Chinese Brand Challenges – Can Liabilities of Foreignness
Explain the Lack of Global Chinese Brands?
Lutz Kaufmann, Ph.D. (corresponding author)
Professor for International Business & Supply Management
WHU – Otto Beisheim School of Management
lutz.kaufmann@whu.edu
Jan-Frederik Rösch
Research associate for International Business
WHU – Otto Beisheim School of Management
jan-frederik.roesch@whu.edu
January 18, 2010
Chinese Brand Challenges
Chinese Brand Challenges – Can Liabilities of Foreignness Explain
the Lack of Global Chinese Brands?
Research Aim
The emergence of Asian brands in developed markets is not a new phenomenon.
Contrarily, Korean, Taiwanese, and Japanese companies have consecutively entered
the Western markets (Child & Rodrigues, 2005; Fan, 2006; Fuchs, 2007). However,
the success of Chinese multinational corporations (MNC) as to the creation and
management of their brands is less apparent (Roll, 2008).
In research, difficulties of internationalization – the so-called liabilities of foreignness
(LOF) – have achieved increasing attention in the international business and strategy
literatures. LOF measure the additional social and tacit costs MNCs encounter in
foreign countries which incumbent firms do not (Eden & Miller, 2004; Hymer, 1976).
Extant research has primarily investigated Western MNCs venturing to emerging
markets, with a reversal of this pattern specifically called for (Garg & Delios, 2007;
Peng, Wang, & Jiang, 2008).
Consequently, our research proposes LOF as explanations for the lack of global
Chinese brands. Our research aim is threefold: first, we lay out the theoretical
foundations for a study investigating the global difficulties of Chinese brands. We aim
at contributing to the discussion about the applicability of the Western
internationalization theories, here LOF, for Chinese MNCs (e.g. (Roy, Walters, & Luk,
2001)). Further, we provide additional insight into the patterns of 'Chinese firms and
brand venturing abroad' (Child & Rodrigues, 2005; Söderman, Jakobsson, & Soler,
2008).
Second, we argue that LOF can be operationalized as brand challenges explaining the
disadvantages Chinese brands face abroad. This advancement of LOF into the field of
marketing does not only extend the understanding of the disadvantages of MNCs from
emerging markets in the Western world (Cuervo-Cazurra & Genc, 2008; Garg &
Delios, 2007; Sofka & Zimmermann, 2008). It also addresses the call to unbundle
downstream and upstream activities when analyzing exposure to LOF (Rugman &
Verbeke, 2004).
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Chinese Brand Challenges
Finally, this project further promotes marketing and branding capabilities available to
or to be learnt by Chinese MNCs to overcome their brand challenges. Extant research
shows that these capabilities can be applied to improve firm performance (e.g.
(Morgan, Slotegraaf, & Vorhies, 2009)). So far, the importance of these capabilities
has been neglected by MNCs (Li, 2008; Thomas, Eden, Hitt, & Miller, 2007).
Methodology
The aim is to pursue a qualitative research approach, based on Yin (2003) and
Eisenhardt and Graebner (2007). With this methodology we account for the rather
new context of emerging global Chinese brands (Child & Rodrigues, 2005; MarschanPiekkari & Welch, 2004). We aim to uncover hidden dynamics and interdependencies
among brand challenges of Chinese brands in Europe. Although Chinese firms are
rather cautious with regard to research interviews (Brouthers & Xu, 2002; Fang &
Zou, 2009), we target only cases with distinctive theoretical contribution in terms of
industry insights and brand maturity. Moreover, we apply common measures to
enhance the validity and reliability and hence overall quality of case study design
(Eisenhardt, 1989; Yin, 2003). Thus, 35 semi-structured interviews with managers of
Chinese subsidiaries in Europe and domain experts are conducted, using pre-tested
interview guidelines (Perry, 1998). Interview transcription and case study protocols
ensure rigorous documentation and reliability (Eisenhardt & Graebner, 2007; Yin,
2003). Moreover, we will collect company data, external information, as well as
consulting material to triangulate the interviews. Hereby, we further enhance the
validity of the project (Yin, 2003). As basis for the interviews we formulated the
following theoretical frames for Chinese brand challenges and marketing capabilities
as basis for the interviews (Suddaby, 2006; Yin, 2003). After intensive data analysis,
we provide propositions for future research (Yin, 2003).
Chinese Brand Challenges
In general, almost all firms face internationalization challenges when operating
outside their home base (Hymer, 1976; Zaheer, 1995; Zaheer & Mosakowski, 1997).
Extant research suggests that operating from such a disadvantageous position hinders
the economic success (e.g. (Zaheer, 1995)). Research distinguishes economic,
activity-based costs and social costs – the so-called liabilities of foreignness (Eden &
Miller, 2004). LOF are of special interest as they are tacit, context-specific and can
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Chinese Brand Challenges
only be anticipated or even quantified with enormous efforts. LOF incorporate three
hazards: (i) unfamiliarity hazards, i.e. costs due to wrong market assessment or
erroneous information of host country culture, (ii) relational hazards, i.e.
organizational costs of interactions within the foreign firm or within the firm's buyersupplier network, and (iii) discrimination hazards, i.e. costs due to unfavourable
treatment by home or host government or public (Eden & Miller, 2004).
While LOF hold true for the overall firm, we suggest special relevance for Chinese
brands and their venture abroad. We argue that Chinese brands face LOF, i.e. brand
challenges, when being introduced into and managed in foreign countries. The still
missing global success of Chinese brands is due to the fact that Chinese firms have
not yet managed to overcome their specific brand challenges.
Defining brand as relationship between brand owner and the specific target group, it
becomes obvious that brands compete at each possible touch point (Court, Elzinga,
Mulder, & Vetvik, 2009; Muthukrishnan & Chattopadhyay, 2007). Recent work on
brands in general reveals that the customer brand experience created at each touch
point has positive effects on customer satisfaction as well as on customer loyalty
(Brakus, Schmitt, & Zarantonello, 2009). The core of this competition is the brand
identity, which Aaker defines as "unique set of brand associations that brand
strategists aspires to create and maintain" (1996, p. 68). Brand identity is further
distinguished into brand as product, as organization, as person, and as symbol. LOF
literature suggests that Chinese brands should not be assumed to have the same
'strong' brand experience as domestic brands.
One prominent possible reason is the negative perception of Chinese MNCs due to
their home country (Chajet, 2008; Fan, 2008) – the country of origin effect (COO).
Existent research interprets COO as consumer focused (e.g. (Pharr, 2005)). Brand
challenges respectively LOF instead consider additional stakeholders such as
employees or governments.
However, the interdependencies and the dynamics of Chinese brand challenges over
time still remain to be uncovered. In addition, existent LOF categorizations have to be
scrutinized with respect to their applicability in the marketing context.
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Chinese Brand Challenges
Chinese Marketing Capabilities as Possible Mitigation Strategy
The aforementioned discussion suggests that Chinese MNCs are strongly interested in
softening the effects of brand challenges. We argue that marketing capabilities as vital
resources available to Chinese MNCs are meeting this claim (Luo, 2000).
Superior marketing capabilities can be linked to firm performance and growth
(Morgan, et al., 2009). Existing literature suggests that specific marketing methods
could help to alleviate the effects of brand challenges, e.g. (i) brand positioning to
overcome market unfamiliarity (Townsend, Yeniyurt, & Talay, 2009) or intra-MNC
relational hazards (Bell, 2008), (ii) local interpretation of core brand elements to
enhance the relationship to local employees (Aaker, 2008) or (iii) communication of
non-comparative information to change negative initial evaluations (Muthukrishnan &
Chattopadhyay, 2007).
Most recently, researchers conceptualized marketing dynamic capabilities (MDC)
which might prove helpful in understanding the learning process of Chinese MNCs.
Danneels characterizes MDC as crucial capabilities to identify and serve particular
customer groups (2008). Fang and Zou define MDC as a combination of product
development management, customer relationship management, and supply chain
management (2009). Morgan and his colleagues apply a combination of both
conceptualizations (2009). MDC allow to create competitive advantage (Danneels,
2008; Fang & Zou, 2009) through consistent delivery of customer value and hereby
could improve brand experience.
However, existent marketing capabilities of the Chinese MNCs are specialized to
serve the Chinese home market. Primarily focused on advertising and price
competition they are not necessarily adequate for developed markets (Elango &
Pattnaik, 2007; Fan, 2006). Thus, the exploitation of existing capabilities might not
suffice Chinese MNCs to build and maintain competitive advantages in developed
markets. The exploration of new capabilities might be needed to meet the dynamic
requirements (Danneels, 2008; Luo, 2000, 2002).
REFERENCES AVAILABLE FROM THE AUTHORS
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