China’s battle of the brands

An interesting observation in China right now is the varying success of international brands in penetrating the Chinese market, and in reverse, Chinese brands expanding beyond their home borders. In addition, Chinese brands in many sectors are also coming under increased pressure in their home market.

Because of China’s sheer size, unique socio-economic make-up and rapid development from economic backwater to one of the world’s largest consumer markets, the distance between ‘domestic’ and ‘international’ in many sectors is far greater than anywhere else in the world. And often it’s that polarised – is this brand Chinese or not Chinese? And the answer to that question contributes enormously to brand consideration.  

There are many success stories, with international brands successfully cracking the Chinese market and Chinese brands growing around the world. But there are also failures in both directions and I feel there will be many more unless businesses start focusing more on developing a brand proposition relevant for the market they’re targeting i.e. International brands creating a proposition that's right for China and Chinese businesses creating world class brands for non-Chinese audiences to match the quality of their products. In both directions, there is a danger of huge opportunity lost.

The situation varies wildly by sector. In consumer electronics Chinese brands such as Lenovo are winning both at home and overseas, while in sportswear for instance, some are not faring so well as highlighted recently by Li Ning.  

In the automotive sector, Chinese firms have been making a lot of noise recently, but mostly in terms of acquisition or investment: Geely acquired Volvo, Dongfeng invested heavily into Peugeot-Citroen, Qoros launched from Shanghai as a JV with an Israeli firm, Infinity moved their global HQ to Hong Kong and so on. Yet foreign brands like Volkswagon, Buick and Hyundai still account for over 70% of the Chinese market. The fact that most of these ‘foreign brand’ cars are made in China shows a huge disposition towards international brands in this sector. And the idea of buying a Chinese car to a non-Chinese consumer is even less attractive, creating a barrier to developing an export market.

Geely this week announced a significant lowering of its full year sales targets, citing weakening demand for homegrown brands and rising competition from foreign carmakers. Even with alleged protectionist policies from Beijing, the sector will struggle until it gets it branding right.  

On the plus side, Xiaomi recently became the number one mobile phone brand in China by unit sales, knocking Korean giant Samsung off the top spot for the first time in years. Huawei, ZTE and others are chasing hard. In fact six of the top ten global smartphone brands by sales are Chinese, with a 7th, Apple, making their products in China.  Lenovo continue to go from strength to strength across the world, acquiring Motorola from Google which they’ll hope to turn around in the same manner as they did IBM’s PC business many years ago in a move that propelled them onto the world stage.  

In other sectors, domestic brands that are thriving claim no intention to expand into international markets. Hong Kong’s Chow Tai Fook are the world’s largest jewellers by some distance, but operate almost exclusively in Greater China. Snow is the best selling beer brand in the world, despite only being sold in China.  Both have enormous domestic market shares and are still growing, but surely it’s just a matter of time before these, and brands like them start looking further afield.

To win, at home and overseas, they need to overcome any perceived negative equity that comes with being a Chinese brand. In most sectors, know-how, quality and innovation are not a problem and don’t impact consumer perception.  Apple products are largely made in China, as are Silver Cross prams and a multitude of other high end and high quality products.  Chow Tai Fook make world-class jewelry and beer drinkers consistently chose Snow over a multitude of other beers. So product quality is great, but there’s clearly more brand work to do.

A short digression to a major exception. Food is another matter altogether and is an industry that has some serious work to do on standards to recover from recent (and ongoing) milk powder, meat and even fake egg scandals.  

There are always pioneers paving the way for others to follow. Bosideng, a Chinese retailer with over 10,000 outlets recently opened its first overseas flagship in London’s South Moulton Street; a first for a Chinese fashion label of their size. Will they succeed where sportswear brand Li Ning failed? Time will tell. Going the other way, Zara, Uniqlo, adidas, Starbucks and Ikea are continuing to thrive in China, whilst other retailers including Best Buy and Argos failed to penetrate the market and were forced to pull out.

Food aside, it feels that any stigma attached to Chinese brands or ‘made in China’, by either Chinese or international consumers is largely one of perception rather than quality and therefore is a branding issue.  Likewise, as the Chinese economy moves from one reliant on exporting to one of domestic consumption, so there is still enormous opportunity for international brands from all sectors.
 
In the sportswear market, whilst Li Ning reported deepening losses this week, domestic rival Anta is competing well in China with western giants such as adidas and Nike; all having a brand strategy, positioning and execution that the market clearly buys into.

The reality is that whatever their provenance, good products or services, packaged well with a clear positioning and strong brand strategy relevant to each market, and marketed impactfully and seamlessly across channels, will win.

So western brands need to stop seeing China as a huge opportunity that they can simply jump into, and instead work as hard on adapting their brand strategy for the local audience as they have done for their domestic markets.

And most Chinese brands need to put a lot more effort into developing their brand positioning and communications to compete head-on with international competitors. They need to be bold, believe that they can compete, and find the right strategy to do so.  If they don’t believe, how can they expect consumers to?

In many cases, in either direction, the product is good enough but the branding is not.

Jonathan is MD of StartJG in Hong Kong. Read more from him in our Clubhouse and follow him on Twitter @JonathanHK