Part 1: China as the #1 Economy

Made In China Blue Grunge SealPart One:  okay, as far as GDP, but where are the Chinese Brands?

As China closes in on the US as the world’s largest economy, it has 20% of the world’s largest corporations but, depending on who you ask, 0% or 3% of the world’s top global privately held brands.  Que pasa?

There is consensus that China will overtake the United States as the world’s largest economy. The discussion appears to be when.

Neon LightsPredictions by Goldman Sachs, The Economist, research firm IHS and the Chinese Academy of Social Science range from 2024 to 2019. Consistent with the trend in economic development, 100 companies from Mainland China, Hong Kong and Taiwan entered the major league in the latest Fortune 500 survey; they now represent 20% of the world largest corporations.

But we do not see Chinese brands having similar impacts in world markets.

Look carefully at the two reputable global brand valuation indexes, Interbrand and BrandZ. While 10 Asian brands have earned places on the Interbrand Global Top 100 Brands list, only one is a Chinese brand. Chinese brands fare better on the BrandZ index, with 12 Chinese brands listed in its global top 100 category. However, nine out of the 12 are state-owned enterprises (SOE) in the fields of telecommunication, banking and insurance and oil and gas sectors.

Both Interbrand and BrandZ are based on similar principles that include a brand’s stand-alone contribution to its company’s overall values. Registering 0% and 12% on global top 100 brand charts indicates strongly that Chinese brands have little influence on the world scene — especially when compared to Chinese companies seizing 20% of the positions on the Fortune 500 corporations list.


Prada ShopOver the last three decades, since the economic reforms spearheaded by Deng Xiaoping, China’s economy has primarily depended on its low-cost manufacturing and its export-driven policies. As it develops, the country has had to face these constraints :

  •  China transformed itself from central planning to a market economy, while at the same time grappling with severe shortages of technological and managerial know-how.
  • Many Chinese companies based their business models on being at the bottom of the “value chain” including OEM and the low-price “Made in China” approach. Being accustomed to such an orientation is likely to add further challenges to companies undertaking business transformations.
  • Back in the year 2000, Chinese GDP per capita was in the range of a lowly USD$1,000. To tap into the domestic market, local brands could only focus on mass rural segments.
  • Meanwhile city dwellers, especially those in the lucrative coastal market, generally perceived foreign brands as being superior in quality.


Can Chinese Brands Catch Up ?

The answer is yes. The majority of the CEOs that took part in a recent Cornerstone CCC Survey expect to see Chinese brands gaining global influence in between five to 10 years. They note that the Chinese government is fully aware of the imbalances in the economy, with its heavy reliance on infrastructure investment which made up nearly half of the country’s GDP. China needs to increase private consumption and exports through moving up the value chain via innovation and branding.

Author addresses Cornerstone CCC meeting in Shanghai
Author addresses Cornerstone CCC meeting in Shanghai

Other favorable developments include:

  • Per capita income is expected to exceed USD$7,200 and USD$11,000 in PPP terms in 2014. The research firm IHS estimates consumer spending will grow by 7.7% for the next decade. Consumer incomes and expectations will create favorable conditions for Chinese brands to move up the value chain.
  • Chinese consumers are maturing; they are acquiring increased confidence in local brands. The same Cornerstone CCC Survey supports this: 2/3 of the CEOs see momentum building up for Chinese brands, while only 1/3 see similar momentum for foreign brands
  • In several categories, Chinese brands are beginning to eat into the market shares of global brands. A February 2014 news report surprised everyone when it was reported that local detergent brands Na Aishi and Libai grabbed a combined share of 35% while the combined shares of Procter and Gamble and Unilever were only at 21%. Rural market-focused brands like Wahaha and Master Kong have now emerged as the largest consumer brands in China, each with annual sales exceeding USD$10 billion, far ahead of Coca Cola or Nestlé.
  • We see similar trends too in other retail sectors: Chinese brands like RT Mart, CR Vanguard and Bailian are among the largest retailers, while Walmart and Carrefour are losing their first- mover advantages. Domination of the white goods (appliances) industry by Haier, Midea and Gree are putting Whirlpool, Electrolux and Panasonic in an embarrassing market position


TOMORROW: Part Two: The Challenge of Being Truly Global


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