As mentioned in part I of this series, Social Technologies's Global Lifestyles project has recently published five forecasts for the future of Chinese global brands. Today we share this excerpt about the second forecast. Keep your eye ChangeWaves for the other forecasts in the coming weeks.
Forecast 2. Most Chinese brands are years away from global recognition For the vast majority of homegrown Chinese brands, global recognition is years away. Most Chinese companies with global aspirations are currently at the start of what will likely be a lengthy transition from low-cost producer to value-added, respected global brand.
Some Chinese brands will go global sooner than later. Our analysts saw Changfeng Motors' Liebao branded products at this year's North American International Auto Show in Detroit. Changfeng officials suggest it will start selling its vehicles in the US in 2010.
This transition period may ultimately be shorter than the ones experienced by Japanese or South Korean companies, since Chinese firms can benefit from their lessons learned, and also because of the quickened pace of technology transfer, business change, etc.
The creation of Chinese global brands will take time and will be impacted by a variety of factors, from cultural differences to a general lack of managerial and international experience on the part of Chinese companies.
- Culture--Deep-seated cultural factors may inhibit Chinese brands from having breakout success. According to fashion designer Zhang Da, "Chinese people are educated to be the same. If they are the same as others, they feel safer. That's a problem." [1] This may translate into corporate cultures averse to the risks associated with building a global brand. Others dismiss this theory, however, arguing that historically, Chinese have been highly innovative. [2]
- Technical and managerial skills--Most Chinese companies don't yet have the technical know-how to produce high-quality products for export. Even if they have the technical know-how, Chinese management is years behind that in the West. [3] Estimates are that 75,000 managers are needed in China in the coming 10 to 15 years to enable effective competition with their Western counterparts. [4]
- Lack of global experience--Most Chinese companies lack the necessary logistical/distribution networks in Asia, Europe, and North America. [5] In addition, they often don't fully understand Western pricing or promotional/advertising methods. [6]
- Competition and opportunity at home--Many Chinese companies are consumed by abundant opportunities and stiff competition in their home market and don't have the time or energy to devote to developing presences outside the country. [7]
- Global reputation--The bread and butter of the Chinese economy is the production of low-cost, low-value goods--a reputation that may take years to shake even after the actual technical and managerial skills are in hand and product quality improves. Some South Korean products still struggle with this reputation, despite demonstrable quality improvement since the country's global ambitions began to grow in the 1970s. [8]
At least one expert has considered the possibility that China may not grow beyond the low-cost producer phase. George Gilboy, an MIT researcher who works in Beijing for a multinational corporation, says, "Chinese firms may not develop like Japanese or Korean ones did. China may be building a distinct model of capitalism with distinct firms. China capitalism may simply be best at making things a lot cheaper." [9]
[1] Edward Cody, "In China, Dreams of Bright Ideas," Washington Post, June 17, 2006.
[2] Edward Cody, "In China, Dreams of Bright Ideas," Washington Post, June 17, 2006; "The Struggle of the Champions," The Economist, January 6, 2005.
[3] "The Struggle of the Champions," The Economist, January 6, 2005.
[4] Kevin Maney, "Chinese Firms Look to US for Management Training," USA Today, June 28, 2005.
[5] Paul Gao, Jonathan Woetzel, and Yibing Wu, "Can Chinese Brands Make It Abroad?" McKinsey Quarterly, 2003 Special Edition, www.mckinseyquarterly.com.
[6] Paul Gao, Jonathan Woetzel, and Yibing Wu, "Can Chinese Brands Make It Abroad?" McKinsey Quarterly, 2003 Special Edition, www.mckinseyquarterly.com.
[7] "Globalizing Chinese Brand Names," China Daily CEO Roundtable, August 31, 2004, www.ceoroundtable.chinadaily.com.cn.
[8] Richard Westra, "The Capitalist Stage of Consumerism and South Korean Development," Journal of Contemporary Asia,Television Week, June 13, 2005. March 1, 2006; Bradley Johnson, "'Made in USA' Not a Draw for Consumers,"
[9] "The Struggle of the Champions," The Economist, January 6, 2005.