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China’s global ambitions

By Jenny Chan

China may be the ‘world’s factory’, but few of its brands have succeeded as exports.
In Beijing, leaders outline ways to change that.

It is over a decade now since China joined the WTO, yet relatively few of the nation’s domestic brands have yet to establish a truly global reach. At the Beijing roundtable, in association with BBC World News, bbc.com and The Hoffman Agency, a diverse group of professionals shared their thoughts and shed light on what Chinese brands need to do to succeed beyond their home turf.

Katy Xu, BBC World News’s VP of Greater China and North Asia, highlighted the role media can play in helping Chinese brands go global. “The audience insight international media has gathered over the years is of huge value for Chinese brands to understand who they are talking to and what kind of perception they have,” she said.

Bo Chen, GM of corporate communications & marketing, Fosun, said although there might be a lot of media coverage about Huawei and Lenovo, many overseas markets remained concerned about Chinese companies’ motivations, particularly state-owned enterprises associated with the Communist Party. In the last decade, the image of the made-in-China badge has not been a positive one, so Fosun created a “very easy” philosophy of investment: based not on the concept of control but of capacity, he said. As justification for its takeover bids, Fosun has stated that it wants to help Western brands such as the Club Med holiday resort chain from France expand in the high-potential market that is China.

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Chinese brands go global – group picture

Chen cited Folli Follie, from Greece, as another example. The luxury retailer had 100 stores across China, but investment from Fosun helped them to double that, he said. Apart from that, Chen touched on post-investment control. “When we decide to invest in a company, we never change the management team. We do a lot of research on evaluating the team before we invest. If the team is not good, we don’t invest in it. We don’t want a lot of Chinese people from Fosun to manage the company — only the CFO is from Fosun while the rest of the original management team is retained,” Chen said.

From a macro-economic standpoint, Chinese brands reaching out to buy Western brands has drawn considerable interest. Recent examples include Lenovo’s plans to acquire IBM’s x86 server business and Geely buying Volvo, a brand that was a source of local Scandinavian pride for its safety and history. Access to already built-in brand trust seems to be more important than anything else, but the unique challenges that a Chinese brand has to overcome to get traction overseas remain. Jesper Colding, VP of Mengniu’s marketing management system, said Huawei had become the backbone of telecommunications in many countries but the victim of political sensitivity around spying. “I think it is going to take some time to dispel that. Time will ease those concerns, but innovation, speed and efficiency will win.”

From Colding’s perspective, if one can compete in China, one can compete anywhere. The digital learning curve in China is faster than that its European or American equivalents, which is a huge advantage for Chinese companies going global. “European or American companies will really need to shape up to compete. The story angle is more like, how can you compete against a Chinese company, rather than how can Chinese companies compete overseas? I’m more and more convinced of this after working here for two years,” Colding said.

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Should Western companies be more nervous than the other way around? In the internet space, this is certainly is the case, said Richard Robinson, co-founder & president, Yolu. “I go to Silicon Valley and people are like, ‘Oh, China is about copycats and hackers.’ Their perception is skewed, it’s absolutely wrong and wrong. What defines the Chinese internet is competition — and it’s one of the rawest forms of competition, something that’s gone so far ahead of the government that it can’t really regulate it. There are some checks and balances but it’s an extreme Gladiator-type of competition here,” he said. Take YY.com, whose CTO told Robinson the firm had difficulties raising money during investor roadshows because they couldn’t simply tell Wall Street they were the “XXX of China” since their product was more innovative than that.

“Here, Yahoo is dead, Amazon is dead, AOL is dead, Google is half dead; there is no market like that anywhere internationally. It is absolutely ruthless as Chinese companies have gone through an evolution of failing their way to success and learning incredibly fast because of that,” he said. It took 20 years for Korean companies to go global but Chinese companies would replicate and exceed that level in just a decade, Robinson asserted. “Plus, you don’t need everybody in China to be innovative, just a few people like [Alibaba founder] Jack Ma.”

Andrew Ballen, founder and CEO, AVD Digital Media, agreed with that, and further characterized competition in China’s ad-tech space as “competition on steroids” and “training at high altitude”.

Chinese brands go global - round table (1)

It seems foreign brands may have had more sway with Chinese consumers in the past but what about the perception of Chinese brands at home? The hotel industry is one category where Chinese brands are gaining more loyal local followings.

Sara Liu, deputy general manager of sales & marketing, Wanda Hotels, said Chinese consumers had gone past the stage of only believing in foreign brands. She said Wanda worked with five international hotel chains and after a couple of years, thought to set up its own. “Now we have 21 hotels under our own group brands. In fact, in certain cities we are competing with Sheraton in Changsha and Westin in Wuhan — even when we own the Westin brand itself. China is getting more mature and smarter; they care not only about price but about value,” she said. Wanda Hotels focused on Chinese culture as its unique selling point, touting authentic Chinese food for example. Another innovation was to place the Chinese classic the Book of Rites (or Liji) inside hotel drawers. “This is a very small gesture, but it tells people we are different. Other hotels in China put The Bible as a tradition, simply because the very first hotel did so,” Liu said. However, going abroad remained a challenge for the company, she said, partly due to how established foreign chains were overseas.

But there is always room to play.

Dirk Eschenbacher, creative director & CMO, Zanadu, said he thought younger brands in China were able to create great stories, even small ones such as Rose Only and Huang Taiji, mostly propelled through social media that could build a brand very quickly and successfully. “This happens more in China than abroad because marketers know how to use China’s ecosystem of technology and media to their explosive advantage. But it kind of stops here because the strategy that works in China does not work abroad. The problem is that stories from China do not travel outside but the outside stories from brands like Tesla are able to touch consumers here,” Eschenbacher said.

Perhaps, it is not so much about the marketing and advertising of a brand, but giving consumers a product that is convenient, such as the WeChat in-payment feature making it easy for people to shop online.

Zhibai Han, deputy director, overseas product & operations, Meitu, said his company’s products — a photo-enhancing app and branded smartphone — relied on a sense of utility, since looking prettier is a universal desire. But he admitted the app was not designed for global usage. “Overseas users are saying, ‘I love this product but please do something about the crappy English translations.’ But because the app is a great utility for beauty, it is kept it in a good position in app rankings. Even though WeChat dominates the mobile space, we are not left behind. If we focus on what we do well, that tells its own story and pays for itself,” Han said.

For an economy of its size, China should represent a much greater share of the world’s globalized brands. In the past, structural economic reasons like raw materials and labour force made input costs attractively low and growth at home very comfortable. But those advantages are fading, partly due to naturally rising costs and partly due to competition from outside. The bottom line is that change is inevitable. The question is when is the right time to take a Chinese brand outside of China?

Li Juan, assistant of COFCO brand management manager, said domestic names were experiencing what Western companies experienced in the 1950s or 60s — a slow shift to branding beyond products. “I remember in the 1980s, how just one advertisement by Green Leaf Beer brought it to the number-one position in the Chinese beer category. Right now, nobody can say that they are number-one because everybody is doing more branding work that levels the playing field.” Western brands in China were in college, whereas Chinese brands going abroad were still in kindergarten, she said. For COFCO, it was not the right time to go abroad now, Li said, but it was the right time for the company to enhance technology and learn about best practices from Western nations. Still, these best practices were only applicable to those nations, and had to be adapted to China’s situation.

Olivia Wang, associate at Zhenfund, agreed that it was still early stages for Chinese brands going global. “As a TMT investment fund, we assess the market often. Fundamentally, we look at the company’s team DNA. It is often globally minded people with US-China backgrounds; people with Stanford or MIT PhDs; people who worked for Google or Facebook,” she said, but these people were hard to come by.

An old article in Forbes magazine sparked controversy by asserting the reason China is underrepresented in the world of global brand names is because its history and modern culture are unsupportive of the kind of disruptive entrepreneurship that leads to breakthoughs like a Google or an Apple. Is there any veracity to that notion?

Huadong Zhang, marketing director, China Huiyuan Juice Group, said that Chinese brands were on the way to becoming globalised, like TCL and Lenovo, but they had been unsuccessful so far — the process had not gone as they envisioned it. “To put it bluntly, we Chinese may think our products are suitable overseas but it is not necessarily the case from a foreigner’s point of view. If we were to embark on a going-global path, we need to consider how to go about doing it. If we do not think it through carefully but blindly go global for the sake of it, it will be damaging to our brand. Do we go for an overall win or a partial breakthrough, and in which market?”

The Chinese, being more pragmatic, cautious and calculated than others, preferred to achieve success and acceptance in Asia first before venturing out to replicate it in Western markets, he said. On the acquisition level, there were still a lot of issues with integration of cultures and difference in management styles. Chinese culture was actually quite profound, including the likes of Sun Tzu’s Art of War and Confucius’ teachings; the hard part was to combine these elements with the needs and values of global consumers. “When we have reached that point, it will be the right time to go global,” Zhang said.

Jack Zhao, VP of Funtalk, quoted a Chinese proverb which says that “the first bird that takes wing is the first bird to get shot”. He said this underpinned Chinese tendencies to lie low and not stand out but adhere to the general rule of business. In ancient times, that rule was getting rich via rising up the ranks. Many things indicated to him that a Chinese brand had still not shifted its emphasis to building brand equity rather than short-term profits. This did not encourage innovation, Zhao said.

Lou Hoffman, president & CEO of The Hoffman Agency, advised on some predominant expectations when it came to preparing brand communications for a non-Chinese audience. “You have to segment it into the US in general and Silicon Valley, as they have distinct cultures and mindsets. Broadly, I think it’s fair to say that middle America is more conservative and has a negative perception towards China,” he said. Part of that was political and part of it was from due to the way US media has portrayed Huawei, which had created a halo effect over all Chinese companies. In Silicon Valley, however, it was a different story — despite a pinch of wariness towards Chinese companies, there was also a sense of excitement because of an underlying sense of meritocracy.

Chinese brands go global – Lou Hoffman

For China’s brands to take their place on the world stage, identifying such market opportunities and capitalizing on them will be the first step.

The roundtable was presented in association with The Hoffman Agency, BBC.com and BBC World News