China in Transition

Chinese Firms are Striving to Establish Their Own Brands
- Will it lead to a further advancement of "made in China"?

Chi Hung KWAN
Consulting Fellow, RIETI

In recent years, industrialization has progressed in China to the extent at which it has now come to be called the world's factory, and products made in China, mainly cheap consumer goods, are flooding world markets. However, Chinese brands are virtually unknown overseas. The Chinese government is encouraging firms to expand overseas under the slogan of "go abroad" (zouchuqu), but the key to success lies in whether they can establish their own brands.

Brands are names, words, signs, symbols, designs or combinations of these that are used to identify a company's products and services and differentiate them from those of competitors. When companies come to gain customer patronage and trust in its products and services, and maintain a continuous relationship with its customers through the brand, customers come to make purchasing decisions based on the brand rather than the physical or functional side of the product or service; and so competitive advantage is created through the brand. Such competitive advantage becomes embodied in the price advantage brought about by the fact that these products can be sold at higher prices than nonbrand goods. In addition, a stable sales volume is ensured because customers will continue to purchase products under that brand, and the brand has the power to expand geographically, even abroad, and into similar and different industries, thereby leading to an increase in current and future cash flow (note).

Chinese firms have also begun to widely recognize the importance of brands as a source of corporate competitiveness. In light of this, the Beijing Famous-Brand Evaluation Co., Ltd. has been releasing a list of "China's Most Valuable Brands" every year since 1995. The top 10 brands in 2003 were Haier (electrical appliances), Hongtashan (tobacco), Wuliangye (Chinese spirits), Legend (computers), FAW (automobiles), TCL (electrical appliances), Changhong (electrical appliances), Midea (electrical appliances), Liberation (automobiles) and Tsingtao (beer). However, the reality is that these brands have virtually no impact overseas. In fact, there is not a single Chinese brand among the top 100 brands in the world as announced annually by the U.S. magazine BusinessWeek, where 62 brands, including top-ranking brands such as Coca-Cola, Microsoft and IBM, were American, and Japanese brands - Toyota (11th), Honda (18th), Sony (20th), Nintendo (32nd), Canon (39th), Panasonic (79th) and Nissan (89th) - were also listed.

Chinese firms have to use brand power as leverage for penetrating overseas markets. Just as is the case with technology, they are faced with the choice of either developing brands by themselves or procuring them from the market. Compared to the latter, the former requires a huge amount of investment and is accompanied by high risk. Owing to such considerations, most Chinese firms so far have had no choice but to "use" foreign brands through the original equipment manufacturer system when exporting. As a result, even if they are integrated into the supply chain of a multinational corporation, it is just their cheap labor that is "used," and they can only earn paltry processing fees. On the other hand, we are beginning to see some firms trying to expand into overseas markets and establish their own brands. A pioneer in this field, Haier, which has gained strength in China, is actively expanding overseas. As part of this strategy, Haier has made direct investments in industrialized countries, such as the United States, and pursued business tie-ups with multinational corporations such as Sanyo. At the same time, it has also purchased real estate in New York's shopping district and put up a large neon advertisement in Tokyo's Ginza area.

As often depicted on NHK's popular TV program Project X, many Japanese firms such as Sony and Honda experienced great difficulties when trying to tap into Western markets in the 1960s. As a result of repeated efforts, they were successful in establishing their own brands and altering their image at a time when the quality of products "Made in Japan" was as low as their prices. This time, it is the turn of Chinese firms, and we should watch to see whether it leads to a further advancement of the "Made in China" image.

March 8, 2004
  • Based on the Report by the Committee on Brand Evaluation, Industrial Organization Division, Economic and Industrial Policy Bureau, Ministry of Economy, Trade and Industry, June 24, 2003.

March 8, 2004