exists a serious effort among Chinese officials and businessmen to establish competitive brands with distinctly Chinese cultural traits.

Expanding?
Some Chinese brands, of course, have already made their presence felt on the world stage. One can think of Lenovo, who Gartner and IDC reported as having the biggest market share in the PC industry. Last year it overtook Hewlett-Packard to become the world’s largest PC vendor. Euromonitor International ranked Chinese heavyweight Haier from 2009 to 2011 as the world’s leading appliance brand.

In telecommunications, China Mobile garnered 10th place in BrandZ’s Top 100 most valuable global brands in 2012, closely following AT&T and Verizon, despite losing 18% of its brand value.

The Industrial and Commercial Bank of China made it to the 13th place on the list, leaving Wells Fargo and Visa behind. China Construction Bank landed on the 24th.

China’s car makers are not lagging either, having posted 43% increase of export sales as of mid-2012.

But while a handful of Chinese brands are certainly beating some competitors in the global arena, a vast majority of them are struggling to compete at home. Roughly 33% of Chinese consumers surveyed by market research firms WPP and Millard Brown in 2012 considered a company “trustworthy,” posting an exponential decrease – from 50% – in two years time.

Scandals
This, however, can be attributed to the fact that many Chinese brands are relatively young. As WPP and Millard Brown noted, 66% of BrandZ’s top 50 Chinese brands for 2012 are less than 30 years old.

Surprisingly, the report seems to have ignored Chinese consumer’s shaky confidence in local brands. Examined closely, three manufacturers of dairy products have joined the list of the top 10 rising companies in China. This is despite the fact that they destroyed their reputation in news headlines.

Yili, a dairy product manufacturer, is a case in point. In September 2008, the company was implicated in a notorious melamine scandal. Consequently, Beijing revoked its Chinese national brand status. Then in June 2012, some of its baby formulas were found to have been contaminated with “unusual” levels of mercury.

Even China’s beloved Baiju liquor industry was not spared. In November 2012, Anhui Gujing, the country’s largest state-owned Baiju producer, was discovered to have produced liquors containing excessive levels of plasticizer. Subsequently implicated were several other Baiju spirit makers. Regardless, the industry still managed to register a cumulative 19% brand value increase last year.

Roadblocks
Aside from consumer safety scandals, China’s bid for global brands faces other roadblocks.

On top of the list is the persistent impression among consumers that “Made in China” means poor quality. Due to the rising labor costs in the mainland, China has ceased to be the top destination for low cost manufacturing. An increasing number of outsourcers are shifting their operations to countries with cheaper labor like Vietnam, Cambodia, and Bangladesh.

Quality concerns are well founded. In his 2009 book Poorly Made in China: An Insider’s Account of the Tactics Behind China’s Production Game, Paul Midler painted a vivid picture of how the Chinese manufacture their products. The typical Chinese production cycle, Midler says, goes against the theoretical model of on- going improvements. This results in compromising quality and sanitary standards. The bottom line is always about cost cutting meant to maximize profits.

It is not surprising that large-scale recalls of Chinese made products have consistently made headlines. Like in 2007 when toy maker Mattel recalled nine million products it outsourced from China due to lead paint and magnet contents that posed choking hazards. Last year, New York-based medical supply company Dukal, recently issued a nationwide voluntary recall of 4,300 cases of benzalkonium chloride swabs and antiseptic wipes it imported from China because of bacterial contamination.

And who in the world would think that China’s much-hyped bullet trains would fail? Their recall ironically coincided in 2011 with the 90th founding anniversary of China’s Communist party.

Pirates
Counterfeit and bogus items are part of the modern Chinese landscape. From watches to handbags, plastic rice to chemically made eggs, imitation medicines to fake signature clothes. JWT Intelligence even cited a chain of faux Apple stores that looked so authentic their employees believed they were working for Steve Jobs. Such a state of affairs in China’s marketplaces invites both suspicion and distrust and reveals a lack of originality.

Labor issues are troublesome as well. Apple’s gadget maker Foxconn immediately comes to mind. Its factories are known for poor working conditions, recently confirmed by an investigation by the Fair Labor Association (FLA) at Apple’s request. FLA found the company “surrounded with controversies,” including insufficient overtime pay and frequent workplace accidents, with reported suicides from 2010 until last year.

Even more harm is caused by China’s adversarial posturing against the West. This is exacerbated by intelligence reports about economic cyber-espionage by PLA-backed Chinese hackers. The awful truth is China might have opened up to capitalism but it still retains its true form– a Communist country. No wonder most American and European consumers, as well as Asians who believe in democratic ideals, are wary of China.

Jenny Chan of Campaign China laments such an unfortunate arrangement, “With so much China- bashing going on, it seems hard for Chinese brands to deliver the message that they are not threatening, and come in profit-orientated goodwill.”

Print ed: 03/13

 

On Newsstands Now

DECEMBER 2014:
The Asian Consumer Goldmine

14-12