When Li-Ning, the Chinese sportswear brand, began its launch in the US last year it underwent a logo redesign, adopted an English slogan and invested in an expensive TV and print advertising campaign, due to air this spring. Yet, of all sectors, sports footwear in the US is one of the hardest to crack. Add in the criticism heaped on the brand for its old logo (uncomfortably similar to the Nike swoosh) and the need for a hyphen to avoid the brand being referred to as “lining” instead of “Lee-ning” and the whole plan raises a question: will it all be worth it?
As China, now the world’s second largest economy, moves from being the world’s factory to its most promising marketplace, people are starting to ask, where are China’s own global brands? With every major company in the world trying to find its own niche in China, perhaps a more pertinent question would be why would any Chinese company with a solid base in the world’s fastest-growing, most dynamic market want to go to the expense, media scrutiny and hard work of breaking into slower markets that are highly competitive and, in many categories, already well-served?
“Most Chinese firms don’t need to go global,” says Jonathan Chajet, Asia Pacific executive director at the brand consultancy Interbrand. “The ones that are going outside are the ones that have already consolidated their market share at home and can build profits that will fund global expansion. Going overseas is the only way that those firms can hit their growth targets.”
Telecoms giant Huawei has done just that and its networks and products are already serving one third of the planet’s population. But its name remains relatively unknown. Implied in the notion of a global brand is name recognition in Europe and the US, and yet there are already plenty of Chinese brands – such as car maker Chery – selling in Africa, Brazil, Southeast Asia and the Middle East. “The Chinese perception of ‘overseas’ is different,” says PT Black, a consumer researcher who has spent a decade studying China’s retail habits. “We’re thinking the US and Europe; they’re thinking India and Indonesia.” Chajet agrees: “Why would Chinese companies chase 300 million middle-class consumers in Europe and the US when the real opportunities are with the three billion consumers in China, Africa, and India who are already predisposed to their products?”
Many Chinese firms’ business models are based on low cost and they don’t have the margins to justify the expense of battling their way into reluctant markets. The ones that have ventured overseas have had mixed results.
Chinese computer maker Lenovo, the world’s fourth-largest PC maker, bought IBM’s PC division for $1.7bn (€1.24bn) in 2005. From this high point, it struggled with sales in the US and didn’t seem to know what to do with its trophy acquisition. It regrouped and decided that its best option was to focus on its home market (China is the world’s number two but expected to become the biggest PC market before long) and other emerging markets such as India, Russia and Brazil. In February the group announced its largest profit in two years, reporting that 46 per cent ($2.7bn) of its sales were in China and 34 per cent from emerging markets.
Most Chinese companies, their names included, are geared towards the Chinese market and they would have to take a hard left to turn themselves into something that looks like a global brand. Few are prepared to take the risk that Lenovo did when it dropped its original Chinese name (Legend) for something that would work in the international market. Company name aside, the other big question for the CEO of any Chinese company is how much they want to signal the “Made in China” provenance.
“If you say ‘luxury’, people think of Italy or France; if you say ‘precision’, they might think of Japan,” says Chajet. “China doesn’t have those associations yet.” For China, the perception is of cheap goods, quality problems and a blatant disregard for intellectual property. The reputation for shoddy products once stuck to Japan and Korea, which should be a promising sign for those Chinese CEOs who want to change the perception of Made in China and be the one to take China on to the global market.
Many think that one fruitful area is technology, in which China has manufacturing expertise as it already makes everything for the rest of the world. Others like the look of Air China. Its chairman, Kong Dong, is doubling the fleet to over 700 aircraft in the next five years and has said he wants it to be among the world’s top five airlines. We wish him luck.
What no one is expecting is a global consumer brand, let alone a luxury label, to emerge from China. Yet Metersbonwe, China’s answer to the Gap, founded in 1995 by Zhou Chengjian, fancies its chances. Analysts are eyeing Erdos, the Inner Mongolian-based cashmere company that can legitimately claim to be a world leader (it controls 40 per cent of China’s raw cashmere and supplies to luxury labels). It launched its high-end fashion label, 1436 (named after the cashmere yarn), in 2007 with a flagship store in Shanghai. But while Chinese customers are in thrall to European luxury goods, there’s not much incentive for other Chinese companies to enter the fray.
Chinese brands could learn about brand strategy from international firms that have made their way to China and bent over backwards to make themselves appealing to Chinese consumers. KFC has spent 20 years doing so. Last year Hermès launched a fashion brand, Shang Xia, just for the Chinese market. The reality is Chinese brands have operated successfully in a huge but sheltered market, protected from competition and the glare of the media.
“People have such high expectations of China,” says Chajet. “Sometimes the government and people bring it on themselves by talking up their global potential”.
Li-Ning is already feeling some of the pain – its shares dropped at the start of the year as competition in its home market heated up and international rivals moved deeper into the Chinese market. Which all points to the importance of keeping an eye on China. “In the past, people said you’re not a global brand unless you’re in the US,” says Chajet. “In the future they will have to be in China.”