Big Brands Making Big Money In China
Australia's The Age newspaper has an interesting article out today on the success of big foreign brands in China. Entitled, "Big Brands Hit Jackpot in China," it talks about how global brands like Ikea, Starbucks and Cadbury are "achieving their financial goals ahead of schedule as they take advantage of a growing middle class [in China]."
The article is based on a KPMG study based on interviews with executives from 77 global consumer-branded companies. The study reveals the trend for foreign companies to bring their global brand into China, rather than coming into China by buying a local brand. The article cites Wal-Mart as an example of a company going into China with its own name, rather than using the name of the stores it buys, as it did in Brazil.
"The survey found that more than half the companies that had invested in China reported profitable operations within five years. Almost a quarter of the companies surveyed had achieved that in just two years." As an example, Johnnie Walker experienced only a two percent rise in spirit sales in Europe in the first half of last year, but achieved 45 per cent revenue growth across China, India, Brazil and Russia.
"Eighty three per cent of executives said now was the time to invest in China."
David Nott, leader of KPMG's transaction services for the Asia-Pacific region describes "American culture as "pervasive and as these economies are growing, and as people's incomes are growing, aspects of Western culture are becoming more appealing."
For more on China branding, check out the following:
- "American Consumer Products Are Hot Among China's Chuppies;"
- "Chinese Brands: Gaining Attention in a Global Market;"
- "Cha-Ching! Multinational Advertising in the new Chinese Market;"
- "Chinese Brands."
Comments (4)
Read through and enter the discussion by using the form at the endDavid - November 5, 2006 5:18 PM
This is, of course, excellent news for the shareholders of these companies, but every time a study like this comes out - or every time a company announces ho good its business is in China - I physically cringe.
There's an unwritten rule of business here that when you are prosperous, don't say anything: all it does is attract the interest of the government in your local business - interest that you really don't want.
You see, there is a subtle reek of political incorrectness around the idea of a foreign company coming to China and making a lot of money. When government officials hear foreign companies are prospering, some (not all, by any means) will be very uncomfortable. Many will come to the conclusion that either a) you're not paying your taxes, b) not paying enough taxes, c) overcharging for what you are selling, d) putting local firms out of business, or just e) exploiting China. For these folks, the idea that you've earned the business and the profits "fair and square" does not compute.
This is ESPECIALLY the case now, when the leadership appears to be increasingly questioning the extent to which the Chinese economy is foreign-owned.
The answer here is not "don't make money" or "don't talk about your profits," but to communicate your prosperity in the context of the good you are doing in China and for China, all with a knowing eye to the current direction of the political winds blowing from Zhongnanhai.
Unfortunately, articles like the one in The Age - which will get circulation (dutifully translated) among the senior leaders - don't include that context, and so will prove to be just another shell in the artillery of the forces aligned against foreign investment and participation in the Chinese economy.
David
China Law Blog - November 5, 2006 6:52 PM
David (Silicon Hutong) --
Thanks for checking in. I have been seeing you quoted in countless major publications of late, so I know you are busy.
I see where you are coming from and I agree. I think that is the case in all emerging market countries, particularly those that were once communist (yes, I put China in that category). But, what drives me nuts as a lawyer is how many businesses out there who are not yet in China but looking to go in are of the view that it is impossible to make money in China. They are going in because someone is telling them they have to go in or because they feel they have no choice. But they are going in with an incredibly negative view on doing business in China and it is for them that I wrote this post. If it makes you feel any better .... I was going to report to you that less than 10% of our readers are in China, but the statistics now say it is about 20%. Figuring that about half of those are ex-pats, and based on my mail, another quarter are Chinese university students, I doubt anyone in the government (or at least terribly high up) will see this post. But I cannot make the same statement about the article itself.
davesgonechina - November 5, 2006 11:15 PM
Have you guys seen this NBER study via Brad DeLong's blog?
http://tinyurl.com/y9rpvj
Claims a third of China's GDP growth comes from FDI/FIE exports.
China Law Blog - November 5, 2006 11:27 PM
DavesgoneChina --
Thanks for checking in. I had not seen that study and it is rather interesting. Thanks for pointing it out. I am not surprised by the figures you cite. This is one of many reasons why I do not see Beijing doing much to slow down FDI any time soon.