Part 2: China as the #1 Economy
Part Two: Where are China’s Global Brands?
Although a national economic powerhouse, China trails in global business leaders. But that is about to change
China has 20% of the world’s largest corporations, according to the latest Fortune 500 survey, but then you look at the two reputable global brand valuation indexes. You find no Chinese brands on the Interbrand Global Top 100 Brands list and, while there are 12 on the BrandZ 100 index, nine out of them are state-owned enterprises (SOE) in the fields of telecommunication, banking and insurance and oil and gas sectors.
Considering the road travelled – rapid transformation from central planning to a market economy, severe shortages of technological and managerial know-how, business models based on being at the bottom of the “value chain” – this should not come as a surprise. In fact, having 100 members of Fortune’s Top 500 is close to miraculous.
And the Big Shuffle is just beginning.
Today, Chinese companies are transforming themselves from low-cost exporters into firms prioritizing innovation and the pursuit of in-depth market penetration strategies.
- Huaiwei is now the world’s No 1 telecommunication equipment company, serving 40 out of the world’s top 50 telecom operators with a presence in 140 countries.
- Lenovo, the world largest PC brand, is now available in 160 countries and has operations in 60 of them.
- Midea, a multibillion dollar white goods company, has bought into Carrier’s distribution infrastructure in Latin America
Local management and marketing know-how were accelerated when employees with multinational experience joined Chinese companies. Marketing talent has been nurtured by local academic institutions, while top marketing business schools like Kellogg are now offering MBA programs in Beijing and Hong Kong.
Based on our Cornerstone CCC Survey, Chinese CEOs see investing in local brands as well as acquiring strong foreign brands as the optimum strategy. We now see many foreign brands, including Folli-Follie, Caixa, St John, Smithfield, Weetabix, Honma, Volvo, Pizza Express, Secret Recipe and Forbes either wholly or partly owned by investors from China and Hong Kong.
We are also seeing a pronounced change in the make-up of the top brands in favour of technology. There are over 630 million internet users in China, a 46% population penetration rate. Half a billion people are now mobile internet users. “Netizens” are eagerly taking advantage of online shopping, bill payment apps, games and other entertainment options.
Expect Strong Internet Brands from China
Given the robust internet landscape that includes a strong infrastructure transitioning from 3G to 4G, a new generation of Chinese that have grown up with internet technology and a new breed of entrepreneurs actively engaging in O2O [online-to-offline commerce], it is not too sanguine to predict that a large number of Chinese internet brands will develop in the very near future.
Coca Cola was ranked as the world’s No 1 brand by Interbrand for 13 years. But the toppling of Coca Cola by Apple last year signaled the increasing brand dominance of technology and Internet companies. Other consumer and industrial product brand icons like Marlboro, Campbell Soup, General Motors and Philips were gradually overtaken by companies like Google, Facebook, Microsoft and Amazon.
Similar trends are likely to occur in China, as we witness the emergence of huge Chinese technology and internet companies like Alibaba, Huawei, Lenovo, Tencent and Baidu.
Alibaba’s overwhelming debut on the NYSE last September 19 surprised just about everybody. The stock price jumped nearly 40% on its first day listing – in one fell swoop Alibaba became the world’s second-largest internet company, just behind Google. Alibaba’s market value reached USD$228 billion, making it larger than companies like Coca Cola, Facebook and Amazon.
As a brand, Amazon might be a good company to mirror what will happen to Alibaba as it advances. Armed with a market value of approximately USD$158 billion in June 2014, Amazon was rated a world brand ranking of No. 19 and 14 respectively by Interbrand and BrandZ. Simple extrapolation will tell us that Alibaba will easily enter the lofty top 20 brands league by both Interbrand and BrandZ standards.
Meanwhile, Huawei, Tecent , Baidu and Lenovo, prominent Chinese brands with sizeable market value and market dominations in China, are likely to maintain their climb up the brand ladder – at least by regional, if not global standards.
A Long and Painful Route to Becoming Truly Global
Thanks to the huge domestic Chinese market, a dominant player in China will likely achieve global brand status in terms of scale and revenue. Nevertheless, a true global brand will need to prove itself adept at winning the minds and hearts of consumers across the world.
It took over 100 years for Coca Cola, Procter and Gamble, GE or Nestlé to arrive at where they are today. These brands battled through challenges in foreign lands: they adapted to diverse cultures and business environments, learned to win local channels, competed with local competitors and built up their organizations over years.
In this aspect, Chinese brands are at best at their infant stages. Haier, one of the most admired brands in China, is not perceived by consumers and distributors in South East Asia as a premium brand compared to its Japanese and European counterparts. Wahaha and Master Kong are unknown outside China; Tsingdao beer exists only in ethnic Chinese restaurants and grocery stores outside China.
Solutions for Chinese Brands Desiring to Go Global
A way for these Chinese brands to accelerate is for their companies to invest in markets they intend to penetrate: this is the path that Coca Cola or Unilever took decades ago. The good news is that the world today is much more integrated physically and digitally compared to 100 years ago.
Investing in local leadership and expertise will help corporations and their brands adapt more effectively in the competition to win local markets. Having the right strategic partners with global networks and expertise in building brand equity and in acquiring local leadership and talent are also practical strategies for Chinese brands to accelerate their advance to global prominence.