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China Branded Products In The United States. When Will They Find True Love?

Posted in China Business

Many years ago, a company that manufactured outdoor products that it sold in hardware stores across America came to us with the following problem:

Its Chinese manufacturer had (through a straw person) registered in China about a dozen trademarks that our new client used on its outdoor products.  More importantly, the Chinese manufacturer had just informed our new client that it would no longer be manufacturing these outdoor products for our client because it was now going to be selling them directly to the same hardware stores to which our client had been selling the products.

WRONG.

The Chinese company never sold even one single product to anyone in the United States and in the end it lost tens of millions of dollars a year in revenue by having so unceremoniously cut-off our client.  The Chinese company failed to sell any products to US hardware stores because it had zero clue what it takes to sell its products in the United States.  The Chinese company went to the various hardware stores in the United States that had been selling “its” products and told them that it would now be able to sell them the exact same products for around 50% less.  But when the US hardware store chains asked the Chinese company about the systems it had in place to make sure that each and every one of its stores would always have the right number of outdoor products in stock (i.e., what inventorying system it would be using) the Chinese company had no real reply.  And when the US hardware store chains asked the Chinese manufacturer how it would handle product repairs and returns it had no answer for that either.

We worked with our client and figured out how to get around the Chinese trademarks the Chinese manufacturer had filed. To make a long story short, it had failed to trademark all of any one product and we were able to secure China trademark registrations for parts of the whole and it was on those parts that our client prominently put its trade name, after registering those trade names in China.

I thought of that Chinese outdoor products manufacturer today when I read a ZDNet article entitled, Big CES push from Chinese phonemakers, but tough sell in US. The gist of the article is that China is making excellent cellphones and smart phones these days but it has yet to sell anything but a handful of its phones in the United States and the big reason for much the same reasons why the Chinese outdoor products manufacturer failed to sell its own branded products:

“It’s one thing to have the product. It’s another thing to have all the relationships, build the distribution channels and do the marketing,” Frank Gillett, an analyst with Forrester Research, told the newswire. A partnership is particularly important in the U.S. where the majority of users buy heavily subsidized devices through carriers.

I have seen this same sort of thing in other industries in the United States where my law firm has represented Chinese companies unwilling to do what it takes to sell their China branded products in the United States.  These companies have been unwilling to spend the kind of money required to market or distribute their products in the United States and, perhaps most importantly, they have been unwilling to hire top-tier people in the United States who know how to market to US consumers.  I have heard countless similar stories from other service companies that work with Chinese companies trying to mark into the US market.

Succeeding at selling consumer products (really most products) in the United States virtually always requires more than just having the lowest price.  Unless and until Chinese companies truly understand this (rather than paying it mere lip service), the threat of Chinese companies taking over the US consumer market is minimal at best.

Just saying….

What do you think?

 

  • Demetrius H.

    Logistics aside, modern China (the mainland) lacks a tradition of challenging the status quo, or counterculture and, thus, inspiring people to believe in their products. This kind of mentality which it lacks is a driving force behind America’s soft power at home and abroad. For example, America can invade Iraq and Afghanistan and look poorly on the international stage in this regard, yet a segment of the American population back home will still criticize these actions through protest, the media, and politics. Such actions retain a degree of credibility in the eyes of the international community, as it shows an authentic opportunity at societal growth on America’s part. China, on the other hand, comes off as in inauthentic, forced, and narcissistic. I suppose a Chinese company could hire some experts in America to advertise for them, but once word got out that their products are Chinese their products would lose their luster. Basically, China needs to Change politically before Americans and other Western countries decide to trust their products both in terms of quality and emotion.

    • Karl Metzner

      “…once word got out that their products are Chinese their products would lose their luster.” Americans do buy plenty of Chinese products, it’s just that they’re sold by American intermediaries (e.g., distributors, retailers) who manage the experience.

      Can Chinese companies crawl up (or would it be down?) the consumer chain? Probably. Chinese consumption patterns are now more complicated than the two hitherto dominant categories of “cheapest that still works/is edible/won’t electrocute me” and “outrageously expensive name brand that I’m wearing/driving/drinking” to impress others.

      As Chinese companies learn how to treat their own consumers better, they’ll have a stronger base of experience that can be used to make the leap to foreign markets.

  • Lucas Blaustein

    Dan:

    I completely agree. A lot of U.S. companies struggled immensely, and some still do when entering the Chinese market because building a solid team with the right balance of homegrown talent that leverages foreign brand identity and support is hard, but it is only harder for Chinese companies entering the United States.

    “They have been unwilling to hire top tier people in the United States.”

    This is fundamental to the problem. I have heard comments from Chinese coworkers and companies that include: 1) America has no culture; 2) we don’t need Americans, there are plenty of Chinese in America; and 3) there are too many laws and regulations in the United States.

    I think that the success of companies like Lenovo and Haier proves that there are a lot of brilliant Chinese businessmen who can successfully navigate the U.S. market. But so too are there enormous misconceptions concerning who Americans are at a fundamental level both culturally and idealistically that hobble Chinese attempts at market penetration. If you do not understand your consumer, how can you market to them?

    Since beginning my study of Mandarin years ago, and working with enormous multinationals abroad and domestically, I have come to believe that it is easier for Americans to do business in China, than for Chinese to do business in America. When most Americans go to China, they can rely upon a rather impressive and intelligent alliance of organizations, industries, and people to collaborate on business projects and initiatives. The example is everything from this blog to AmCham China, to thousands of consultants, professionals, and highly trained individuals that exist to make a transition to China successful. While its an exaggeration to say that network is a plethora – it is well-developed, fluid, and includes both Americans educated in China and Chinese knowledgable about multinational operations.

    China has yet to produce a class of multinational teams of expatriate and domestic U.S. talent similar to what American businesses enjoy in the Mandarinate. Most Chinese chamber organizations and networks are woefully short of anything resembling a domestic presence. Unfortunately, and despite what would logically occur, a multitude of Chinese graduates from American colleges hasn’t improved, but has arguably worsened the current condition of the Chinese business community in the United States.

    When I land in Beijing or Shanghai, I am effectively immersed in the language, culture, and people of China. I have a support network that exists, but does not impede my ability to study, learn, and do business. I am able to work with Chinese partners solely, and reach out for American support when I need specialized assistance. If you want to live in an American bubble in China you can, but you have to actively seek such a lifestyle, or be separated by language skills.

    When a Chinese person lands in the United States they are greeted by… Chinese restaurants, San Francisco Chinatown, and 1 million minted Chinese college graduates willing to do and say just about anything to stay in America. And to a startling degree, as unemployment statistics concerning the 2008 crisis revealed, a very isolated expatriate business community. Not a conducive environment to begin studying a foreign language and culture, not to mention a foreign business environment or consumer.

    The first step to addressing this, is to begin the conversation. How do we as a professionals aid our Chinese colleagues or Chinese companies in better perceiving what is a very complex, sometimes more muted, but nonetheless substantial business environment, culture, and national identity. I like to do American led tours of culturally sites, visiting customers, and some basic U.S. culture 101. It is funny and a lot of fun to see how surprised many Chinese are about what they learn.

    Until that conversation begins… until we reach out, and the Chinese conclude that the current Chinatown model is doomed, then Chinese companies will continue to be unwilling to hire top tier people in the United States.

    I once had a teacher who said America doesn’t conquer others through guns or boots on the ground, but through blue jeans and pepsi-cola.

    The same 200 year old diverse but pervasive cultural identity that has made American brands so successful abroad, is so hard for a 5000 year old congruent culture to understand.

    They are a lot of brilliant Chinese businessmen, and with the invitation of help from Americans, I think that understanding will come.

    • C S

      I find this article rather perplexing.

      This Chinese manufacturer had a problem selling directly to hardware
      stores in the USA? But, the large USA hardware stores are already buying
      directly from Chinese manufacturers through their China-based buying and
      procurement offices. Put it in another way, the Chinese manufacturers are
      already selling directly to USA hardware stores in a massive way!

      I put it to you that this so-called “client” is merely a middleman between
      the Chinese manufacturer and the hardware stores in USA. The role of
      middlemen is dying and such trading is a sunset business.

      • Lucas Blaustein

        This is a good point, but I think what Dan is referencing isn’t having a Chinese supplier, but actually having a wholly owned and operated Chinese brand.

        So, as opposed to a relatively unrecognizable Chinese screw supplier, you have a recognized Chinese drill maker.

        And brands are not dying, they are immensely powerful in the United States. In my industry of agribusiness, Nestlé and PepsiCo, the two largest agribusiness companies in the world are nearly entirely composed of brands. Brands drive sales and sales drive value. These two companies alone can completely shift markets based upon their actions, something that the direct-to-consumer-market, characterized by many smaller companies, has not the power, influence, or capital to do.

    • C S

      Of course, if the Chinese are trying to sell “generics” under their own
      brands to hardware stores in USA, this would be difficult because the
      hardware stores already have their own house-brands and other more
      established brands. So, why would they then want to carry a Chinese brand
      or any newcomer’s brand for such generics? However, if they have novel and
      patented products, and supported by marketing efforts, there is no reason
      why Chinese manufacturers would not succeed in the USA with their own
      brands. This is the same principle for Americans trying to sell their
      products in the Chinese market–if they do not have anything that is novel
      and special, would they succeed in the China market? NO!

      • Lucas Blaustein

        When dealing with branded Chinese products in the United States, this is the point that Dan and I are making. Largely, but not exclusively, Chinese companies have failed to hire quality local talent (i.e. qualified Americans to lead American market operations), failed to understand the extremely complex legal and regulatory environment, and I would take it a one step further and argue largely failed to even understand the needs of the American consumer because of a variety of factors including: 1) misperceptions of culture; 2) language barriers; and 3) other societal factors.

        American brands in China have a lot of more natural advantages in that they often have experienced people, governmental agencies, and networks to pull upon. American companies also have a reputation amongst Chinese consumers for high quality and safety. Furthermore, America has a long history of studying the Mandarinate, including its language, culture, and people.

        China has none of these advantages. Americans generally perceive Chinese brands as poor quality and potentially dangerous. Furthermore, the Chinese business community as it exists in America is highly isolated and has traditionally struggled to align itself with the larger American business community. As well, very few people in China dedicate themselves to the study of American culture. While there are many Chinese that have an admirable command of English, their knowledge of our business practices, our version of guanxi 关系 i.e. the “good ol’boys,” and an understanding of American history, values, even just American cuisine is extremely rudimentary and largely retarded by the ease of immigrating to the United States. A great author on this subject is Amy Chao.

        As a Chinese person in the United States you can live your entire life while eating exclusively Chinese food, having an exclusively Chinese social network, and rarely speaking a sentence of English while amongst the typical concentrations of Chinese communities dotting the continental U.S.

        As an American in China, such an equivalent lifestyle is impossible. Therefore, it could be argued that it is easier for Americans to do business in China, than for Chinese to do business in America, as it is much easier for an American businessman to study China, than it is for a Chinese businessperson to study America.

        All of the above comes with a few important exceptions: 1) a few brilliant Chinese businessmen have successfully translated their brands to the United States (largely Haier and Lenovo); and 2) much as the Koreans and Japanese before, in time business connections will be formed between the expatriate Chinese community in the United States and Chinese companies that will help Chinese brands more easily enter the U.S. market.

        I think being open and honest about the challenges, including issues of discrimination, trust, misperceptions of culture, all better help us succeed in doing business and training Americans on how to better interact with Chinese colleagues and businesses in the United States. And I think in time more Chinese companies will be able to successfully navigate the U.S. market. But as in everything, step one is admitting that you have a problem.

  • Ward Chartier

    In the context of the US, Lenovo seems to be doing well. The jury is still out on Haier. Stories of delaminating tires made in China still resound. I’m reminded that 25 years ago Hyundai cars were poorly regarded. Things have changed for Hyundai in the US as I think they will for some Chinese brands.

  • Robert Walsh

    The Koreans understood this, but only after a series of hard lessons back in the 1980′s-90′s. Once they grasped that after-service and QC were what the market wanted, then Korean brands started to get traction.

    Here in Burma, the Chinese are trying to sell cars. People want to buy them, but only because they can’t afford a 5 year-old Toyota freshly imported from Japan. The Chinese cars have no parts supply chain, and no after service. Coupled with poor quality to begin with, Chinese cars have a horrible reputation.

    For consumer products like cookware, we don’t see good Chinese brands like Supor, Midea, and Haier making much of a sales effort in Burma. As a result, the default are Thai brands, with Korean and Japanese products considered premium.

  • feng

    Given Korean firms seem to be doing well in the US (notably Samsung), I wonder how they (and the Japanese before them) learned this lesson? Did they go through a similar phase in the 90s say? To their credit, the folks at Lenovo seemed to get this though. After the IBM PC acquisition, they had an American as CEO, and didn’t get back their previous Chinese CEO until they thought they had learned the ropes of doing business in America.