China’s efforts to build brands for itself fail to leave a global mark

The world’s second-largest economy has gained by exporting cheap goods, often at the expense of an unenviable reputation for poor quality. As the economy changes, branding is now a key concern.
Tencent’s new headquarters in Shenzhen, left; and a Made in China clothes tag. The bulk of electronic and consumer goods exported from China are either unbranded or produced for foreign companies such as Apple. Qilai Shen / Bloomberg; Brent Lewin / Bloomberg
Tencent’s new headquarters in Shenzhen, left; and a Made in China clothes tag. The bulk of electronic and consumer goods exported from China are either unbranded or produced for foreign companies such as Apple. Qilai Shen / Bloomberg; Brent Lewin / Bloomberg

Beijing // China is not just the world’s biggest exporter, it is also the biggest mover of unbranded goods.

The country has generally failed to build strong brands of its own and the Chinese government and businesses are now trying to address this deficiency to overcome the challenges posed by shrinking international markets and a slowdown in the domestic economy.

There is no Chinese company in the top 100 brands, let alone top 10, in a recent study conducted jointly by Campaign Asia and Nielsen ratings. Asia’s Top 1000 Brands report found that other Asian countries such as Japan and South Korea were well represented in the top 10. The list included Sony (3), Panasonic (5), South Korea’s LG (7) and Canon (8).

But two other studies conducted recently by Brandz and Brand Directory have one Chinese company in the ninth position in global rankings, and several firms from the country among their top 100s. But this does not significantly change the fact that the bulk of electronic and consumer goods exported from China are either unbranded or produced for foreign makes such as Apple.

The ongoing economic slowdown at home and shrinking export markets present a new challenge to Chinese companies. Both the domestic economy and the international market is going through a major change and firms need to adapt quickly, analysts warn.

“China’s rapid transformation means that brands have to evaluate marketing strategies and how they engage consumers outside of their domestic market, as well as continually and consciously tackle issues such as food safety and quality control in order to compete on a regional or international level,” Atifa Silk, the brand director at the Campaign Asia publisher Haymarket Brand Media, tells The National.

Chinese companies will have to build trust and adopt a long-term strategy to brand building if they want to really transform from being local winners to becoming global winners, Ms Silk says.

The question is whether this is the right time for Chinese companies, already facing shrinking profit margins, to spend heavily on marketing and brand ­building.

Businesses in the world’s second-largest economy have traditionally relied heavily on price competition, which gave them an edge over foreign players that invest heavily on research and development, marketing and brand building. But production costs are rising sharply in China on the back of increasing property prices and rents as well as growing labour wages. Companies are becoming aware of the benefits of a recognised name.

“The importance of brand building is steadily growing in China, in parallel with consumers’ purchasing power, sophistication and expectations of value,” Ms Silk says.

“As the economy rebalances from production to consumption, and the market becomes ever more competitive, companies have begun to earn recognition and profit from their brand-building efforts.”

To tackle foreign competition at home, they can reduce the pricing and quality perception gap between their products and those produced in the western world by improving quality and executing targeted marketing strategies, she says.

“But those [Chinese firms] with global ambition and ability will need to bridge major gaps if they want to compete head-to-head with their multinational rivals abroad and establish brand loyalty,” Ms Silk adds.

One reason why Chinese companies have generally failed in brand building is their reluctance to invest in product safety and research and development. Serious questions have been raised both by consumers and government agencies in China about goods including contaminated milk, toys with toxic colouring and fish and meat that is either contaminated or coloured to pass off as fresh.

Lack of consumer trust in Chinese goods both in the domestic and international markets is a major problem, and this inhibits brand development. After all, brands only breed loyalty through trust, both in terms of value for money and safety.

“Many Chinese retail and CPG [consumer packaged goods] brands are still perceived as lower quality than western brands. Higher-end shoppers [generally well educated professionals living in Tier 1 cities] tend to prefer and trust foreign brands,” says Angela Bainter at the consulting firm Web-Presence-In-China.

“I do think consumer trust is definitely something that holds back Chinese retail and consumer brands.

“For example, we are working with a make-up supplier whose core challenge is building consumer trust for their local Chinese brands domestically, because the type of consumer they are targeting tend to buy imported cosmetics or go overseas. They tell us ‘actually, our products are very high quality. We spend the most money on research and development in the industry.’ But once you put a Chinese brand on it, Chinese consumers automatically doubt the quality,” she says.

But Ms Bainter does not condone the absence of Chinese brands altogether in the list of top 100 Asian brands in the Campaign Asia report. Chinese companies such as Baidu, Tencent and Alibaba fully deserve to have figured in the top 100 list given their wide market in Asia, she says.

Ms Bainter says the appearance of Chinese internet and telecom companies such as Baidu, Alibaba, Tencent, China Mobile and China Unicom higher up in the two studies by Brand Directory and BrandZ could be down to a lack of domestic rivals.

“Obviously, the use of these brands outside of China is minimal. But these brands have flourished because the regulations in the Chinese marketplace basically allows them to grow without competition at home,” she says.

Google, Facebook and Twitter are among foreign peers blocked in China, leaving Baidu, Alibaba and Tencent unchallenged in the home market place, she points out. Chinese financial and telecom institutions, which have government involvement, also enjoy the advantage of regulatory barriers that keep foreign companies out of the market. But then, China is one of the world’s biggest markets, and success in the country should be enough to ensure a high position in global brand listings.

There is another reason why Chinese firms have done well in the Brand Directory and Brandz listings. Chinese companies seem to achieve high brand value when their revenue earnings are combined with consumer perception about quality, reliability and goods worth recommending to others. The belief that many big Chinese companies are backed by the government is also a major brand booster.

On the other hand, Chinese brands can face discrimination in foreign markets and among consumers who have a low perception of China for political and cultural reasons. In contrast, brands from countries such as the United Kingdom, Germany and the United States, tend to garner more positive responses.

“There are national traits that help new and existing brands to perform well internationally because of the national image of the country. And Chinese brands don’t have so much of the national image benefit,” says Robert Haigh at Brand Finance in the UK.

Whatever the reasons, Chinese businesses across the board will have to address the challenges of developing strong positive brand awareness if they are to move beyond the country’s borders and succeed.

business@thenational.ae

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Published: September 12, 2016 04:00 AM

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