China Going Global

China Going Global & Brand Building

Dr. Wen-guang Shao, Managing Director, Phoenix CNE Ltd

At the EU-China Business Summit

(The Hague, December 9, 2004)

It gives me great pleasure to be part of the EU-China Business Summit today, sharing this panel with other distinguished speakers. Here I would like to talk about the issues of international marketing that Chinese companies face as they go global, especially challenges they face regarding brand building.

It increasingly looks as though ChinaÐ'ÐŽÐ'¦s fast growth is driven by export and import trade. Essentially China is running with the same template that South Korea, Japan and other Asian dragons used in the 70s and 80s. It is just a lot bigger and more internationally oriented.

ChinaÐ'ÐŽÐ'¦s total exports grew sevenfold from 1990 to 2003, amounting to US$ 438 billion. The export figure up to October this year is about $470 billion, up 34% from the same period last year. The EU is one of the biggest export markets for China, taking up 18% of ChinaÐ'ÐŽÐ'¦s total exports in the second place right after the US.

Many Chinese industries depend on exports for their very survival, including textiles and apparels, shoes, DVD players, motorcycles, digital cameras, refrigerators, colour television sets and air conditioning equipment. China is the leading producer of a dozen or so consumer electronics products: half of the worldÐ'ÐŽÐ'¦s DVD players and digital cameras, one-third of computers, and one-fourth of its mobile phones. China churned out 65.41 million televisions last year, more than one set for every person in France.

One company, China International Marine Containers (CIMC), manufactures 50% of the worldÐ'ÐŽÐ'¦s freight containers. Another company, Shanghai Zhenhua Port Machinery, is China's largest manufacturer of container cranes and other cargo handling equipment and has 35% share of the global market.

Driven by the pressure of domestic competition and fired by the urge to open up new markets, more Chinese companies are willing to invest in international business operations, totalling 7470 with non-finance related assets by the end of 2003. Chinese commercial banksÐ'ÐŽÐ'¦ foreign financial assets amount to US$119 billion.

Over 700 Chinese companies have investments and business operations in Germany. There are 250 Chinese companies in the UK and a similar number in France. Some Chinese high-tech companies have moved into Europe, attracted to the opportunities of working with European companies close to advanced R & D facilities. China runs a deficit on its technology trade with the rest of the world, and foreign-owned firms in China control 80% of technological imports and exports. So Chinese companies have a strong incentive to approach the high-tech market directly.

The past twenty years has seen a gradual increase in the number of Chinese trading companies setting shop in European capitals and financial centres. Spearheading this move are major national export and import firms. Many provinces and cities try to get their trading companies to establish a presence in Europe, including many private trading firms.

Chinese manufacturers and producers of consumer goods are also trying to get a foot in the door and to sell directly on the European market. Examples of the successful brands include Haier Group for its household appliances, Broad air conditioners, China Telecom, Huawei Technologies, TCL electronic appliances, Lenovo computers, Erdos cashmere goods, Tsingtao beer, Tong Ren Tang traditional medicines.

-

As part of ChinaÐ'ÐŽÐ'¦s booming service trade, which totalled $102 billion in 2003, Chinese banks and insurance companies have found their way into Europe. In the area of transportation, Chinese shipping companies operate in Europe to service foreign trade through their sea-faring cargo ships and goods handling services. ChinaÐ'ÐŽÐ'¦s airlines have taken off in recent years. The boost in airline transport has resulted from increased trade as well as expansion in two-way tourism.

In spite of the rapid increase in ChinaÐ'ÐŽÐ'¦s direct and service trade with Europe, ChinaÐ'ÐŽÐ'¦s export strategy faces various constraints. They include political tension with trading partners as a result of trade deficits, counter-measures taken against Chinese companies, and the inherent problems associated with the limited number of markets for ChinaÐ'ÐŽÐ'¦s exports. When Chinese companies sell more into the traditional European producersÐ'ÐŽÐ'¦ territories like those of Spanish shoe manufacturers or leather goods producers in Italy, they encounter negative reaction from locals and even all-round hostility.

At the micro-level, the brand building poses a major challenge to Chinese companies abroad. Although Chinese-made goods have come to fill European store shelves, one hardly can find Chinese branded product among them. This contrasts sharply with the huge volume of exports from China. China dominates global manufacturing but has stopped short of promoting its manufactured goods under Chinese brand names and benefiting from the added value of brand recognition.

Ture, China only embraced markets in the 1980s. China had remained isolated economically for so long that Chinese companies did not produce to sell overseas, nor did many have the capital and skills to do real business abroad. Historically it was difficult to build a brand in a country where intellectual property was not recognised, even less protected. More recently, the impact of September 11 on the shopping behaviour of the consumers in the US and Europe has been such that there is considerable pressure for retailers to supply goods at very cheap prices, which in turn has forced Chinese producers of consumer goods for these markets to focus on production cost cutting at the expense of building their own brands.

When foreign investors came into the China market, they brought with them their branded products and their promotional skills. They also reduce the number of Chinese brand names when they take over Chinese companies through mergers and acquisitions. Half of China's exports to the West are made in factories owned by foreigners; another 25% were designed and marketed abroad. Foreign brands come with foreign designs, materials, components and patents. According to a recent survey in ChinaÐ'ÐŽÐ'¦s apparel industry, over half of apparels