Ni hao! Hello from China! Above is my name Laura Ries in Chinese. As I sit here in Guangzhou, China after also visiting and giving speeches in Beijing and Shanghai this week, I am left to wonder about the future of Chinese brands in the world.
As a first-time host of the Olympic Games this summer and talk of being the next global superpower, China is on top of the world. It is a place of great excitement, potential and opportunity. But living up to its potential won’t be easy.
Japan, the land of the rising sun, was predicted to take over the world in the 1980s. It didn’t happen. Despite a reputation for high intelligence, hard work and high quality goods, Japan wasn’t able to capitalize on its potential because it forgot to build powerful brands.
There are a few exceptions in Japan like Toyota, Honda, Nissan and Nintendo. But other than a handful of companies, Japan is line-extension society. A country of companies that make everything and put their name on everything. Brands like Mitsubishi, Hitachi and even Sony have become meaningless brands in the mind. And despite huge sales figures they fail to make significant profits due to the weakness of the brands.
When you don’t have a powerful brand, you are forced to sell on price. And when you sell on price, it is hard to make money.
The good news, in my opinion, is that China will experience rapid growth in the next 7 years, like Japan did in the 1980s. The bad news is that the Chinese economy will eventually hit the wall much like Japan’s did in the 1990s. Right now because of its cheap labor costs and reputation for quality, China has an enormous advantage. But as the country prospers, wages will go up, prices will go up and the country’s low-cost export business will move to Vietnam and other cheaper places.
China’s key to maintaining economic growth is to take advantage of this attention and low-cost production right now and use it to build powerful brands. Brands that own something in the mind. Germany is perhaps the most expensive place in the world to manufacture anything, but the country is successful because they build powerful brands like Mercedes-Benz and BMW.
So did I see the rise of powerful brands in China? Nope. Exactly the opposite. It is a branding mess over here. Everybody makes everything. Just like they do in Japan.
Chang Hong was the dominant brand of television sets. So what did they do next? Expanded. Today Chang Hong makes refrigerators, air conditioners, semi-conductors and commercial electronics. Today they make everything but money. Ten years ago they had net profits of 2 billion Yuan. Today they are losing money.
Chunlan was once China’s largest air-conditioner manufacturer. Then they expanded into motorcycles, automobiles and heavy equipment. And after three years of negative revenues and losing 400 million Yuan last year, they were delisted from the stock market. It would be like Harley-Davidson making fork lifts, cars and air-conditioners. It would sound crazy in America, but it is happening every day in China.
There are a few exceptions. Gree focused on air-conditioners and become the country’s leading company. While the competition expanded and lost focus. Gree built a brand and today dominates the market. Unfortunately, examples like Gree are hard to come by. Because if China can get its branding right, the country will become a force to be reckoned with on the world stage for decades to come.
One brand with huge potential is Chery. With oil costs soaring to over $130 dollars a barrel and greater concern for the environment, the future for compact cars is colossal. There is a giant hole in the mind and in the marketplace for a compact, low-cost car brand. And China is the perfect country to fill it. They even have a car brand that is ready to roll, the Chery.
The wildly successful Chery QQ fits the bill on all accounts. Compact, cheap and chic. The problem? Chery isn’t staying focused. We read in the papers that Chery engineers are now at work on developing 40 or 50 new car models at least 10 of which could be ready for production this year. Building bigger and more expensive cars will totally undermine Chery’s compact position in the mind. Not to mention the fact that building new models will take the company’s attention away from improving the QQ.
It is exactly what happened to Saturn. At first, Saturn was a wildly-successful a one-model, one-price, affordable, compact car. Then they expanded into bigger, more expensive Saturns. The brand today is a weak brand losing substantial amounts of money. You can just build a brand and forget it. You need to constantly update and stay on top of it. When you expand the brand, it takes time and resources away from the maintenance task.
In just a few weeks the best athletes in the world will travel to Beijing to compete in the Olympic Games. How do you get to the Olympics? How do you get to be the best athlete in the world? By training for many different events? No.
You get to the Olympics by practicing one sport, one event, one distance, one stroke, your whole life. Winning a gold medal takes discipline, commitment and focus. Winning a gold medal in the Branding Olympics takes a similar commitment.
The Lion & Al. Not sure who is scarier.
Our articles appear monthly in China Marketing magazine.