Karina Solheim
“Made in China”
An essay discussing the Investments on International Brands in China &
the Chinese Inability to Develop an International Brand.
Campus:
BI Oslo
Made in China
10.02.2006
Introduction
China is today the seventh largest economy in the world (Gu 2005). You would
think that this rapid developing country already had a grasp at the international
businesses! But on the contrary; In the Global 500 list published by The Financial
Times, which presents the worlds 500 largest companies in 2004, China was
purely represented. Among to the 50 largest enterprises, none was of Chinese
origin (Financial Times 2004). It is reasonable to ask if the Chinese lack the
ability to compete internationally.
The Chinese market for luxury products are today accounted for 500 million
euros. But this market is influenced by a rapid growth rate, accounting
approximately 50-60% a year. It is also expected that by the next 5 years, another
200 luxury stores will be established in the big cities of China (Jebsen 2005: 1415). The time when profitability, luxury and self-interest was condemned, has
probably passed.
In the statistics covering the ten major brands established in the luxury segment in
China, only one was of Chinese origin (Jebsen 2005: 14-15). This segment is
mostly represented by American and French multinational brands. The irony is
that the majority of these brands have their production based in the People’s
Republic of China.
China produces 90% of the world’s ties, 95% of the world’s cigarette lighters and
50% of the world’s cameras, to mention couple of the areas (Nojonen 2005:4). So
then, what is the reason for the Chinese inability to develop a strong domestic
brand to encounter their competitors’ entry in the Chinese market? And what is
the reason for this Chinese urge to buy these international luxury brands?
The Chinese Situation
The People’s Republic of China
The People’s Republic of China is affected by a long and inflicted history. But the
most important relevant historical happening related to the business area, was
probably “The Opening Up” policy of 1979-1984 (Gu 2005:3). This was the
beginning of the modernization process that has happened in China. This reform
affected the economy of China by a revision of their foreign economic relations
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and the agricultural system (Gu 2005:3). But this modernization process also
contributed to different political reforms that lead to a multiple numbers of
domestic conflicts. The problems that has influenced the Chinese process for
social development has mostly been bribe and corruption, inflation, urban
migration, an emerging number of prostitues and a floating population (Gu 2005:
6). Ever since the re-opening of China, there has been dominating differences
among the Chinese people.
The Chinese economy has a growth rate for approximately 9% a year (Jebsen
2005: 14-15). This contributes to a growing range of millionaires, both in China
and internationally. The Chinese are becoming richer! The easiest way to
acknowledge this is by taking a walk in the streets of the Chinese urban areas. The
bikes that used to dominate the streets are now replaced by cars. But on the other
hand, if you look towards the suburbia, the nation’s wealth is not delegated to
everyone.
The number of Chinese customers with a yearly income, high enough to be able to
be apart of the luxury brand segment, is today accounted for approximately 5-10
millions (Jebsen 2005). When comparing with the total number of Chinese
inhabitants, 1,3 billion people, it becomes a small number (Zhaoqing 2005:1). But
this is a market affected by a tremendous growth rate; By the next 10 years, this
market will be accounted for approximately 50-60 million customers (Jebsen
2005). This reflects a growth in this nations welfare and predicts a more equal
progress of the nations wealth, towards a social development.
The Market Situation
In an index developed by AT Kearney, China is represented as the 4th most
attractive market for investment in business (Stabæk 2005: 26-27). The top ten
markets are defined as “should be prioritized”. This means that there is a huge
time limit to this market; high value equals a sufficient time limit.
China is defined in this index, as a market influenced by an average attraction and
an average market penetration. A new-investment in China is also seen as affected
by a relative risk (Stabæk 2005: 26-27). Even so, the analysis is coherent in their
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view of the Chinese market as a growing market with an tremendous
attractiveness for retailers.
The Relevancy of the Brands
“A brand is a name, term, design or a symbol that identifies your product or
service and distinguish it from others in the same market” (Payne 2005). Since
there are many different international brands that already is or are planning to
establish their brand in the Chinese market, it becomes crucial to be able to
manage to communicate effectively your own brand.
The brand recognition among the Chinese people has grown the recent years, they
are now aware that they have multiple brand options to choose among. There is
also a trend in the Chinese market that for international brand recognition. For just
a couple of years ago, the Chinese only acknowledged brands like Tsingtao beer
and Hitachi electronics. These brands are now faced with fierce international
competitors like Budweiser and Philips (McEwen 2005). You can say that the
Chinese people are moving towards a more international existence, especially
when it comes to daily- life routines. But the numbers of competitors are many in
the Chinese market, so the battle for the customer attention has only begun.
In this combat it becomes important that the companies are able to “effectively
communicate the value of the brand to their customers, and the product or service
must consistently fulfil the customer’s expectations” (Payne 2005). The trends are
now pointing towards an urge for westernised daily- life, and they are doing so by
buying international brands. But if the Chinese companies where to be more
aware of the importance of communicating the value of their brand in
collaboration with using their origin, they would obtain a competitive advantage
in this process. Then the question will be if the trends that are present today, will
continue or if there will be a significant shift in the market. The general thought is
that there is only a matter of time; this because no- one has ever been able to
predict the Chinese market sufficiently.
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Piracy
“The Chinese people are not particularly creative, but they can copy- and they do
it really good” (Furnes 2005: 22-23).
China is now tied with Vietnam as the country most likely to steal (Roth 2005).
Referring to production and selling of copycats, in domestic and international
markets. The luxury segment has the previous years confronted this trend by
adding new values to the brand experience. This in an attempt to heighten the
brand equity, whereby making the “real” product more exclusive. In a competitive
global marketplace, the only way to survive is to create brand recognition. The
product most represent more than the product it-self. A luxury product has to fulfil
five demands: high quality, be unique, hard to get heighten the buyer’s status and
self confidence (Jebsen 2005: 14-15).
“It is a notion that ever since the international luxury brands started manufacture
in china, the brand has been troubled with piracy” (Seeber and Filseth 2000: 158160). The government of China has tried to contribute in the fight against piracy.
“There are people who are innovating and people that are pirating. China wants
to reward the innovators” (Roth 2005). In 2001, the Chinese IPR System was
rectified. This included the Trade Mark Law and the Copy Right Law. In outlining
these restrictions China has used for reference the relevant international
conventions, treaties and the strong points of other countries legislation in the
aspect, and gradually established and improved its legal system in terms of the
protection of IPR” (Jun 2005: 3-4). This reflects that China does not want to stay
as the “cheap manufacture centre”. They want to be an international global centre
of technologic development.
Even though the government has implemented these new rules, copycats still play
an important role in the streets of the Chinese urban life. But if “anti-piracy
should become a reality in China, Western businesses can start worrying more
about the competition than copyright theft” (Roth 2005).
The Manufacture Skills
Even the domestic companies are troubled with piracy. A recent study by the
Ministry of Information Industry found that 37% of the Chinese companies where
suffering from piracy problems (Roth 2005). This projects that the Chinese
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companies also have to occupy some technological and manufacturing skills. “My
goods are so fake, but not so bad” (Jun 2005: 9). Not only can the Chinese
companies copy, since the domestic ones also are afraid of being copied. It is also
important to mention that cities as Beijing invested $33 billion in 2002 on
scientific and technical activities, according to the State Statistical Bureau. Of
that, $16 billion was set aside for R&D (Barnathan 2005). This reflects an attitude
towards creativeness and further development.
The conclusion
The Changing Business View
As the focus in China has shifted from only being a cheap manufacturing base,
focusing on producing copycats. The Chinese companies in cooperation with the
government has taken the business more seriously. This can be stated accordingly,
by my opinion, on three important facts:



China has now started to look outside their own boarders, to invest
internationally to secure resources for a further development of business
in China. The fact that countries like the US hinders this is a way to state
that they are frighten of the Chinese development.
Both Chinese companies and the government has now started to invest
heavily in R&D.
It is also a fact that is has become more difficult for foreign investors to
enter the Chinese. “In the Chinese business world you would be lost
without a guanxi; a good network” (Furnes 2005: 22-23). The Chinese
focus is now based on the fact that a new-investment in China should be
a win-win situation for both parties.
But cooperation between western and Chinese companies/ government in the
Chinese market has undertaken significant difficulties. It is important to
understand that there are major differences both in culture and behaviour, and that
these differences can evolve into problems.
The western countries often defines the Chinese businesses as “if you give them a
chance to let in, you give yourself a competitor the same day” (Furnes 2005: 2223). There might be a sense of truth in this, but there is important to acknowledge
the Chinese history and their heritage. It is also important to remember ones
position as guest and host. In accordance to the western definitions, the Chinese
defines the western countries investments in China as “Get rich and get away”
(Furnes 2005: 22-23).
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Towards the Occidental
As the Chinese people have experienced a national economic growth the recent
years, the feeling of being a part of the international world may be one of the
explanations for the Chinese urge to buy international luxury brands. Another
reason may be the branding tactics made by the international brands. As a
consequence for Chinas economic development, the market automatically gets
more similar to the western markets. This arranges an equal marketing effort on a
global scale and makes an investment more profitable, in addition to reducing the
risk.
The Chinese Threat
The rise of the Chinese economy might be seen as a threat to the sovereign
manufacturing countries. The imminent threat, defined by the western businesses,
has been the problems with piracy and also the poor reputation of the Chinese
businesses.
But there is more to it than that; countries like the US has the resent years
encountered a slight fall in their own economy. But still, most of the world top
brands are still controlled by Americans. If a hidden agenda really exists, it is
based on fear of loosing world market share. This might be a reason for the
Americans and the Europeans attempt to try to hinder the Chinese to develop their
own brand in their own domestic market. This could explain one of the reasons
why the Chinese companies are faced with this fierce competition from
international brands.
This is the multinational companies’ strategy by entering the Chinese market. The
focus is not solely based on getting the Chinese customer or the fear of loosing
China as a low-cost production base. They are quite aware of the consequences
that might appear if the Chinese gets control of their domestic market. Based on
the definition of successfully carrying out a globalisation strategy; the brand have
to be successful in its home market to finance overseas establishment (Doole and
Lowe 2004: 28). And of course, having the world’s most populous country as
your home market would be characterised as a competitive advantage. It is only a
question of if the Chinese is going to exploit it.
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References
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