Chinese entrepreneurs’ next big break is in developing global brands for their products

China may rightly be considered to be the world’s factory but to date it has yet to produce significant international brands.

The Interbrand 2012 list of the hundred “best global brands” did not include a single brand from mainland China while in a recent J Walter Thompson study of US and UK consumers, Chinese companies ranked near the bottom in consumer perceptions of quality, ethical behaviour and environmental consciousness.

According to Nirmalya Kumar and Jan-Benedict Steenkamp, the authors of Brand Breakout, all this may be about to change and China and other developing nations are set to become significant global brand players over the next decade.

They argue that China, for one, has little option if it wishes to continue its phenomenal growth trajectory. The financial crisis in the West has deterred China from passing higher costs to customers, and fewer orders are coming from Europe while demographic changes and increasing labour shortages have led to a quintupling of wages in the last decade with diminishing profit margins.

The expectations of Chinese workers are also rising. Witness the case, they say, of Midea, a home appliances manufacturer, that had to build extensive and costly housing and recreational facilities in order to induce workers to come back after their annual leave. The days of being simply the low-cost manufacturing centre of the world are numbered, it appears.

That’s the negative backdrop. On the plus side, China has invested in developing world class manufacturing and engineering capabilities, albeit for foreign brands and has laid a vast foundation to produce global-quality goods. It has vast economies of scale based on a huge domestic market. It just needs to get its head around international marketing.

“What’s more difficult, building engineering and manufacturing excellence or acquiring branding skills?” asks Kumar.

“As a marketing professor, I would suggest that it is easier to get the marketing and branding piece right. Those are skills you can buy. I believe there are some currently under-employed London ad agencies, for example, that might be able to help with that.”

Mind-sets have to change first, however. Up until now, Chinese companies, he notes, happily invest in manufacturing technologies but hesitate to plunge capital into global consumer branding. “They lack experience working with consumers in developed markets and using foreign media to build brands,” he says.

“Chinese entrepreneurs and executives prefer manufacturing, engineering, and finance – the hard sciences – over all the emotional branding stuff that seems fluffy, if not irrelevant to them.

"However, that type of investment is exactly what leads to the success of global brands such as Coca-Cola and Nike. "

Things may be changing, however. In 1989, China exported just six cars, but in 2012 it exported close to one million cars – albeit in the main to more rapidly emerging markets.

Strong impact
"When we think of terms of global brands, we tend to think of those that we know in the West but there are huge markets outside the US and Europe where China is already making a strong impact," Kumar says.

The cache of achieving success in the West, however, has a seductive appeal to the new generation of Chinese entrepreneurs, many of whom have returned to their homeland with MBAs and other qualifications from the US and Europe. Appealing to Western tastes is a challenge that many are now looking to rise to.

The book details how one Chinese carmaker deployed a team of scientists, including anthropologists and psychologists, to identify the best features of the most innovative countries in the world.

They sought to understand what consumers had come to expect in products from those countries. The carmaker embodied the team’s findings in a facility near Beijing.

Here, researchers devoted rooms to the sensory experiences of each country. For example, the “Nordic room” was misty and smelled of freshly cut grass, while the “German room” had a conservative feel and demonstrated how Germans perceive mechanical movement.

“Looking at a sliding door, it opens slowly, then speeds up, before slowing down to a perfect stop. In contrast, the Chinese door would swish open quickly and stop with an abrupt bang.”

Understanding nuances
Understanding such nuances could be vital to the success of Chinese products.

China is fighting unfair perceptions of low quality but that’s nothing new and is something that can be overcome.

In the 19th century, Kumar notes, “Made in Germany” was not a badge of honour as far as UK consumers were concerned while Japanese cars were considered cheap and inferior up the early 1970s.

While China is the main focus of the book, Kumar and Steenkamp note the success of other rapidly developing countries that have innovated or leveraged their strengths to overcome barriers to entry across the globe.

Brand Breakout: How Emerging Market Brands Will Go Global by Nirmalya Kumar and Jan-Benedict Steenkamp, is published by Palgrave Macmillan.