Chinese Branding. From Moribund To ....?

> Chinese companies are generally not terribly good at marketing and sales, particularly in the
> United States.

I don't think this is true at all. If you are an OEM in Guangdong, the best sales and marketing strategy may be to just manufacture product and then ship to a US company that handles branding, advertising, and distribution. As long as you are making money in a sustainable way, you have good sales and marketing even if you don't have flashy ads on every street corner and no one has any idea who manufactures the product.

People often forget that the purpose of running a business is to make money. You can make money with low margin anonymous businesses. Also some of the times the correct business strategy to dealing with the difficulties of doing business in the United States or China or Zambia, is not to do business there. Before a Chinese business starts doing business in the US, they really have to ask the question, they do you want to do business in the US? It's not as if there is a lack of untapped markets in China. If you do business *anywhere* new, then you have to be prepared to spend large amounts of money with the high possibility of failure even if you do everything right.

> "You're very passionate about your product, your invention. Why make such a small margin?"

Why not?

Something that every business owner has to be careful about is these sorts of appeals.

Also one common factor is that a lot of these "you must do this to break into the American market" is that they are basically commercials by professional service groups selling services to Chinese companies. Nothing wrong with that, but business relationships are a lot like marriages. Sometimes they work. Sometimes they don't. A lot of times it's really hard to figure out why they work and why they don't.

I do expect that in a year or two, you'll have a lot of messy divorces as you have a lot of Chinese companies screaming about how they paid large amounts of money to company X, Y, or Z and things still blew apart.

If only someone could develop an app that measures opportunity costs. The world would be a better place.

I guess China has a little trouble commanding loyalty outside its borders? So the question is, are they willing to earn it for a change? It's their opportunity to lose.

Me, I'm not holding my breath. I can't play golf, so I might say it's a frivolous game. Tell myself it's a choice, when it's really inability.

I may be mistaken, but the vast amount of Chinese businesspeople I've met seem to have a similar attitude for business cultures outside their own. Hence the need for special research where China business is concerned. People phrase it in neat culturally-relativistic terms but what it really means is that international norms are too subtle -and accountable - for an average rote-educated Chinese to employ, so you have to use kid gloves, one cash transaction at a time, and blow sunshine up his *.

I will care about China business success when Chinese generally start employing Win-Win attitudes beyond lip service. (Sorry for my candor).

Hi Dan! Thanks for a great blog!
However, I have to tell you that umlaut is not a character which is used in Sweden.

Klaus

Eventually, Chinese companies will learn, just as Japanese and Korean companies did. I think the learning process has already started, tentatively, and that's what this article shows. It will not be immediate, it will be by fits and starts and those out front in helping the Chinese are going to go crazy.

http://seekingalpha.com/article/184688-chinese-companies-can-t-build-brands-think-again

This is pretty consistent with what I'm seeing. When Chinese companies go overseas, their first destination is Latin America and the Middle East.

> Those of us who do work for Chinese companies are constantly bemoaning the difficulty in
> getting Chinese companies to listen to us as to what it takes to do business in the United
> States.

The problem with "advice" is that right now it's not obvious whether any of it will work or not. If you can present some success stories (or failure stories), this will turn heads, but right now the idea that you can make it in the US by branding is an idea that is totally unproven. The example of Zuuma is a case in point. Right now, it is work in progress, and it may very well fail for a thousand different reasons. It will be interesting to see what happens in three years, but right now it is far, far, far premature to describe it as a "success story."

And then there is the question of why a Chinese company should try to market it's products directly in the US at all? You have a domestic market that is growing like crazy, and all sorts of untapped global markets which are much easier pickings.

For every US company that has done well in China branding, you can name about three or four that either haven't tried or have failed pretty horribly. General Motors is a fascinating example because it has far more brand equity in China than it does in the US. McDonalds and KFC have done well. Burger King and Church's have not.

Also one important point is that US brands often have done well in the China market because they got in before there was any competition. GM, KFC, McDonald's, and Nike were in China long before most of the current Chinese companies existed, and getting to the point where Chinese companies can compete in brands in China is a major step.

The other point is that one truism is that you have to have established brands at home, before you even hope to have any chance of making it overseas. Haier, Tsingtao, and Legend were both extremely strong brands in China before they even tried to expand overseas, This is why I'm not optimistic about Zuuma's prospects, and why I think that creating a brand for the purpose of entering the US market is a losing strategy for Chinese companies.

One other point here is that I don't think that Chinese companies have generally failed to create international brands out of ignorance. It's just that creating an international brand is a hugely expensive process, and most Chinese companies have decide (I think correctly) that they are better off putting their effort elsewhere. If you are a Chinese company in China, then I don't see the point in trying to expand in the US which isn't growing economically rather putting your effort in trying to expand in China that is growing at 10%/year.

@ Joyce: "Chinese companies market themselves well domestically -- but it's usually through a sort of guanxi-relationship with local promoters or press. Anything with state money will probably get a blindly positive "review". Overseas, it doesn't work like that. Critics and customers can be brutal. Foreign companies are used to spending a big chunk of their budgets on consumer research and branding."

While the China PR side of things is often paid placement in State Owned media, Chinese consumers markets are tough. There are very large numbers of experienced, qualified and very, very savvy Chinese sales and marketing professionals focused on domestic consumer markets. Visit a mix of large malls, wholesale markets, average street shops, large supermarkets and, most importantly online sites to see the vast effort and investment going into domestic sales.

Every foreign enterprise in China focused on the domestic market is experiencing tough competition. None of the senior sales and marketing execs at those companies would consider their Chinese competitors to be as naive or incompetent as some commentators above make out. All foreign enterprises are watching as key market segments slip into the hands of domestic competitors. This would suggest that Chinese sales and marketing operations are being significantly underestimated.

I manage over 50 Chinese sales and marketing staff and I can only say that I am constantly impressed by their abilities, drive, professionalism and innovation. These skills are constantly being further honed by the most competitive market I've ever witnessed.

The point of Dan's post was to look at the difficulty Chinese enterprises are having moving into the US market. I suspect some of these are OEM operations with no local brand or sales and marketing. For them, setting up global operations would be a quantum leap, when they lack those core competencies even in the domestic market. @Twofish's points are valid, each enterprise has to assess whether the risk and investment of building brand and developing distribution is worth it. The are very profitable business models that could just focus on manufacturing and product development.

You are too optimistic. I've been working with Chinese companies for twenty years and near as I can tell, there has been no chance in their attitudes towards how to do business with the West. If you read this article, you can already see the tension between the Chinese company and its U.S. handlers. If money isn't made fast, the Chinese company is going to bolt, I am certain of that. The race is on.

Joyce: Chinese companies market themselves well domestically -- but it's usually through a sort of guanxi-relationship with local promoters or press. Anything with state money will probably get a blindly positive "review". Overseas, it doesn't work like that.

Having been in the software business, yes it does in some markets. It's not as explicit as giving money to reporters, but there is a way of creating "buzz" for new products. The Wall Street Journal piece on Zuuma for example is an example of the type of article you want in the press.

Joyce: But someday (soon, I think) China will develop into something more sophisticated than the world's cheap workshop. If it can figure out the "soft" stuff, it will be able to produce top technology, brands and services globally.

Then again maybe not. The problem is that you have mature markets with established competitors. For a Chinese company to compete in the US, it not only has to *match* the companies there, but it has to do better, and as long as the US company doesn't make any serious mistakes, it still will likely lose. It may be just easier for a Chinese company with lots of cash to buy an established brand and then just provide capital.

For technology companies it makes sense to establish a presence in the US because you get know-how, but I'm still wondering what exactly is the business case for a Chinese consumer brand to try to establish a presence in the US. US companies went overseas because they had saturated their domestic markets and needed somewhere else to expand, but with China growing at 10% a year, that's not a factor in Chinese companies.

The three cases I can think of in which a Chinese brand *did* establish itself overseas, it first focused in China, then it went into Middle East/Latin America, and only then did it go into the US and sometimes that was with reluctance.

One other reason Western luxury brands like China is that you have a lot of noveau riche Chinese that want designer handbags and luxury goods, and the fact that the brands are Western make Chinese think that this is the way things are sold in the West. There is the GM paradox. A lot of brands that are doing wonderful in China just are having a hard time in the US.

One irony is that outside of a few areas (NYC and Southern California), there isn't a big market for luxury goods even among extremely rich people. If you are a dot-com millionaire in Austin, Texas and you started flashing around designer shoes, watches, and handbags, people would think that you are pretentious and arrogant. What you want is to look like a "crunchy granola-type". There is very strong social pressure in the US not to look rich, and not to be proud that you are rich. I've found Greater China to be weird because rich people want to look rich.

The bad economy is not helping. Not only are people unwilling to buy expensive products, but if you have friends that are unemployed, you are not going to show them your expensive Rolex watch, and if you can't show your friends, then what's the point of buying an expensive watch?

Also there are distribution issues and retail issues. Luxury brands in Greater China have more control over distribution and the balance of power between distributors and retailers are very different in China than in the US.