March 27-April 2, 2017
By CARMEN HO in Hong Kong
For China Daily Asia Weekly
No longer just upstarts looking for recognition, China’s biggest brands have become multinational players that continue to grow and attract more market share. And with more government support, companies are now set to make a fresh mark in the global arena.
Facilitating this fast growth is the increasing globalization of Chinese companies.
“The businesses in China are increasingly international and are outgrowing the economy.
Some of them are using their strength and success in China as a springboard to internationalization,” said Andrew Atherton, professor of enterprise at Lancaster University in the United Kingdom.
Atherton said that business strategy in China has shifted focus from solely exporting to establishing an international presence through mergers and acquisitions (M&As), strategic partnerships and setting up centers for research and development worldwide.
“These companies aiming for a global presence are truly looking into the way they operate rather than just exporting their products. Leadership and management are very strong,” said Atherton.
As these companies grow, they create an ecosystem on the global stage with service providers following them, much in the same way Western firms did in China. Banks are one case in point.
“More banks in China are expanding internationally as well and supporting these companies to grow overseas,” said Atherton.
The international push among Chinese corporates behind these brands has picked up pace in recent years with encouragement from the highest levels of government. For many, if not most, of the more established multinational corporates and their brands, the first step outside China is within Asia and then further afield.
For businesses, the Belt and Road Initiative will make this path easier to travel. The China-led trade and infrastructure initiative is set to improve connectivity in countries along the ancient Silk Road routes.
In late February, President Xi Jinping outlined four priority areas for reform, which include reviving the manufacturing sector — key for “made in China” brands. Xi was speaking to the Central Leading Group on Finance and Economic Affairs which he heads.
Notwithstanding ongoing reforms and slower economic growth — expected to be 6.5 percent this year — China is still home to businesses growing faster than the economy.
Consumption growth is being driven by the upper middle class, a new generation of free-spending consumers, and the increasing power of e-commerce. The World Economic Forum forecasts Chinese consumption to grow 9 percent annually through 2020.
The top 10 brands listed in the annual BrandZ Top 100 Most Valuable Chinese Brands for 2016 are Tencent, China Mobile, Alibaba, ICBC, Baidu, China Construction Bank, Huawei, Agricultural Bank of China, Ping An and China Life. All are worth billions of dollars with China Life valued at $15.5 billion and Tencent $82.1 billion.
In the 1990s, the Chinese government started to encourage companies to expand overseas and since then the country’s global outward investment has grown impressively. Huawei is one example of a corporate giant that has risen, having built strong capabilities to compete internationally.
Overseas acquisitions have become an important means of international expansion for Chinese corporations.
Data from the United Nations Conference on Trade And Development show that China’s outward direct investment in 2015 reached a record high of $120 billion, not far off its level of inbound foreign direct investment, at $126 billion.
According to Zou Xiong, director of the entrepreneurial training center at the Shenzhen Stock Exchange, most of this growth can be attributed to M&A activity.
M&As hit record levels in 2015, with economic transformation driving domestic strategic deals. Outbound activity also grew strongly, with the overall volume of M&A deals up 37 percent and values up 84 percent, reaching $734 billion.
The trend continued to pick up speed in 2016, with major cross-border deals including ChemChina and Syngenta (worth $43 billion), Haier and GE Appliances ($5.4 billion), and Dalian Wanda and Legendary ($3.5 billion).
“Overseas M&A activity has driven China’s growth these past two years,” said Zou. “China has surpassed the global average of M&A growth in terms of both the number of M&A events and the total M&A transaction value.”
Liang Xin, board secretary of Eternal Asia Supply Chain Management, a supply chain service provider in China, said that companies must increase their domestic presence along with their performance overseas to stay relevant and competitive.
“Companies are changing their strategy because this is a new era of competition that requires adaptation,” said Liang.
The products fueling China’s consumer market are changing, according to the World Economic Forum. Services will overtake goods, and demand for premium goods and services, such as healthy foods, education and travel, will rise.
“Over the next 10 years, I expect that we will see more Chinese companies following Huawei to become important players on the global stage,” said Liang.
Due to China’s economic slowdown, inbound investment will not grow at the same pace as in the past, according to analysts. Therefore, it makes sense for Chinese companies to seek growth opportunities overseas.
There is now more focus on access to markets, brands and technologies, as well as strategies for establishing a global presence and strengthening national security.
“The game has shifted towards acquiring technologies and brands. However, these acquisitions require very complex organizational skills,” said Liang. This means bigger and more complex organizational challenges for Chinese companies.
Speaking to China Daily Asia Weekly, Anil Gupta, a professor of global strategy at the University of Maryland in the United States, said the globalization of Chinese companies falls into two categories — private sector companies and State-owned enterprises.
“Most private sector companies — including Huawei, Haier, Lenovo and Dalian Wanda — are going global because of strategic logic, ie, to capture the benefits of global scale and/or to acquire global technologies and brands.
“In contrast, most State-owned enterprises tend to go global in a haphazard manner.”
The differences can be stark. He said companies looking to go global should stay within their core area of expertise.
“For example, a hotel company should stay within the hotel sector, a car company should stay within the car sector, and so forth.
“Otherwise, the buyer is clueless about whether the company they are thinking of buying is good or bad, how much they should pay, and how they should manage the company after acquisition,” Gupta said.
In some sectors there are barriers which prevent Chinese companies from accessing markets in the US and Europe. Technology companies like Alibaba and Baidu, while dominant in China, are finding it difficult to enter established markets abroad.
“They must look at who the competitor is and whether they can win. Even Alibaba has failed to crack the US business-to-consumer market. Amazon is just too strong and dominant,” Gupta said.
“On the other hand, perhaps Alibaba could (take) an Indian e-commerce company and succeed against Amazon India and the local player Flipkart.”
In September 2015, Alibaba and affiliate Ant Financial invested around $680 million in Paytm, one of India’s largest e-commerce companies, acquiring a stake close to 40 percent.
Turning point in sight As more of China’s most innovative companies gain global prominence, perceptions about their quality are changing
March 27-April 2, 2017
By CARMEN HO in Hong Kong
For China Daily Asia Weekly
Huawei, Haier and Wanda are among major players paving the way for the next wave of global Chinese brands, which are likely to rely on innovation and technological prowess to succeed.
In a move to unleash the true potential of Chinese companies, the State Council, China’s cabinet, issued a national scientific and technological innovation plan last August as a blueprint for innovation development during the 13th Five-Year Plan (2016-2020).
As the world’s second-largest economy undergoes a transition to put its economic development on a stronger footing, the drive for technological innovation will also enable more Chinese brands to tap global markets.
“Chinese tech companies are racing to take advantage of the government’s favorable policies, and the most ambitious ones are aiming to establish a presence across the world,” said Liang Xin, board secretary of Eternal Asia Supply Chain Management, a supply chain service provider in China.
And the gains are not limited to the tech sector. Among the most promising up-and-coming global brands is Chinese automaker Great Wall, which aims to become the world’s largest manufacturer of sport utility vehicles, or SUVs, by 2020. The company has a globalization strategy in place and is working toward exporting to North America and Europe in the near future.
Smartphone makers are also looking to break new ground in global markets. Huawei and ZTE already have brand recognition in markets like Japan and are making inroads in North America and Europe. Others are following suit.
Best known within China, ride-sharing company Didi Chuxing has set up a research institute in Silicon Valley, California, to develop intelligent driving technologies.
Liang expects that in the next five to 10 years, the world will see a number of new strong and globally endorsed Chinese brands, and “made in China” will become an accepted and positive factor.
For the time being, Chinese brands often have to fight tooth and nail for recognition and to battle negative perceptions that link them to cheaply manufactured products.
But those perceptions are changing, much the same way that they changed with Japanese products in the 1970s and South Korean products in the 1990s, when companies like Samsung and Hyundai made their big international push.
“The first-tier global brands like Huawei, Haier and Lenovo have shown it is possible for China companies to go global with impact, and this is creating immense aspirations among Chinese business leaders to replicate their journey,” said Martin Roll, a global business and brand strategist. Roll is a CEO mentor and adviser to Fortune 100 companies.
“The primary growth driver is enhanced quality, better and unique innovation, and high global aspirations among business owners,” he told China Daily Asia Weekly.
China grew its economy and built a reputation as a manufacturer of low-cost, low-quality goods for foreign-owned companies. Both the established and emerging global brands are now trying to shed this less than flattering reputation.
“The country-of-origin (COO) effect does have an influence on customers’ perceptions towards products, services and brands. China has long suffered from a relatively strong negative COO effect, but it is rapidly changing for the better,” Roll said.
“Chinese manufacturers are slowly but steadily embracing branding as their primary strategic driver of financial value.”
Anil Gupta, a professor of global strategy at the University of Maryland in the United States, noted that the transition is “a slow process”.
“There are only two Chinese brands that I can think of — Huawei and Lenovo — that have succeeded in shedding a reputation of low quality,” he said.
“Others such as Haier, Xiaomi, Zoomlion and almost all other Chinese brands are still viewed as lower quality than Western, Japanese or South Korean brands.”
A good example to follow might be Huawei, which has not only developed a strong brand but also good research and development capabilities in networking and consumer electronics as it learned how to compete in global markets.
The point for Huawei was to understand and not copy the technologies it needed to succeed. It also had to understand what works and what does not in different markets.
Brand strategist Roll said: “One thing is to claim to be a global company, another is to have a company that is truly global and where the culture is global — and not only an adaption of the culture of the country of origin.
“Being truly global requires mirroring and further developing best global practices in all aspects of operations and management.”
The new generation of consumers is sophisticated and picky, with a short attention span. Localization to global markets may be required for companies trying to connect with consumers outside China, and they need to balance what works with the adjustments required in order to be relevant in foreign markets.
The good news is that negative perceptions of Chinese products are declining and consumers are increasingly savvy.
More people are choosing brands based on benefits they provide rather than their fame, according to WPP, a multinational public relations company. WPP predicts that as more Chinese brands go global, consumers’ receptivity toward “made in China” brands will increase, facilitating further expansion.
Chinese brands are still less globally recognized than Western icons, such as Apple, Google, Volkswagen and Louis Vuitton. However, Chinese technology brands are slowly narrowing the gap by showing they can improve lives through digital technology. Chinese innovation is at the vanguard of the global e-commerce and mobile payment space, for example.
The first BrandZ Top 30 Chinese Global Brand Builders ranking report released in January by WPP and its market research unit Millward Brown, in collaboration with Google, showed that circumstances are favorable for Chinese brands to build strength in global markets. The study showed that the notion of brand China is shifting.
Chinese brands still face an uphill struggle in global markets because international consumers “are generally less aware of, and less likely to consider purchasing, a Chinese brand than a local or globally recognized one”. However, the report added, brand recognition varies significantly from country to country.
PC giant Lenovo is listed as the most powerful Chinese export brand, followed by Huawei and the e-commerce marketplace giant Alibaba.
Consumer electronics brands account for 57 percent of the ranking’s total brand power — the measure of how likely consumers are to choose a particular brand — and dominate the top five with Lenovo in first place, Huawei second and Xiaomi fifth. E-commerce giant Alibaba and mobile gaming company Elex Tech round out the top five.
Combined, consumer electronics and mobile gaming lead the ranking, both in terms of the number of brands in the list (17) and combined brand power (59 percent). This shows that consumers abroad are increasingly associating brand China with innovative digital devices and services.
However, a perception of high quality for Chinese brands as a whole will take more time to establish.
“The foundation has to be high quality in the product,” said the University of Maryland’s Gupta. “Only then will marketing and branding efforts pay off. Merely putting more efforts into marketing and branding without real and sustained improvement in quality is a waste of money.”
Analysts say that more and more Chinese companies are being created with the intention to go global rather than waiting to become a domestic giant first. Many have learned to adjust the business infrastructure as they grow.
“To leverage their global success, Chinese brands are learning to tell powerful brand stories that clearly communicate their quality and relevance,” said Liang of Eternal Asia Supply Chain Management.
Consumers welcome Chinese brands From Fiji to the Czech Republic, companies like Huawei showcase nation’s improved quality in manufacturing
March 27-April 2, 2017
With the unremitting efforts of Chinese industries to move up the global value chain, more consumers around the world are recognizing the higher quality and cutting-edge technology of products labeled Made in China.
China introduced its national Made in China 2025 blueprint in May 2015. This listed several goals for the manufacturing industry, including boosting innovation, fostering Chinese brands and promoting service-oriented manufacturing.
As a result of the country’s innovation drive, high-tech products made in China and indigenous Chinese brands have increasingly entered the daily lives of worldwide consumers and taken a growing share of the international market.
More users and observers have come to agree that Made in China is now more about high technology and quality and less about large quantity at low prices.
In many countries, including the Czech Republic, Made in China once meant cheap commodities. This impression has begun to change.
With China-Czech trade on the rise, more Chinese high-tech products are entering the Czech market, noted Cheng Yongru, commercial counselor of the Chinese embassy in the central European country.
Those Chinese products which were once peddled at low prices now have been replaced by quality ones, Cheng added. In the Czech Republic — like across the rest of Europe — Chinese telecoms, electronic and mechanical equipment companies are gaining a larger market share.
For example, the market share of Chinese tech giant Huawei in the Czech smartphone market has exceeded 24 percent, ranking third after Apple and Samsung.
Huawei became the world’s third-largest smartphone brand in 2015, with a shipment of 108 million devices.
The company’s fast growth stems from its long-term investments in research and development (R&D). Richard Yu, head of Huawei’s consumer business group, said it had invested $38 billion in R&D in the last 10 years. He was speaking during the Consumer Electronics Show held in Las Vegas in January.
In 2015 alone, Huawei spent $9.2 billion on R&D, making it a larger investor in that area than Apple and Cisco and the ninth largest among all its peers across the world, Yu added.
As of June 2015, Huawei had submitted more than 76,000 patent applications in China, the United States and Europe.
According to a report published by the World Intellectual Property Organization (WIPO) last November, China surpassed the US, Japan and South Korea to rank top in the world for patent applications, receiving over 1 million applications in 2015.
Last August, China also joined the ranks of the world’s top 25 innovative economies in the Global Innovation Index released by WIPO, Cornell University and the international business school INSEAD.
“This is in keeping with all the developments that we have seen in China in recent years, including the use of innovation as a major component in the transition of the Chinese economy from ‘made in China’ to ‘created in China,’” said Francis Gurry, WIPO’s director-general.
In Fiji, an island country in the South Pacific, low-end products from China such as textiles and commodities for daily use still take up a significant market share. However, products ranging from buses to personal computers and mobile phones are appearing.
Old buses in Fiji are typically out-of-date Japanese ones manufactured more than a decade ago, while new buses tend to be Chinese brands, such as King Long and Yutong.