Tessa Thorniley
Nov 11, 2010

The evolution of China’s follower brands

A number of Chinese brands that began as copycats have shaken off that stigma to become successful in their own right. But where do they go next?

Chinese brands... despite a new brand strategy, car manufacturer Geely still occasionally looks to Western auto models for its inspiration
Chinese brands... despite a new brand strategy, car manufacturer Geely still occasionally looks to Western auto models for its inspiration

When it comes to taking an idea from elsewhere, copying it and in some cases improving on the original, it could be argued that nobody does this better than Chinese brands. The breakneck speed of economic development, combined with a relatively weak intellectual property (IP) regulatory framework, has in the past at least created an environment where brands are unashamed ‘followers’ of their overseas counterparts.

The popularity of shanzhai goods helps to explain why ‘copycatting’ in China does not have the same stigma that it carries in the West. Taking something original and adding bells and whistles is something Chinese consumers respond to. It’s what sells products. It’s something to be admired.

But ‘shanzhai’ goods in China are not just fake products or imitations of other brands; often they are amped up, cooler versions of the original. Shanzhai translates roughly as ‘mountain stronghold’ and carries with it connotations of something that does not come under official control, a kind of anti-establishment movement for products.

Think of a mobile phone that comes with a TV plus a radio or a credit card swiper or a scanner which can spot a fake Rmb10 note. Shanzhai goods give consumers a multitude of extra features. They could be called Western brands with Chinese characteristics. Coupled with the cultural belief that there is nothing new under sun that has not already been created in the country’s 5,000-year old history, it’s easier to understand why Chinese firms don’t spend too much time fretting about IP.

The shanzhai philosophy gives brands kudos for being outside the establishment. Instead of using MSN Messenger which was, at the beginning, the dominant player in the market, the vast majority of Chinese have switched over to QQ - now Asia’s largest instant messenger - which resembles MSN but has been souped up with all kinds of extras.

Ma Huateng, the billionaire founder of Tencent, the owners of the QQ brand, admits he pinched the idea for instant messaging from an Israeli company in the mid 1990s.

Ma has been dubbed the “plagiarism king” by rivals. In July, the business was pilloried in a Chinese magazine article which mocked up the company’s mascot - a cute penguin - and showed it dripping with blood from knife wounds as the firm came under fire for copying web portals and games from other sources and for pushing smaller, more innova tive players out of the market.

Tencent, though, says its products are now radically different – and better - from the ones it originally imitated. “At Tencent, the spirit of innovation takes the form of consistent, incremental improvements,” says Jeff Kwek, head of branding and strategy for Tencent Online Media. A case in point is QQ, he notes. “It has been through 10 upgrades since the product was introduced about a decade ago. It looks nothing like the original except for some common icons and it works wonderfully.”

Ben Cavender, senior analyst at the China Market Research Group, agrees. “Tencent has become much, much more than it was. They were one of the first online companies in China to have success drawing consumers in and getting them to pay for digital goods and services. What has really set them apart though is their ability to integrate a broad range of services in one package including chat, virtual goods, ringtones, mobile services and a variety of mobile and online games,” he says.

Today, the bulk of Tencent’s revenue comes from the extras that it has packaged together with its core services. The company has more than 450 million users, outstripping rival services from Microsoft and Skype in China according to research group Analysys International.

Other Chinese internet brands have followed a similar path. RenRen, China’s leading social networking site, which was launched in 2005 as Xiaonei, has been accused of copying its site from Facebook, even down to the shade of blue it uses for its logo. RenRen, which means ‘everybody’ in Mandarin, has also been charged with producing games that bear a startling resemblance to those already on the market.

The company has little competition – Facebook is blocked by Chinese censors - but RenRen has proven to be adept at adjusting to the Chinese market, where social networking is not confined to younger web surfers. Oak Pacific, which bought the company in 2006, last year hired Saatchi & Saatchi Beijing to reach out to white collar workers up to age 35 who can surf the web at work but have not yet switched on to social-networking. A feature that allows users to write long discursive postings also appeals to a more adult demographic.

Instead of being merely a place for internet users to meet each other and build networks, RenRen has now used television advertising to emphasise its gaming and entertainment offerings. The new ads are peppered with animated vegetables and animals from China’s leading social games.

Bryce Whitwam, general manager of Wunderman in Shanghai, argues that copycat behaviour is not exclusive to the Chinese market, but in fact a fundamental part of the strategy of many new brands.

“The follower label implies copycat status, but, to be honest which brand isn’t a copycat of some other brand?” he asks. “You might call Apple an original brand but all of their products have in fact been developed by others before. One could also argue that Nike was initially a copycat of adidas. My point is that Western brands copy and then think about innovating and improving the model. The same applies to successful Chinese brands.”

But while the shanzhai approach works for newer brands and companies targeting a younger demographic, there are clear long-term pitfalls. While Chinese firms - and consumers – tend not to worry about copycatting, it is clearly something that damages their brand in Western eyes.

In particular, Chinese companies which have ambitious international expansion plans have taken pains to stress their originality and innovation but sometimes the copycat label can be hard to shift. For instance, Huawei, the Chinese mobile equipment maker, may have world class technology but a recent court case filed against it by Motorola in the US for knowingly purchasing commercial secrets could have a significant impact on the firm’s already fragile brand.

The same is true for brands that seek to move away from the perception of low cost-low quality manufacturers into competing on quality.

“Traditionally Chinese companies haven’t invested much in research and development and haven’t been innovators. They didn’t have the right systems in place and it was a challenge to find the right talent. But they also realise that long-term they can’t succeed as ‘me too’ brands and can’t succeed on low price alone because that is not what Chinese consumers want anymore,” Cavender says.

The answer, for some, has been to rebrand and move away from their original ‘follower’ positioning. Li Ning, China’s most successful sportswear brand, became notorious for aping foreign competitors. The logo first used by Li, the Olympic gold medal-winning gymnast who founded the company 20 years ago, bore a remarkable resemblance to the Nike swoosh, while its former slogan, ‘Nothing is Impossible’ looked oddly familiar, especially when placed next to adidas billboards bearing the words ‘Impossible is Nothing’, although Li Ning staunchly claims their version of the slogan came first.

The group now has a new logo, which it says is to appeal to younger shopper, and a new slogan: ‘Make the Change’. Some aspects of the business model, however, call for imitation. Li Ning, like its rivals, also sponsors a range of celebrity sports stars, especially basketball players. And its international headquarters is in Portland, Oregon, where Nike was founded.

“Li Ning has realised that there is space below aspirational brands like Nike and adidas but above domestic counterparts,” says Cavender. “By signing endorsement deals with international athletes and opening a design centre in the US, Li Ning has signaled to Chinese consumers that it is a Chinese brand that can compete globally. This has done a lot to raise the brand’s cachet within China.”

Meanwhile, instead of copying their technology from other companies, other brands have simply bought it through acquisition. While some Chinese carmakers, such as Geely, Chery and BYD, have been accused of copying car designs and features from rivals, Geely, based in Hangzhou, has succeeded in buying Volvo and importing its technology to China, including several designs that Volvo jointly developed with Ford.

“Geely in particular clearly wants its own identification. It does not want to be seen as a follower,” says Klaus Paur, a China-based independent auto analyst. “To do this they are not marketing cars under the Geely brand which had a bit of tarnished image - associated with low quality. Instead they have launched the Emgrand, Gleagle and Englon brands. Now Geely has also acquired Volvo, a foreign brand. These are all signals that the company wants to create a stronger, better identity and no longer wants to be associated with copycatting.”

Those in the frontier industry of electric vehicles may even have advantages over foreign brands if they are able to innovate, Paur adds.

“These electric car designs will change considerably over time. They won’t be the same as conventional technology or conventional design where the international brands have the edge because of their experience and expertise. BYD for example could lead this. In this field it could become a leader rather than a follower,” he says.

Lenovo, the computer company which acquired IBM’s Thinkpad brand in 2004, was the first Chinese company to acquire a major foreign brand. While the purchase was initially hailed, Lenovo suffered during the financial crisis and has only now returned to profit. “After the acquisition Lenovo was plagued with management problems and in focusing on international expansion lost contact with its core market,” notes Cavender. “Chinese consumers complained that Lenovo computers were not built as well as they had been before and complained that customer services had also suffered. Basically Lenovo wasn’t ready to take on huge new business units, and address global computer demand.”

However, by purchasing IBM Thinkpad, Lenovo was able to persuade its corporate customers inside China that it had entered the premium end of the market, and today the company’s computers in China often sell for twice the price, or more, than they do in the US. For example, the top-of-the-line Thinkpad W700 sells to the Chinese government for US$12,500, compared to just $2,500 in the US. The company’s domestic brand has been considerably strengthened by the acquisition.

While some Chinese companies are successfully re-branding to take on foreign or domestic brands in China, there is still little indication that the strategy is having any effect on their perception outside the mainland.

“When it comes to international competition and assets abroad, the Chinese brands simply don’t have it. They possibly never will.” says Tom Doctoroff, North Asia director of JWT. “There are structural issues that currently prevent Chinese firms building long-term brand equity: bureaucratic and imperial management styles which lead to a lack of innovation and market insight, and a very sales dominated marketing focus which puts short-term value above long-term loyalty.”

Product recalls and scares have long plagued Chinese goods and convincing overseas consumers that China can rival international brands for quality and reliability remains a major challenge.

One of the most memorable incidents in recent years involved the Jiangling Landwind SUV, a two tonne 4x4 being sold into the European market. German car club ADAC ran the Chinese-made vehicle through a crash test which the SUV did not just fail, it produced the worst result in the esteemed club’s 20-year history.

“Before any of these brands are successful abroad first they have to be successful in the home market. Chery, Geely, BYD are not there yet,” says Paur, reflecting an argument that could be applied to Chinese brands in general.

“They are only selling on price domestically. The product quality needs to improve considerably. It will be at least five years before any Chinese carmakers can compete on factors other than price. First they need to find an identity that will attract overseas buyers. They can’t copy Japanese or Korean designs to do this. They need to find a Chinese brand identity, with unique Chinese designs.

This article was originally published in the November 2010 issue of Campaign Asia-Pacific.

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