Oct 012011

Milton-Kotler-Chinese-Brands-Strategy-ConferenceMilton Kotler, the preeminent marketing pioneer in China, updated me on the state of Chinese brands. They may not be taking over the American market, but they are most definitely growing outside of China. Here are Milton’s observations:

Chinese Brands Seek Easier Markets than the U.S.

“Consumer brand management is making headway in the domestic China market and developing countries,even in Europe, with apparel, appliances, computers, white goods, black goods, autos, etc. You would be surprised, too, at the number of Chinese brands in Africa, SE Asia, Latin America and Eastern Europe.

The U.S. is the toughest consumer brand market to enter, and the Chinese want to get their brand management ducks in order so they don’t lose the shirts make a premature plunge.

There are strong Chinese brands in the B2B industrial sector. Huawei is now the world’s second largest telecommunications company. Sany heavy duty vehicles is building a plant in Georgia to compete with Caterpillar in the U.S. home market. Yutong bus is making a brand deal with Greyhound. So there is movement.

Chinese Companies Are Acquiring Western Brands

The key thing is that brand management takes time to learn how to do well. So China vigorously tries it in China and patiently waits for scale entry into the U.S. market, so they don’t lose their shirt with a premature entry. Meantime, let’s not forget that Chinese companies are acquiring well known Western brands, like Volvo and whatever else in manufacturing, distribution and retailing that they can get their hands on.”

Milton Kotler has been a business pioneer in China for since 1999. His company Kotler Marketing Group, with offices in Washington DC, Beijing, Shanghai and Shenzhen, conducts projects in marketing strategy, management and training. Clients include Motorola, Ford Motor, IBM, JP Morgan Private Banking, Exxon Mobil, American Express, Microsoft, Novartis, British Telecom, Pfizer, and other Fortune 1,000 companies. He is an economic advisor to the Mayors of Xian, Dalian and Harbin and is the author of A Clear-Sighted View of Chinese Business Strategy, Renmin University Press, Beijing; 2003. His new book (forthcoming 2009) is Why China? A Business Adventure.

Sep 032011

Most-Valuable-chinese-BrandsThe Hurun Report covers new ground with its release of the Most Valuable Chinese Home-grown Brands List 2011. As we posted earlier this year, creating global brands is official Chinese government policy. Chinese leaders recognize that the big profits are in selling brands, not making products. Since opening their markets in 1990, the Chinese have made fast progress in learning how to brand.

Most Chinese brands are still unknown in the US Market. There is simply so much potential in the domestic Chinese market that companies don’t need to face the risks of exporting. It makes sense to go after a local market of 1.3 billion people you know well before taking on the logistical and cultural challenges of the United States with just 312 million people.

Listing the Most Valuable Chinese Brands

The top ranking brands were built on state-owned enterprises. The ICBC (Industrial and Commercial Bank of China) leads the list, followed China Mobile and China Construction Bank (CCB). Baidu, China’s answer to Google, is the most valuable privately owned brand. Indeed, digital brands are doing well in China. Tencent QQ, a social networking/instant messaging company ranks seventh.

Chinese businesses still struggle with the concept of branding. Most don’t get past the name and logo to understand what truly creates value. They are much better at mastering the pragmatic nuts and bolts concepts of process efficiency, accounting, and distribution logistics than they are at the art of branding and marketing. Chinese companies sell almost exclusively on price. In talking to Chinese businessmen, it is not unusual to hear the complaint, “I have a new logo, but I still can’t charge more than my competitors.”

Branding agencies in China struggle to sell the value of brand strategy, design and execution. When I visited a Chinese based branding agency, their process of brand creation involved asking client company executives what colors they liked. The few exported Chinese brands like Haier and Lenovo truly struggle against much savvier competitors in the US market.

Branding in China Is Still in Its Infancy

Still, Chinese businesses are famous for learning fast. Branding is in its infancy in China, but it won’t stay that way. The value of Chinese brands is up 27% from the 2010 list. And at a value of US$403.8 billion, is more than double the value of the 2009 list, which was US$186.9. While more than half of the top 100 Chinese brands are state-run, the number of private, nimble businesses on the list is growing, as is their value. And twenty-one brands on the list are entrepreneurial first-timers.

Jul 112011

If copying is the highest form of flattery, businesses in China truly love American brands and American advertising–but counterfeit brands from China are causing serious problems for the reputation of “Made in China,” with long term financial impact.

Sometimes the counterfeit brands are funny, like this Chinese take on KFC:


Sometimes counterfeit brands are so good it is unsettling, like the thousands of boxes of fake Tide detergent seized by customs officials in Seattle in September of 2010:

counterfeit-brand-tideAnd sometimes, the counterfeiting brand is so perfect it is astounding as to leave you speechless. Reuters is reporting that entire Apple stores, complete with distinctive winding staircases, fake products, and employees in uniform are popping up around China. See the pictures of the fake Apple stores in Kunming at the BirdAbroad Web site.

Surely, stores so prominent as these have to have the blessing of local Chinese government officials. Perhaps those officials and their superiors should take note: “Made in China” does not have positive brand connotations. The negatives of such practices as counterfeit brands and their impact on “Made in China” ultimately will limit the economic success of Chinese products and brands in the West.

More on China and branding

Jan 312011

china-ministry-commerce-global-chinese-brandsBrand creation, creating global Chinese brands, has been the official policy of the Communist Party Central Committee of China since 2004. The Ministry of Commerce launched China’s Brands Promotion Committee in a ceremony in Beijing on June 11 of that year. The goal of the committee was to help companies build internationally valued brands.

Global Chinese Brands Seen as Path to Prosperity

China has become the world’s factory. But making things cheaply cannot support the country’s economy in the long term. Already, manufacturing is moving out of China to countries that can supply even cheaper labor. Premier Wen Jiabao put more pressure on companies to create global Chinese brands this year, asking them to innovate and make “brand-name export products.” Chinese leaders know that the real money isn’t in the making of things, but in the making of brands.

Yet years of exhortations from leaders have not created successful global Chinese brands. Lenovo, China’s best-known brand, does not dent the top ten computer marketers in the U.S. market and continues to lose money. No other brands (other than Western brands acquired by Chinese companies) have made it in this market.

I have spent time traveling to China talking to Chinese business leaders about branding. It has become evident to me that they really didn’t understand what a brand is or how it works, much less how to create one.

Branding Requires Thinking and Acting in Ways Foreign to Chinese Culture

Creating a brand begins with understanding what the customer wants. Such an approach has had no place in the state-run enterprises that have dominated the Chinese business landscape for decades. For hard-scrabble new entrepreneurs, the idea of starting with customer wants is just as foreign. Walk into most Chinese stores and you’ll be bombarded with sales messages: “Pearls, ma’am. Very cheap. We have silks. We have jade. Cheap price for you.” And so it continues. I have never walked into a store in China and been asked, “May I help you? What are you looking for?”

In speaking at conferences, to a university marketing class, and with start-up branding agencies, brand is understood to be merely a name and logo. Market research and strategy development are not part of the mix. The idea that a brand has to communicate a compelling and relevant story was not known. Indeed, Chinese marketers are frustrated that Chinese names and logos don’t command a market premium like Western brands do—they somehow lacked that magic.

China Makes the Shoes, but Nike Makes the Profit

You cannot create a brand if you do all the shouting, and never ask a question or listen for an answer. Chinese marketers cannot create winning brands until they take that first step. The real money is in the brand, not the product. China might make most of the world’s Nikes, but Americans make most of Nike’s profits.

Jan 212011

KFC-brand-colonel-sandersBloomberg News is reporting that the KFC brand is defeating all other fast food brands for dominance in China. By getting in early, tailoring its menu to local tastes (hamburgers are foreign, while fried chicken is well accepted), and hiring local decision makers, KFC stores in China contribute 36% of parent company Yum’s global operating profit.

Bloomberg even reports that “Colonel Harland Sanders’s image is a far more common sight in many Chinese cities than that of Mao.”

Nothing breeds imitators like success—especially in China. When I last visited China, many cities boasted a local look-alike KFC brand contender. One wag has suggested this fake Chinese Col. Sanders might just be the famous General Tsao. . .

(Note: I know that KFC has updated their Col. Sanders logo, however, the Chinese copy is of the old logo, so I use the old one here for side-by-side comparison.)

Jan 032011

ZD Net is reporting today that China has censored some 60 thousand Websites (really thought it would be more) and over 350 million pages and is “proud of it.” MerriamAssociates.com is honored to be one of them.

The head of the State Council Information Office, Wang Chen says there is no stopping its campaign against offensive material (was it a tasteless picture or two, the nude Twitter followers post, or the frank commentary about branding and China on this site that got it banned?) Chen claims to have gone through 1.79 million websites, deleting 350 million pages and to have rounded up 4,965 people in China, “1,332 of whom received ‘criminal punishment’ with 58 jailed for five years or more.”

Chinese officials are foolish to be proud of this achievement in censorship, not because it is counter to our own particular American values (which are not relevant in China), but because they hobble China’s long-term capacity as an economic and political power. In a world where “information wants to be free” and where viral communication, social media, open source sharing, crowd-sourcing and community-powered technology and process improvements are driving innovation and growth, censorship is a dead weight for China. China’s huge production engine will stay subservient to the world’s innovator brands as long as the Chinese government prevents the free flow of information that could empower brilliant Chinese minds and make future leaders.

Dec 242010

Three years ago, Christmas shoppers were rocked by recalls of some of kids’ most beloved toys from most trusted brands. We talked to consumers about the Chinese toy recalls back then, but wondered, What is the long-term impact of those recalls on consumer opinion, brands, and “made in China?” We went out Christmas Eve to put that question to shoppers:

What do you think about “made in China” after the Chinese toy recalls of last year?

Aug 082008

Made-in-ChinaAntifreeze in toothpaste, poisoned pet food, lead in millions of Fisher-Price toys, and now melamine in babys’ milk–the list of potentially harmful products made in China is growing. And that means certain harm to some of America’s leading brands.

The Fisher-Price recall is expected to cost many millions in administration alone. That is only the tip of the iceberg. The long-term damage to the brand is incalculable as mothers nationwide root out all toys with the “Made in China” label. You can bet people will think twice when buying toys for Christmas. It is one thing when no-name widgets from The Dollar Store get recalled. It is quite another when they come from an icon of the toy industry. Who can you trust if you cannot trust Fisher-Price?

Fisher-Price and parent Mattel have no one to blame but themselves. China, despite tremendous modernization, still struggles with integration into the global business community, particularly when it comes to standards and practices. Far too much emphasis on profit (by both Chinese manufacturers and American brand marketers) combines with China’s rather different take on ethics.

Made in China: Different Mores and Standards Imperil Brands

The business environment in China is nothing like that of the U.S. The impartial rule of law does not really exist. Standards, as we know them, are weak to non-existent. The pressure to cut corners is as tempting as it is easy. Chinese feel a sense of urgency to make money now while they can. They know from experience that the window of opportunity could slam shut in an instant. Furthermore, Chinese suppliers also know that they hold the power over American brand importers. Often, they get paid before the goods leave the factory. By the time brand owners know they have a problem, it is too late. They have no financial leverage, no legal recourse. Suppliers can go out of business and reopen under a new name in an instant. Finding a new supplier is risky and time-consuming.

And then there are the vastly different cultural norms. In the West, your word is your bond. Brand reputation and long-term business relationships are highly valued and depend on trust. In China, yes does not always mean yes. A contract isn’t the final word–signing it means now negotiations can start. The trust requisite to American business (Enron-like scandals, notwithstanding) is less straightforward in a culture that values “face” over “truth”. What westerners see as dishonest, Chinese see as avoiding embarrassment or disappointment. For them, trust is earned over time and can’t be built with looking someone straight in their eyes and shaking their hands.

These business and cultural differences are tragically illustrated in the Fisher-Price case. Chinese manufacturer Lee Der used defective paint in the manufacturing of the toys. When Associated Press reporters tried to contact the company, they first met denial. They were told that the company only made boxes, not toys. In another call, were told company had gone bankrupt several years ago. The company then shifted the blame to a “black hearted” paint supplier. When the scandal was too big for these “face saving” measures, the owner of Lee Der hung himself in his own factory. What is most sad is that Mattel did not treat Lee Der as a partner. When trouble started, Mattel did not stand by Lee Der and own the problem–instead, Mattel pointed the blame. My subsequent interviews with American consumers have them pointing the blame straight at Mattel.

Brand Owners, Not Product Makers Bear Ultimate Responsibility

Ultimately, none of this matters. Not the business pressures, the cultural differences or the accusations. The buck needs to stop with American brand marketers. Unilever (Hills and Science Diet pet food), Procter & Gamble (Iams pet food), Walmart (Old Roy dog food), Best Buy (Insignia DVD players), Target (Triax bikes), Disney (Baby Einstein sleepwear), and Sears (Craftsman saws) are all major global brands that have sold recalled Chinese-made products. Pointing the finger at Chinese profiteering or deceit does not relieve American brands of their fundamental responsibility to the people who buy their products. The almost irresistible appeal of cheap manufacturing in China comes at a price.

When American companies put their name on a product, no matter who makes it or how, they are asking consumers to trust. China will not change fast enough to end the potential to manufacture and export substandard goods. It falls thus to the American brand marketers to ensure safety and quality. To merely give a specification to a manufacturer and hope it will be met is to abdicate the responsibility inherent in trust.

Brands that duck this basic responsibility do so at their own peril. Expensive recalls will be the least of their problems. Ultimately American consumers will police and punish these brands. Trusted American brands and China as a manufacturing center will both lose. Mattel and Fisher-Price are getting hit hard today. They are surely not alone. With 80% of U.S. toys made in China, it is extremely likely that other brands are going to take a fall, too. Even homey sounding brands like Vermont Teddy Bear are not safe if the buttons of their eyes are sourced from China. Time will tell if a brand with a “Made in China” label pretty much just says “Don’t Buy”.

Dec 072007

With toy recalls of toys made in China filling the news, what do shoppers think? How is lead in popular brands affecting the decisions shoppers are making? Is the Mattel brand being hurt by the toy recalls? We interview toy buyers at the Times Square Toys R Us on 12/1/07.

Dec 052006

apparel-magazine-branding-chinaOriginally published in Apparel Magazine December, 2006

If there is one thing that Western apparel companies should know about China, it is this: Brand sells.

Understanding the role brands play in China is important for anyone doing business there, and it is especially crucial for companies trying to satisfy the enormous appetite there for Western apparel.

To mainland Chinese consumers, brands are about much more than mere commercial communication. They are a political and economic phenomenon symbolizing China’s rising prosperity. For the average Chinese consumer, owning a Western brand means owning a piece of their country’s growing affluence.

Brands, particularly those from the West, are closely linked to national pride. The Chinese see the country’s economic boom as allowing their country to take its rightful place of power and prestige in the world. Nothing is more emblematic of that pride and success than brands.

The free market system is still very new in China. Even young consumers can remember a time when there were no brands or imports and shelves were mostly empty. Clothing choices were limited to Mao suits, the unisex blue tunics of the proletariat, or shapeless and dreary garments from the state department store.

Today, the growing middle class can access a dizzying array of choices and a level of quality once only dreamed of. Even the very poor can at least see these goods and aspire to own them.

Western brands once were known only through furtive looks at smuggled magazines or glimpses of the elite few who had traveled to the West. They still have tremendous cachet. They symbolize the wealth that formerly was out of reach, and they represent the rewards that now can be attained. To wear a Western brand today is to tell everyone you are prosperous and worthy of respect. You have arrived.

But the political and economic aspects of brands are only part of their power. Brands play into a powerful and longstanding cultural dynamic in China, where reputation is everything. The good things in life traditionally come from connections.

Business is built through knowing people and being recommended by them. Presentations to prospective clients include a long list of companies you’ve worked for or are associated with. An earnest young man gets a good job through the introduction by his uncle’s friend. Your reputation and the recommendation of a trusted source is what opens doors.

In the Chinese marketplace, brand plays that role. Brand is a symbol and proxy of reputation. It is the stamp of approval that opens the door. It is often the most important influence on apparel-buying decisions.

Of course, in Western markets, too, people consider brand when making apparel-buying decisions. But at the same time, they consider need, fit, styling and other specifications. They won’t buy a Polo shirt if they don’t need one – particularly if they don’t need an orange one. In China, it doesn’t matter. They’ll buy the shirt, irrespective of color, if it has the “right” brand.

A friend recently took me clothes shopping in China. Through her knowledge of the market, she kept abreast of a constantly changing array of temporary shops (actually stalls) selling brand-name merchandise. During our visit, I found an assortment of shops with no theme, just racks and racks of random merchandise. There was clothing for all seasons, all styles – men’s mixed with women’s and children’s. Evening gowns were next to parkas and running shorts. About the only constant was that they all featured prominent Western brands: Ferragamo here, Nautica there, with a little Gymboree thrown in. There was no sense of color or style – just ‘brand, brand, brand,’ the more prominent the better.

Even faux brands sell. One Chinese businessman cited the practice of registering Western-sounding names in European countries and sewing those names into apparel under the pretense that it was “from Paris.” You can see such “brands” on the tables of street vendors – clothing with names like Bellvilles and Jack & Jones. The Western identity gives them cachet.

For apparel companies, China’s love of Western brands is a huge leg up. But it won’t always be so. As the Chinese become more sophisticated, so too will their estimation of brands. Cultural dynamics will always make brand important, but it will eventually have to stand for real and relevant values.

Savvy marketers will begin telling their story in China now, while the market is paying attention. Start differentiating now to be in a position to retain market share and margin in the future.

© 2014 Lisa Merriam