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The value of 'Made in China'

By Jonathan Calkins: 0 Comment(s)Print E-mail China.org.cn, December 11, 2012

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A slowing economy, leadership change and a renewed crackdown on corruption have been the primary drivers of dialogue in China over the past year. China's economy grew by 7.4 percent in the third quarter of 2012 compared to the previous year, the lowest recorded growth rate since early 2009, according to data released by the National Bureau of Statistics. New Party boss Xi Jinping's pledge to fight official graft at the highest levels of state power is showing teeth, as evidenced by the recent investigation into the deputy party secretary of Sichuan province.

The abovementioned conditions are cause for concern in business and government circles, where stability is seen as a necessary ingredient for a prosperous China. Companies and party officials are faced with the dual challenge of boosting domestic consumption and increasing the competiveness of Chinese brands overseas in markets saturated with established Western brands.

Advertising for Chinese brands is hard to find outside of China. Original Equipment Manufactures (OEMs) in China such as Lenovo, Skyworth and Haier, are ready to move up the value chain and are now selling products bearing their own logos to overseas merchandisers Costco and Wal-Mart, among others. As Chinese companies grow sales channels and diversify their product portfolios through acquisitions of mature but financially weak global brands, industry experts predict Chinese companies will place a new emphasis on brand building and management to cultivate long-term competitiveness.

Short-term profit, long-term problems

Over the past three decades Chinese industry has developed a reputation as a producer of low-price, low-quality products. As China began opening up to international markets in the 1980s, companies focused on rapid expansion and short-term profits. Over the years, many large-scale manufacturers have thus been subject to government investigations into product safety, ranging from tainted milk and pork to recycled cooking oil at popular restaurant chains. These scandals greatly reduced the brand value of otherwise well-established companies, and helped create a negative perception of Chinese products overseas.

Developing markets in Africa, Vietnam and India are also beginning to under-price Chinese manufacturers in the low-end segment, and recent public outcry over poor working conditions in Chinese factories are translating into higher prices for the nation's industry.

In April of this year, state-owned newspaper China Daily ran an editorial urging domestic companies to boost their brand value, and quoted a researcher with the Chinese Academy of Social Sciences, an academic think-tank, saying, "Frankly, what most Chinese enterprises earn is sweat money. Why is it hard for Chinese enterprises to expand internationally? Why is a product equal in quality with a foreign product sold at an unequal price? It is because our brands are not accepted overseas."

Chinese brands understand that they need to shed this 'low-price, low quality' reputation in order to be more competitive in local and overseas markets.

Rise of social media

In a traditional media landscape dominated by state-owned TV stations and newswires, Twitter-like service providers such as Sina and Tencent Weibo are revolutionizing the way Chinese consumers access and spread information. Brands in China are quickly learning that negative word of mouth can spread like wildfire across online discussion boards, and understand the need to proactively defend their brand image. Companies across the country are beginning to engage consumers and become part of the conversation.

John Orme, president of Porter Novelli's China partner Shunya International Public Relations, emphasized the importance of social media in brand management in a telephone interview with China.org.cn. Orme explained, "Chinese brands are very good at addressing and adapting to social media opportunities and changes in online consumer behavior and sentiment."

Orme also pointed out that some of the more forward-thinking Chinese brands have already began to transition away from simple brand protection to brand advocacy. Companies are doing more than just listening to consumers; they now initiate the conversation through various social objects such as immersive videos, grassroots celebrities and interactive media, and their tactics are producing positive results. A recent Millward Brown analysis of Chinese brand value showed that the top 50 Chinese brands outperformed the MSCI China index by 11.4% as of September 2012.

"The gloss of foreign brands is fading. Young Chinese consumers are now better informed than ever in making purchasing decisions, and often say there is not much difference between Chinese and foreign brands," Orme said.

If true, this belief underscores the growing importance of brand value and its impact on how much consumers are willing to spend on a product with a label saying 'Made in China.'

Protected overseas markets

Lower profit margins form yet another obstacle for OEMs in Western markets. Chinese companies can often provide similar services much cheaper than their foreign competitors, and governments have an invested interest in protecting domestic enterprises.

Raymond Tao, president of Ogilvy & Mather Advertising China, explained in a private interview with China.org.cn why foreign markets are subject to politicization. He said, "Chinese companies cannot really change [the US] government, or any other foreign government policy. There is an interest for these [Chinese] companies not to be there."

Recent decisions in Australia and the U.S., barring Huawei from participating in national broadband networks over alleged security concerns, are the latest examples of governments blocking foreign companies from accessing lucrative domestic markets.

As a latecomer to the global market place, Chinese brands must focus on engaging consumers and educating the public on the added-value of buying Chinese.

According to a related study by Millward Brown, a research agency specializing in advertising and marketing, 83 percent of consumers in major international markets outside of China could not identify a single Chinese brand.

Transparency, accountability and trust are the main ingredients to long-term success for any brand, not just those made in China.