Tencent is representative of the many young and ambitious Chinese companies. Tencent offers Chinese consumers instant messaging (IM) and social networking, called QQ, which is the equivalent of Facebook in the US. The company started operations in 1998, went public in 2004 and presently controls 69% of the Chinese IM and social networking market.
While Hang Seng Index, Hong-Kong’s blue chip index on which Tencent is listed lost 54% of its market value, Tencent beat that with a 30% drop in its shares. It also registered a 73% increase in profit at US$108 million and a 91% increase in sales at US$297 million. By carefully diversifying its revenue sources, Tencent earns 69% of its revenues by selling virtual products while a mere 12% is contributed by online advertising. Although the company faces serious competition from the number two players, China Mobile and Microsoft’s MSN, Tencent has warded off any threats for the time being.
But as is the case with many Chinese companies, the focus almost exclusively seems to be on operational effectiveness and efficiency and not on enhancing shareholder value by creating a resonating brand identity that can afford a sustainable competitive advantage to the company. This chapter examines the exciting and intriguing brand landscape of the booming Chinese market.
The New China
With a population of over 1.3 billion, a labor force of around 800 million, an economy of over US$7 trillion, an annual average growth rate of 12% and per capital GDP of around US$5,400, China is one of the biggest markets in the world with an enormous growth potential. China’s share of the world output has more than doubled since 1991 to 12.7%, third only to Europe’s 15.7% and US’s 21%.
China’s foreign trade has averaged nearly 15% or more than 2700 percent in aggregate. Further China became the first country since 1980 to overtake US in attracting foreign investment – China attracted US$53.2 billion as against US$52 billion for the US. The rise of the affluent customers in China has spawned many booming sectors. There are more than an estimated 300,000 Chinese with net worth exceeding US$1 million.
Chinese consumers contribute to almost 12% of the global luxury sales. China is now the world’s second largest auto market. World’s 20 biggest car companies have production facilities in the country. In 2006, passenger car sales surged 30% to 5.1 million units. The luxury car market is forecasted to boom from 177,000 cars in 2007 to more than 800,000 in 2014.
The Internet presents yet another similar story. The world leaders in online search, Google and Yahoo, are struggling in China, with the local player Baidu leading the market with a 57% share of the Chinese search market and Tencent discussed in the opening of this chapter has exposed the enormous market potential for instant messaging and social networking services.
Change is sweeping not just the booming Chinese industries but also the Chinese consumer. Chinese consumers are forcing the way companies do business. The evolving China is not just about the affluent coastal cities but also the interior rural and small cities. Compared to many of the bigger cities, smaller, inner cities have much lucrative consumers with 55 percent of them in the 18-34 years age group, 59 percent of them being highly fashion conscious, and 83 percent preferring branded products because of their superior quality and their symbolic value.
A case in point of this consumer profile’s business potential is Amway’s US$2 billion success by deploying 130,000 salespeople to directly interact and influence Chinese in many of these interior, smaller cities.
In addition to the enormous potential of China’s smaller cities, China’s teenage and middle class customers are emerging as a very powerful and lucrative segment of customers for both domestic and global businesses alike. The urban teens, who tend to be more brand loyal than older customers, have been found to spend about US$36 billion a year including families spending on their teenage children.
The Chinese middle class is another force to reckon with. It has been estimated that by around 2011 the mass of lower middle class will be around 290 million (almost the size of the total US population) and by 2015, this segment will have a total spending power of US$701 billion (4.8 trillion Renminbi). Furthermore, it has been forecasted that by 2025, this segment will increase to 590 million with a whopping US$ 1.3 trillion (13.3 trillion Renminbi) spending power.
This is the picture of a new China, the one that is so lucrative that businesses around the world are rushing to capture a piece of the market. But in spite of such booming industry sectors, Chinese companies are struggling to build strong brands that resonate with customers and help build sustainable and long term relationships. With intensifying competition, China cannot depend on the sheer size of the market eternally. Success can be sustained only if Chinese companies invest in brand building.
This article discusses this strategically important topic of building brands in China, the unique advantages enjoyed by Chinese companies, the challenges these companies face and strategies to help Chinese companies to stand their ground in the domestic market and to successfully enter foreign markets through building strong brands.
Branding in China
The purpose of this article is to unequivocally argue for the strategic importance of building resonating brands. It was argued and showed throughout various case studies and examples in many of the other articles by Martin Roll just why companies should create powerful brands and how they can go about building them. Those brand management principles apply to all countries, including China. As such, it will not be argued here again in this article However, the focus will be to demonstrate the burgeoning challenges of building brands in China.
China has one of the fastest growing economies in the world. Added to this is the fast growing middle class who are willing to pay higher prices to own branded goods. To make market conditions even more conducive for branded goods, the Chinese government has been allowing foreign companies in an increasing number of different industry sectors. But in spite of all these positive factors, there are a lot of inherent challenges that Chinese companies have to overcome in before becoming noted brands. Some of the more prominent challenges are discussed in the following.
China has long been under the dominant trading mindset, where in businesses have been overly concerned with sales and turnovers. This meant, that the companies usually focused on building tangible assets like factories, assembly plants, R&D labs and so on. This also meant that the focus of the company was more on immediate tangible gains rather than long term intangible gains. All these factors have combined in making marketing and branding as not so important for the Chinese businesses.
This mindset has not allowed companies to make any substantial investments in brand building. With the low cost that Chinese companies were exploiting till very recently, it seemed that branding was not so important. Branding is a long term organization wide exercise that may not yield tangible and immediate benefits. Further, top class brand management practices demand substantial allocation of managerial, financial and human resources over fairly long periods of time. This route directly contradicts the traditional mindset of Chinese businessmen.
But as the Chinese economy is evolving and as more and more global companies are making their marks in such diverse industries as consumer electronics, fashion, fast food, and even cosmetics, Chinese companies are gradually realizing the importance of having a strategic outlook and investing in building brands rather than factories.
But this is just a beginning and this dominant mindset that has dictated business practices for centuries cannot be easily overlooked and it will indeed be an arduous task for Chinese companies to evolve with the times and adapt brand management practices.
Even though China is projected as the goldmine that all companies want to reap from, it still is a developing nation. Only around 150 to 200 million Chinese of the total 1.2 billion are moving up the pyramid into middle class and having the resources to indulge in consumer products. There is a huge divide between the haves and the have-nots. Cities such as Beijing and Shanghai have become the clusters for the new affluent class and many of the interior cities and towns are still predominantly rural. Given this huge disparity, it is only natural that companies are still grappling with their strategies for the Chinese market.
Less focus on innovation
Innovation and creativity are very important elements of any product development. Some of the biggest brands in the world such as SONY, Apple and Samsung have built their sprawling empires based on constant innovation and creativity. Although innovation is difficult to measure, R&D spending as a ratio of gross domestic product (GDP) can be an indication.
On a national level, Asian economies lagged behind the rest of the world on R&D spending as a ratio of GDP from 1987 to 1997, with the exception of Japan and South Korea. Japan and South Korea each currently spend 3 percent of GDP on R&D, compared to 2.7 percent in the US. But indications show that the innovation deficit is likely to change.
China is targeting to spend 1.5-2.0 percent of GDP on R&D. For Chinese companies to reach the next level of building really resonating brands, one of the first steps is to develop a mindset of creating something novel rather than adopting ideas from the western world to local customers.
Implications of IP protection
The implications of IP protection in Asia have been a major barrier against building brands. In their own backyards, many Asian companies have faced rampant counterfeiting and infringement of IP rights. Until and unless legislation and law enforcement get better in the region, it may be a hurdle that prevents a deeper appreciation and respect for intangible asset management in the Asian boardroom.
The World Customs Organization estimates that 5–7 percent of global merchandise trade, amounting to US$450 billion, is due to counterfeits. China alone is estimated to be contributing significantly to all the fake and pirated goods worldwide.
In 2004, for example, French luxury house LVMH spent more than US$16 million on investigations, busts and legal fees against counterfeiting. This counterfeit market has indeed become one of the most pressing challenges for China’s quest to build a strong country brand at a holistic level and for the individual companies that have to combat this problem on a daily level.
Till very recently, most of the Chinese companies were protected by the government and financially supported. As not many sectors were open to foreign competition, Chinese companies did not face any sort of urgency to improvise their productivity and enhance their competitive advantage. Most of the companies had favorable access to resources and that offered them a greater advantage than the non-Chinese companies.
But with the opening up of the Chinese economy, market conditions are gradually changing. Even though the favorable treatment continues in certain extent, most of the industry sectors have become highly competitive. Chinese companies are being forced to improvise their productivity and build sustainable competitive advantage that would allow them survive and thrive in the competitive market. This sudden shift in the market structure and the business conditions pose a huge challenge to Chinese companies. To adjust to the changing competitive spectrum and also to update business practices and culture simultaneously would be a long drawn process.
Given these significant challenges, Chinese companies will have to be aggressive to not only overcome these roadblocks but also to ensure that their journey toward building globally recognized brands are constantly monitored to thwart any big or small roadblocks. Furthermore, these challenges are more relevant to the domestic market.
However, one of the biggest global challenges for any Chinese company is to overcome the inherently negative associations the customers overseas have of the Made-in-China effect. Before discussing branding strategies it is important to discuss this single most threatening challenge to Chinese brands.
In 2005, Lenovo acquired the PC division of IBM for a whopping US$1.75 billion. The logic was simple and straight forward - Lenovo would ride IBM’s brand equity in establishing itself as a credible brand in the PC industry. This acquisition was splashed across global media as the beginning of the Chinese global brand takeover.
In China, Lenovo’s acquisition was heralded as the onset of a new branding era. After all, Lenovo became the world’s No.3 computer maker in the world after Dell and HP. But a year later, Lenovo has issued an earnings warning that it would not be meeting its financial target - it reported a 16% decline in first-quarter earnings. Its profit fell to US$38 million, well short of the US$40 million that analysts had forecasted. In fact 35% of sales come from China where shipments grew by 25%. Operating margins in the US was 2.2% compared to a whopping 6.5% in China.
The country from which a company (product/service/brand) originates, has an effect on the company’s perceived quality and likeability in the minds of consumers - this is referred to as the country-of-origin (COO) effect. COO is not a new concept. It has been leveraged by companies and countries alike for decades now. German engineering, French wine, Swiss watches, Japanese electronics, 100% pure New Zealand, and Malaysia-Truly Asia are few known examples of such COO effect.
It has been proven in academic research that COO effect does have an influence on customers’ perceptions towards products/services/brands. China for long has suffered from a partly negative COO effect – depending on what product categories one look at. Given the changes taking place in the global and the Chinese markets, what role does COO play with respect to China.
Before discussing strategies for building Chinese brands, it is imperative to have a discussion of what causes COO and how can it impact Chinese companies.
The Country of Origin Effect
Many factors - brand image, brand personality, brand associations, communication messages – influence the perception of customers about the quality of a brand. The very reason a company indulges in branding is to assist customers in making purchase decisions by providing cues on quality, credibility and value about a product. One such factor that influences perceptions towards brands is the place where it is made.
Such effect is referred to as country of origin effect. Research in international marketing has proven that country associations do lead to customer bias. Such bias is based on the image of the country in customer’s minds. This leads to the next obvious question – what constitutes an image of a country? Many factors have been suggested as contributing to the country image. Some of the important ones are discussed below:
Economy: One of the main factors that influence customers’ perceptions towards a country is the level of the country’s economy. Level of economic growth acts as a main proxy for the country’s other activities. Most of the countries with a positive COO mentioned above are highly industrialized, developed countries.
Technology: Given the extent to which technology and technological innovations impact consumers’ lives in today’s world, it is not surprising that the extent of technological advancement of a country bears heavily on consumers’ perception of the country. This factor is usually related to the level of economic development of the country. Higher the technological capability of a country, more positive is the COO effect.
Regulatory mechanisms: With heightened globalization, the existence and effectiveness of regulatory mechanisms have become a major factor in creating country images. Regulatory mechanisms such as Intellectual Property Rights law, online piracy laws, anti-fraud regulations and others create a sense of perceived security in the minds of businesses and customers about a specific country.
These factors discussed above are some of the important factors that contribute towards the formation of an overall image of a country. As such, a country which is economically well developed, is technologically advanced, has a high wealth index, has stringent regulatory mechanisms, follows a market economy, and is democratic, tends to have a very strong positive country of origin image and thus products of those countries enjoy a positive COO effect. On the other hand, depending on the number of above factors on which countries score low, they tend to have a relatively lesser positive (or negative) COO effect.
Impact of these factors on China
How does China score on the above factors? If Made-in-China has a negative effect, then the reasons for such an effect can be analyzed in terms of the above factors. China is one of the few communist countries in the world. This in itself creates an image of the country in the eyes of the customers. Politically, what is different is not always good!
Given the Chinese government system, it is normal for foreigners to think of it as an inefficient system of governance just because it is different from theirs (often democracy). Further, China is known for rampant piracy, counterfeit products, and thriving gray markets. This reflects strongly on the regulatory mechanisms, especially on the effectiveness of IPR law. Such a reflection does not bear well for China’s image and effect on Chinese brands. Further, China for long has been known as the world’s factory in many industries.
During the past couple of years, China has been hogging global headlines for its economic growth, ever increasing wealth index and improvements in technology. With its robust manufacturing and outsourcing sectors, Chinese exports have been contributing to China’s phenomenal economic growth. With increasing employment, there is an explosion of the middle class and the affluent class that are driving consumption.
Number of billionaires and millionaires in China is on a consistent rise during the past couple of years. The Chinese luxury goods industry is predicted to become the biggest in the world in the next couple of years. The country is also making impressive strides in research and development and technology sectors. All these factors contribute to a positive image of China.
Given these, it is a combination of both positive and negative effects that a country of origin effect if formed. In China’s case, the cumulative negative seems to partly overshadow all that is positive.
As such, even today, Made-in-China seems to carry a partly negative connotation depending on which products one look at. But with changing global market dynamics, the increasing visibility of Chinese brands, and the global strides of certain Chinese companies such as Lenovo, Haier and others will facilitate in China overcoming its inherent negative Made-in-China effect.
Dominant Growth Strategies
In spite of the challenges that Chinese companies face, there have been some Chinese star brands that have shone in the global brandscape such as Lenovo and Haier. Given the aggressive quest of Chinese companies to grow both domestically and internationally, this section will discuss the three strategies used by companies to grow – Mergers, Acquisitions and Alliances.
A recent study conducted by McKinsey reports that of the top 75 US companies by market capitalization and the top 75 by revenues as of June 2005, 33 had accumulated at least 30 percent of their market value through acquisitions. It has been reported that between 1996 and 2001 American CEOs signed an acquisition or alliance every hour of every day. The deals totaled 74,000 acquisitions and 57,000 alliances in six years, with a combined value of $12 trillion.
These are just cases in point that prove that mergers, acquisitions and alliances have grown into some of the most participated corporate activities. Faced with ever increasing competition in every sector of the market, companies seem to have unanimously decided that the best way to thwart such competition is to acquire the competing company and thereby establishing a stronger presence in the market place. The integration of the emerging economies of Brazil, China, India, Russia and others has only made mergers and acquisitions more pronounced in the global market. But not all such activities prove successful.
The Daimler-Chrysler partnership lost the two firms $60 billion of market value and AOL Time Warner found themselves worth $54 billion less after the merger. Further, the financial markets are known to react in strange ways in response to any such corporate deals. In February 2001, for instance, Coca-Cola and Proctor & Gamble declared a $4 billion collaboration, which would oversee more than 40 brands and 10,000 staff. Five months later, after Coca-Cola's stock had dropped and Proctor & Gamble's share price had risen soon after the announcement, the deal was off.
In spite of such high profile failures, these governance models seem to be on the rise now more than ever. Given this often confusing mechanism of these strategies, this section of the chapter discusses each of the three strategies to offer companies some clear insights.
Growth strategy: Mergers
A merger refers to a process in which two companies become one by coming together. In such a case, no one company rules over the other. Usually the management of both companies shares the control of the resultant company and names of both companies are retained for the resulting companies.
There are many high profile examples of mergers – AOL Time Warner, GlaxoSmithKline (the second largest pharmaceutical company in the world after Pfizer), Hero Honda (the leading motorcycle brand in India), Sony Ericsson (the third fourth largest manufacturer of mobile phones in the world) and many others. In each of these cases, names of both companies were retained in order to leverage the equity of both brand names. Therefore simply put, Mergers create a new organization out of two or more organizations of more or less equal stature, pooling all resources.
Growth strategy: Acquisitions
Acquisitions on the other hand refer to processes in which one company buys the other company. In such a situation the buying company absorbs the bought company into the existing company. Acquisitions can be carried out either to eliminate competition by absorbing the competing company or to expand the corporate portfolio by retaining the acquired company as an independent entity under the overall corporate management.
This latter case is at the heart of many conglomerates. News Corp Inc acquired MySpace, the leading online networking site with an estimated 100 million registered users not in order to merge it with the other news businesses, but to expand the corporate portfolio. On the other hand Vodafone Group plc, the world’s largest mobile communications network company with a market capitalization of GBP 86billion (US$169 billion) recently acquired a 67% stake Essar Hutchison (one of India’s leading mobile phone network) for US$19 billion. The purpose of this acquisition was to enter the highly lucrative Indian mobile phone market. By this acquisition, India became Vodafone’s second largest market after the US.
As is evident from the many examples mentioned before, mergers and acquisitions (M&A) serve three main purposes:
- M&A serves as a market entry strategy
- M&A serves as a corporate portfolio expansion tool
- M&A serves as competitive defense mechanism
Growth strategy: Alliances
Alliance is an approach in which two or more companies agree to pool their resources together to form a combined force in the marketplace. Unlike a merger, an alliance does not involve the emergence of a new combined entity. Each participant in the alliance retains their individual entity but choose to compete against competitors as a unified business force. Joint venture is a very popular form of an alliance.
Recently, the world’s largest retailer Wal-Mart entered into a joint venture with India’s Bharti Enterprises to get a toe hold in the booming Indian retail market. This move was the only way Wal-Mart could have entered the Indian market as regulatory restrictions prohibit a fully owned foreign retail chain to operate in the Indian market. As such, this joint venture was a market entry strategy for Wal-Mart.
Consider another example – Costa Coffee, the leading coffee brand across the UK and Western Europe. This brand entered the Chinese market recently with a joint venture with the Yueda Group based in Jiangsu Province in China. This was not because of any regulatory restrictions but more because of its need to learn about an alien market and get a foot hold.
Therefore joint ventures are indeed a very common entry strategy for companies. This approach has its own pros and cons. The obvious advantage is that companies entering markets through JVs would benefit from the local knowledge of the local company. The obvious disadvantage is that companies entering new markets may be taken for a ride if joint ventures are not agreed upon carefully. As such, defined simply, Alliances are less risky than acquisitions because they are negotiable, co-operative and easier to walk away from. They bring two firms together with mutual interests but different strengths to work on particular projects that offer benefit to both.
Once the companies evaluate their options, priorities and resource constraint, they should analyze the many factors that determine the viability of each of these strategies. Such factors are now discussed.
Level of competition in the market
One of the fundamental reasons that companies engage in either M&A or an alliance is to tackle competition in any market. Companies around the world have to come to believe that consolidation within a market would allow them proportionate market presence and power to claim the leadership position.
Further, with immense pressure on companies to cut costs and post profits, acquisitions offer a channel to increase scale and leverage the sheer size of the resulting organization. As such, depending on how competitive the market is in any particular sector, companies will have to decide between the three options. Airline industry in the US is one of the most competitive industries.
As such, companies have resorted to intense acquisition as consolidation reduces costs, increase occupancy rates, and enhances the underlying profitability. On the contrary, consumer electronics is an industry where due to the highly specialized nature of work, companies prefer collaboration or alliances. Therefore a Samsung works with Sony, a Sony works with Ericsson, Intel works with IBM and so on. These strategic alliances allow companies to leverage each others’ core competencies.
Barriers to entry
M&A are usually resorted to either for increasing scale or cutting costs whereas alliances are preferred to enter new markets or segments. As such, one of the important factors which should be considered is the level of barriers present for entering a new market. Some markets are characterized by high barriers to entry such as regulatory constraints, established competitors, highly volatile markets that does not justify initial entry investments and so on.
In such cases, alliances are the preferred option as they allow companies to leverage the existing knowledge and resources through collaboration. On the other hand, where barriers to entry are low, companies can gain a very strong foot hold in the market either through mergers or through acquisitions.
Synergies and resources
Along with the previous two factors, synergies and resources are equally important in deciding among the three options available to companies. Mergers and alliances between companies have been proven to work efficiently if there is a high level of synergy between companies that come together. Synergies can be in the corporate culture, product portfolio, strategic goals, and supply chain or logistic systems. When such synergies exist, companies can productively implement the purpose of a merger or an alliance.
Similarly, for an acquisition option, an important factor is the availability of financial resources. As acquisitions take place at prices much higher than the book values of the companies being acquired, acquiring companies should possess or have access to considerable resources.
Mergers, acquisitions and alliances are all equally powerful corporate growth strategies available for companies. The selection of any single approach depends on both internal and external factors. Given the many successes and failures alike experienced by companies worldwide, it would be advisable for Chinese companies to primarily understand the strategic implications of each approach and then to diligently evaluate each approach in light of the above mentioned factors. As each market and each company is unique, selection amongst these three approaches would substantially differ.
But companies should comprehensively consider the inherent challenges posed by the Chinese market and the barriers (both financial and reputational) in global markets before deciding one or a combination of multiple strategies.
10 Steps to build Chinese brands
Having discussed both the main challenges faced by Chinese companies and the dominant strategies that can be used by Chinese companies to build and grow their brands, the focus here will be on providing Chinese boardrooms and CEOs a ready-to-use strategic tool kit to build brands. These 10-steps are specifically designed for Chinese companies, keeping in mind the unique challenges and advantages they have.
These ten steps are intended to guide Chinese CEOs and corporate executives to take stock of their current position in the market place, chart out their eventual path and constantly challenge the status quo.
- Build a strong corporate board of directors: Board of directors can be one of the most important strategic resources for any company. By including directors who are well connected to different strategic resources such as investment banks (to help in funding), regulatory authorities (to obtain permissions), media (to create favorable perceptions), and politicians (to help in lobbying), Chinese companies can further strengthen their ties to multiple stakeholders. Such a move not only erects entry and mobility barriers but also would allow them access to scare resources thereby creating a credible source of competitive advantage.
- Develop a powerful local, regional and national distribution system: China is a vast and widely spread out country. Distribution systems in China are not consolidated as they are in much advanced countries such as the United States, United Kingdom or Europe. Given the strategic importance of having a wide spread and well managed distribution system for reaching customers, Chinese companies should invest in creating a well managed, far flung and well coordinated distribution system. Mere reliance on existing fragmented distribution channels will not be sufficient.
- Tap the local human capital of customers, collaborators and competitors: As is widely acknowledged by now, China is a very different market from those in the Western world. Chinese companies should leverage this difference to their advantages. In addition to using market research firms, Chinese companies should tap into the human capital across the spectrum and across markets. Local customers, business partners and collaborators would have a wealth of information on local customer buying habits, the local regulatory policies and other strategic information. By establishing a formal network to enable information flow, Chinese companies can create a strong advantage over foreign companies that may not have access to their market information.
- Create a strategy to reach the mainland, interior, smaller markets: As has been discussed before, it is not merely the affluent coastal cities that are lucrative. Even the many smaller cities and rural cities that are in the heart of the country are becoming very lucrative markets. As such, Chinese companies would greatly benefit to penetrate these markets and create early brand preferences and build first move brand equity. Such a move would not only enable them to expand their brand’s growth but would also ensure a leg-up over later competitors.
- Defend the domestic territory: In the quest to conquer far-off markets, Chinese companies seem to be oblivious to the tremendous potential of the domestic Chinese market. One result of such oversight has been the gradual ascent of global companies in the Chinese market. As such, Chinese companies should vehemently guard their domestic territory before venturing out to global markets. Leadership in domestic markets not only helps create a strong base for the brand’s bottom line but would also act as an essential buffer (in the case of decline of global markets) and an essential test market (where Chinese brands can first be tested before a complete roll out in global markets).
- Aggressively globalize: Along with defending the domestic territory, Chinese brands will also have to aggressively expand globally. Given the inherent cost advantages that Chinese companies have (both because of relatively cheap labor and favorable lending conditions by the State), they can not only enter multiple markets but also can undercut many of the entrenched players in those markets. In going global, Chinese companies should carefully assess among the three strategies discussed before – mergers, acquisitions and alliances – and design their corporate strategies in line with their overall branding strategy.
Engage the local, regional and global media to create positive China perceptions: As discussed earlier, one of the biggest challenges faced by Chinese companies is the “Made-in-China” effect. Regional and global media have had a very prominent role in the conveying the many shortcomings of Chinese companies to the global audience. Although there can be no alternative to diligently work on these shortcomings to meet up the global standards, Chinese companies should also actively pursue a proactive media strategy. Such a strategy should aim to achieve three broad objectives: (1) convey the identity of their brand that is based on superior product quality, exciting value propositions and engaging customer experiences, (2) recreate, redefine and refine the historical associations that different stakeholders might have of the Made-in-China effect and (3) build a bridge with important players in the global market place with an intention of finding eventual endorsers, collaborators and brand champions.
Align the corporate business strategy with brand strategy: As has been discussed previously in this book, the alignment of the corporate business strategy with the overall brand strategy should be the guiding strategic blueprint for Chinese companies. Such an alignment would enable companies to instill the guiding brand philosophy internally with employees and also allow them to (1) effectively derive strategic plans, (2) efficiently allocate strategic resources and (3) project a unified front of the company to the external world of customers, competitors and collaborators.
Prune unrelated diversification and focus: One of the historic strategic challenges of South and South East Asian companies has been the rampant and unrelated diversification in all segments and all industries possible. Such examples can be found in India, South Korea, Singapore, Taiwan and China. Chinese companies that are striving to build a solid competitive advantage that would allow them guard their turf in the domestic market and carve out a niche in the global market would do good if they prune many of the unrelatedly diversified firms. Such a focus would allow companies to cut down the number of competitive fronts, compete more aggressively on the chosen few fronts and most importantly build a brand around a core positioning in the marketplace.
Constantly innovate: Probably one of the most important aspects of any company competing in today’s hyper-competitive global environment is the ability to constantly innovate on multiple fronts – innovation in product development, innovation in customer engagement, innovation in initiating collaborations, innovation in managing multiple markets effectively and so on. Some of the best known companies in the world have been consistently innovation on all or most of these fronts.
Chinese companies have a unique advantage on this front from two perspectives: (1) the domestic Chinese market is a tremendously advantageous real time brand laboratory, especially given the distant markets, the diverse make up of customer profile and the rampant global competition and (2) the enormous resources – managerial and financial – that is made available to many Chinese companies through the State allows them to constantly experiment with different aspects of their brands. As such, Chinese companies should take this opportunity to create a culture of innovation that could eventually allow them to gain a huge leap on many competitors in the market.
The 10 steps would allow Chinese companies to successfully channel their resources to build powerful brands.