Can the next Samsung come from China

In 1989, Herman Lo founded Hu Fong Industrial Company to design, manufacture, and market plastic baby toys. Headquartered in Hong Kong, Fu Hong won contracts to manufacture baby care items for global brands such as Gerber and Disney. The molder saw that its products marketed under foreign global brands were selling in the Chinese market for five times the amount that these Western brands were paying Fu Hong to manufacture them. Yet these global companies were constantly applying pressure on Fu Hong to lower prices. To avoid margin compression, founder and chairman Lo decided to launch his own branded business, known as Qin Qin Wo (“kiss me”) in China, and as Kidsme outside Asia.

In 2012, two years after the launch, Lo expects his branded business to surpass his private contract manufacturing business. The first branded product marketed overseas was a polypropylene and silicone teether with a worldwide patent. To cultivate a marketing and branding mindset, the firm hired 1,500 university graduates and put them through 12 months of training, before finally selecting a core staff of 20. Reflecting on the experience of building a brand, the founder Lo observed, “I have to say thanks to my customers. They gave us too much pressure … I had to think of another way to survive.” Competing in foreign markets forced Fu Hong to innovate, thus helping it move away from its image as a producer of cheap products, even in the Chinese market.

Many Chinese firms have started the same transformation that Japan and South Korea went through. Soon we will be buying Chinese-branded products just as we are buying “Made in China” Western-branded products today. In our conversations with the managers and owners of the leading Chinese companies, we have been struck by their global ambition. For many, building their own brand into a global brand, and one accepted by consumers in the developed economies, is a matter of national pride. In June 2011, 11 influential Chinese entrepreneurs formed an alliance called the International Best Brand. They expect to enlist 500 leading privately owned Chinese companies to help promote Chinese brands on the global market.

The return of many young Chinese to the mainland is accelerating the push to brands. These Chinese, often the children of entrepreneurs, have obtained their MBAs from leading international schools and bring a keen understanding of branding as well as a desire to see Chinese brands on the global stage. Branding philosophy and skills are slowly infusing Chinese firms. Haier’s marketing deal with the National Basketball Association shows that Chinese firms embrace the need to invest in building brands and connecting with Western consumers. Chinese brands such as Lenovo have signed endorsements deals with Hollywood movies. 

In Transformers 3, a spiky-haired robot named Brains with bulging fluorescent blue eyes transforms itself from a Lenovo ThinkPad Edge computer. Lenovo’s chief marketing officer stated, “We want to be the first big consumer brand to come out of China.” The result is that a story filed by a reporter attending the largest annual exhibition of the consumer electronics industry held in Las Vegas was entitled “How Long Until China Produces the Next Samsung?” The opening paragraph began with “The biggest trend of the 2013 Consumer Electronic Show … is the rise of the Chinese brands – Hisense, Haier, Huawei, ZTE, TCL and countless others – many of which have pumped up their presence at this year’s CES with Lance Armstrong-level enhancements.”

The automotive sector also demonstrates how Chinese firms are systematically grappling with the challenges of building global brands. No longer satisfied by either meeting domestic demand or producing components for foreign brands, the leading automakershave begun the process of transitioning to global brands. For example, JAC Motors (officially Jianghuai Automobile Co., Ltd.) has taken a small but significant market share position in Brazil. In 1989, China exported just six cars, but in 2012 it exported close to one million cars, even if not to the US as yet.

But exporting to other emerging markets differs from selling to demanding European and US consumers. This entails creating quality products that meet Western specifications and are appealing to foreign tastes. One Chinese automaker deployed a team of scientists, including anthropologists and psychologists, to identify the best features of the most innovative countries in the world.

They sought to understand what consumers had come to expect in products from those countries. The automaker embodied the team’s findings in a facility some 200 miles from Beijing. Within this facility, researchers devoted rooms to the sensory experiences of each country. For example, the “Nordic room” was misty and smelled of freshly cut grass, while the “German room” had a conservative feel with deep resonance and demonstrated how Germans perceive mechanical movement. “Looking at a sliding door, it opens slowly, then speeds up, before slowing down to a perfect stop. In contrast, the Chinese door would swish open quickly and stop with an abrupt bang.”

Other European assaults are in the works. Geely Motors, the new owner of Volvo, plans to sell a mid-range sedan in the UK, while Chery Automobile plans to use its newly acquired Fiat plant in Sicily as its base for Europe. In 2012, Great Wall Motor set up a production plant in Bulgaria to help sell its base Voleex C10 model, the Steed 5 pick-up, and the Hover H5 4×4. The Chinese automakers realize that they must succeed in Western markets not only to generate sales overseas, but also to grow their domestic market, where foreign competition is intense.

Sergio Marchionne, CEO of Fiat and Chrysler, admonished global car-makers to take China’s ambitions seriously: “Even assuming China were to export only 10 per cent of what it produces” – which some analysts forecast will be 30 million vehicles in 2015 and 40 million by 2020 – “the risk we face in our home markets is enormous.” Beyond the automotive sector, one may argue that the Chinese brands, such as Galanz, Haier, Hisense, Huawei, Lenovo, Pearl River Piano, Shanghai Tang, Tsingtao, and ZTE, are already global brands, even if they are not top-of-mind for Western consumers.

London Business Strategy Review