CTP Video: Can Chinese Companies Build Brand in the USA?

Made in China FlagQuick quiz: name a single mainland Chinese company that has successfully built brand equity in the U.S. market sans acquisition?  Lenovo doesn’t count as most of its brand value derives from the purchase of IBM’s mobile computing group.  Haier?  No, they don’t make the grade either.  Haier sells a lot of product in the US but mostly as a low-cost generic white label manufacturer for big-box stores like Wal Mart and Target.  The only people who know the brand Haier are those who have lived in China.  Americans, on the other hand, just see a $50 refrigerator or $10 toaster without paying any attention to the manufacturer.  And why should they?  Haier does not advertise widely in the US market or make any noticeable effort to establish itself beyond its generic, low-cost origins.   That will change.  It has to.  Many Chinese companies like Baidu, Geely and BYD recognize that their home markets will eventually become saturated and if they want to grow, they will have to seek new markets overseas.  It won’t be easy though, as they will no longer have the benefit of protection and support from the central government in Beijing.  Instead, these Chinese companies will be forced to compete in manner that remains largely unfamiliar to most Chinese executives.

We have been exploring the question of “China Going Global” for several weeks on CTP, in our blog, podcast and for a series of articles commissioned by Fortune magazine’s Chinese website.  In our first installment, we discussed the trend of how more and more Chinese companies are engaging Lesser Developed Countries (LDCs) in the Southern Hemisphere where the obstacles to market entry are significantly lower than in the United States, Europe and Japan.  In these various LDCs across South America, Africa and the Middle East, the Chinese can compete on price and their ability to build informal distribution networks among the Chinese diaspora.  Overall, Chinese companies operating in LDCs around the world are displaying their characteristic dexterity going into markets that most companies from the developed world either ignore or abandoned.  In places like Bolivia, Zambia and Bangladesh, product liability laws are weak, competition in many sectors is thin and the non-contract-based business cultures there all play to Chinese companies’ strengths.  In contrast, the United States offers the Chinese none of those advantages.  It is a huge, diverse market, with establish competitors in a system that is built on a legal system dedicated to contract enforcement.  If Chinese conglomerates want to play in this sandbox, they will have to adopt an entirely different approach to how they run their businesses.  In short, they will have to learn to be less “Chinese” and more “American.”

In this episode of the CTP Video Podcast, we explore the challenges confronting China’s emerging global conglomerates as they venture across the Pacific into the United States market.  Some of the questions we explore include:

  • A “brand’s” value has very different meanings in the United States than it does in China.  Chinese companies will have to follow the lead of Korean and Japanese conglomerates who spent considerable time and money to learn the subtleties of American culture so as to effectively market to this diverse population.   Whereas price and value are among the driving forces of a brand’s value in China, that is less so in the United States where a pair of Diesel jeans, for example, can sell for over $300.  If the consumer is drawn to the Diesel brand, than the $300 spent on those jeans is within an acceptable value range.  Understand that concept of “value” will be critical for Chinese companies as their adapt their marketing strategies to accommodate the US market.
  • The “Made in China” (MIC) brand poses distinct problems for Chinese companies coming to the United States.  MIC is now a widely used catch-phrase for low-quality, crappy products.  Following 10 years of scandals, product recalls and sub-standard quality associated with many Chinese products, the Mainland’s MNCs will no doubt face a significant challenge shedding this burdensome baggage.
  • What sector will Chinese companies likely have the most success?  Cars.  Both Michael and I agree that the auto sector is wide open for an innovative product, particularly in the mixed-fuel or hybrid sectors.  The selection of Los Angeles as BYD’s North America headquarters is yet another indication that the Chinese are going to use their innovations in hybrid and solar power auto technology to serve as the proverbial “tip of the spear.”   However, autos present tremendous risk to the brand as well.  Imagine if Geely or BYD encounter quality problems similar to what Toyota just went through.  The Japanese auto maker was able to draw on a generation of brand investment in the United States to recover its standing in the market.  Chinese companies will not be afforded the same amount of trust.  If the gas pedals on a BYD or Geely car stick as Toyota vehicles reportedly did, then the Chinese will have a public relations disaster on their hands.  Remember, all Chinese products, regardless of their quality, will have to overcome the public’s skepticism of MIC.  On top of that, there is the whole… ahem… “Communist thing.”  Yes, the American people remain oddly afraid of anything “Communist” and China is still widely referred in Washington as “Red China.”  Finally, China has built up a sizable audience of detractors who would love nothing more than to see their brands fail miserably in the United States.   In the end, the Chinese must perform exceptionally well as there is very little room for error for them to establish their brands in this environment.
  • Finally, the Chinese will have to grow a thicker skin.  When things go wrong, and they will, Chinese corporate leaders and senior government officials must resist the temptation to call on their nationalistic instincts that have been used to great effect until now.  If a product is recalled, it is not a conspiracy “to contain China.”  If American consumers protest against a Chinese company, it is not because “they want hurt the feelings of the Chinese people.”  Instead, the Chinese should address the problems as local issues, work hard to influence public opinion back home (especially in the blogosphere) and show a commitment to the American consumer that Chinese MNCs are investing in the United States for the long term and will work hard to resolve problems quickly, directly and honestly as they arise.  American consumers welcome Japanese companies with a similar level of skepticism when they first started to arrive en masse in the 1980s and now, a generation later, those companies are a trusted part of millions of US consumers’ lives.  The Chinese can do the same if they learn not to over react and to communicate with their American consumer in a tone and language they are accustomed to.

So many of the requirements of how to enter the American market are similar to the necessities of what it takes to break into the Chinese market.  The Chinese always tell Western investors that in order to succeed there it requires time, patience and a lot of money.  More importantly, it also requires leaders who are culturally sensitive, speak the language and understand the consumer’s needs.  Imposing your will on the consumer will not work, either in China or the United States.  So before Chinese corporate leaders pack their bags for Los Angeles, New York and Washington, they might want to first stop by an American company operating in China to listen to their experience about what it takes to make that long journey across the Pacific.

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