Asia Centre

These articles from Zhongguo Jingji Zhoukan seek to explain this phenomenon. The first one picks up on the comment made by Al Ries, the international marketing expert. In the second article, this analysis is set against the points of view of various Chinese experts on the issue.

Al Ries: Chinese firms ought to concentrate on their reputation and develop their own particular speciality

Al Ries' observation is categorical: "As far as I know, there is no solid Chinese brand name on the world market". Even if a Chinese brand achieves good results in the domestic market, that does not mean that it will make it on the other world markets. Al Ries gives the example of a brand well known in China - Lenovo, which in his view sounds like "the name of an Italian pastry". His diagnosis is that China is currently faced with a choice: either it continues to manufacture products or it decides to manufacture brands. The solution is that Chinese businessmen and managers need to decide to spend time and energy in creating big brand names, and they should understand that the essential thing is not the production of low-cost merchandise. This is all the more so since the latest report from the United Nations shows that China is the third largest producer, after the United States and Japan. According to the same report, production costs are likely to rise with increasing wages, and that consequently the country must become more competitive.

In order to keep its competitive edge, China needs to move from being "a manufacturer of products to being a manufacturer of brands". At the present time, again according to Al Ries, Germany is the country with the highest production costs, and yet the Germans are very competitive in terms of brand names, as is proven by the reputation of companies like Mercedes or BMW. The German example illustrates Al Ries' reflections: a country's capacity for growth does not arise from its capacity to produce but from its capacity to manufacture brands.

Another problem is that so far China has not managed to get the name of one of its companies firmly linked to a particular product, like Dell, Intel, or Microsoft. Consequently, it is threatened by the "Japanese disease": a firm manufactures products for different sectors, and therefore cannot acquire a speciality in any particular line. The diversity at the production level stands in the way of establishing the brand internationally.

Al Ries has made the following recommendations to Lenovo: the company should bring its production lines together. Next, it should find a name for its exports which will sound agreeable to European and American markets, which already have successful brand names, like ThinkPad, for example. Finally, they need to link a particular quality to the brand name. The models here would be Volvo, with its reputation for reliability, or Mercedes, with its social cachet. If Lenovo laptop computers were able to last eight hours without recharging, it is this quality that should remain in the minds of potential customers.

Is China really lagging behind?

The Chinese are pondering on Ries' point of view. Some experts believe that there is no need to worry, that the development of a brand's reputation is a process which takes time. It is enough to look at the example of Korea. A few years ago that country's products were internationally known as cheap and of inferior quality. Nowadays some Korean multinationals have managed to get themselves recognised as solid brand names. In the same way, the main characteristic of Chinese products is their low price. But strategies evolve, and in future low costs will no longer be the main characteristic of Chinese goods.

Moreover, this trend has already started. China cannot yet boast any famous brands but the successes of Haier, Lenovo, or even Mengniu are proof of Chinese determination, confidence, and ability. These firms show, above all, that China is only at the first stage in launching her brand names. Jin Zhanming, from Tsinghua University, goes further in arguing that right now China already has internationally recognised brands, such as China International Containers (a world leader in that sector), Tsinghua Tongfang, Huawei, ZTE, as well as Lenovo.

However, China is currently going through a risky phase; production costs are continually rising while the returns are not very large. The Chinese are putting their trust in long term improvements.

Meanwhile, they must take advantage of present opportunities. They need to launch an initiative aimed at getting recognition for the "Brand By China" instead of the "OEM" label (i.e. the "Original Equipment Manufacturer" which identifies them as manufacturers for other companies). China must become a "country of origin" and a "strategic base". In addition they need to make plans for product innovations. They should also seize the opportunity presented by the Beijing Olympics to promote Chinese products.

Environmental improvements as the way to gain recognition

They believe that there are two problems facing the companies:

1. Their average life is two or three years, but in order to become famous, a company must last much longer;

2. They need to make long-term investments if they wish to become famous brand names.

In addition China needs better market conditions for successfully promoting Chinese brands. Moreover, Chinese brands will suffer if domestic consumption remains weak, as this will tend to block the companies' development.

Finally, another factor should be noted. Leading Chinese brands are facing large setbacks from the many scandals that have broken out recently, particularly in the United States. These brands are not helped by the sight of the thousands of dead cats and dogs last March, followed by the scandal of the Chinese anti-gel toothpaste. A company in the state of Utah even went so far as to advertise its produce as "China Free"… Negative events such as these can only undermine popular acceptance of Chinese brands overseas.