Recently President Xi Jinping hosted China’s first ever Belt and Road summit. Attended by 29 world leaders and numerous top Chinese government officials, the global inclusiveness and openness of the meeting stands in stark contrast to the isolationist “America First” messages of US President Donald Trump.
A less well known but nevertheless interesting event also occurred in China last week; Chinese Brands Day. Beginning this year, China's State Council has approved "Chinese Brands Day," to be held each year on May 10.
Is it a coincidence that these two events happened in the same week? I think not.
The Chinese have a famous saying: 要致富,先修路 (If you want to get rich, build a road…)
The Belt and Road initiative is President Xi’s signature foreign and economic policy. At its heart, it aims to reinvigorate the flow of goods and services between China and the rest of the world through an alleged US$1 trillion investment in basic infrastructure (think roads, rail lines, ports and power plants). As China’s domestic growth continues to slow, these infrastructure investments are being made in order to make it easier for China to ship its goods outside of its home market. There is also hope that this initiative will enable the free flow of Western goods back into the massive Chinese market, but that remains to be seen.
If you build it, they will come
While at first blush it may seem counterintuitive that an infrastructure investment program will lead to a rise in branding, when you step back and look at the rationale it begins to make sense.
If the Belt and Road initiative is successful, then the infrastructure for the free flow of goods out of China will exist. And what type of goods will these be? The Chinese manufacturing industry is moving away from high-volume, low-cost production toward value-added manufacturing. This means branded goods. These branded manufacturers will need to trade outside of China to continue growing, which in turn means that Chinese companies will have the opportunity to openly compete against Western companies outside of China.
In order for Chinese companies to win the hearts, minds and ultimately wallets of new consumers in these markets, they are going to need to have brands that resonate with those consumers. While this shift might not necessarily happen in the short-term, given the rebalancing of the economy towards value added goods and services, it will definitely occur within the next three to five years.
To date, Chinese companies are yet to create any strong global brands. The most successful Chinese brands globally are those that have either achieved meaningful brand equity through acquisition, such as Lenovo, or through partnership as demonstrated by Huawei. While Lenovo is the leading PC brand by sales in the world, a significant amount of its success is owed to the savvy acquisition of the ThinkPad brand back in 2005. Huawei is now the third largest smartphone player in Europe, but its wise partnership with a very well-known brand, Leica, has provided Huawei with a huge credibility boost among skeptical European consumers.
This will need to change
For the most part, Chinese companies have been successful in their home market without having to focus on traditional brand-building. Over the past 15 years, Chinese companies have relied on speed and scale to drive growth: produce a product, price it properly, distribute it widely and use price promotion when necessary.
However, that approach is showing signs of strain within China, and is not transferable to the competitive markets outside of China. Chinese companies will need to focus on building relevance into their brands, which means more emphasis on strategy as compared to solely focusing on execution. Relevant brands have a number of things in common. They are customer obsessed (understand consumer needs), distinctively inspired (establish emotional connections), pervasively innovative (challenge the status quo), and ruthlessly pragmatic (deliver consistent experiences).
Even more importantly, there are big implications for Brand China. Chinese companies operating outside of China will operate under the halo of Brand China whether they like it or not. Right now, that brand halo has too many negative connotations (cheap, low quality, copycat) to be seen as an asset for Chinese brands abroad. This issue will need to be solved either by a concerted effort from the Chinese government or through the collective efforts of the Chinese companies who build global brands.
Now that the commitment to build the road to the rest of the world has been made, Chinese companies must begin their journey to building relentlessly relevant brands which will help them succeed outside of China.
|Jay Milliken is senior partner at Prophet in Hong Kong|