Brands Add Value

Back in the Hutong
Finally, blogging again
1657 hrs.

As the debate over if, when, and how China will begin to produce global brands continues, someone quipped today that China will start building brands only after it starts creating products people want to buy. That’s a fair point, but I don’t think it goes far enough. As Thys De Beer wrote last year:

In the 1920’s WK Kellogg said: “The purpose of business is not to make a profit. What a dreary and demeaning description. The purpose of business is to add value to people’s lives. The consequence of doing that well is that you make a handsome profit.

Debate that if you will, but I think that Kellogg’s statement reflects

an idea that has yet to germinate among Chinese executives, and that therein lies the core reason why China has yet to produce global brands.

Marketsensus Research and Innovation

I think its a clique to say Chinese can’t build brands. They already have and the will continue to, not mentioning any names (Shangahi Tang). But lets now forget, when we look at things through our waspy or western frame of reference our vision is warped.

If you see things from the perspective of a cash-strapped Chinese consumer, perhaps they don’t need an eco, organic, personality filled, locally grown and harvested over-packaged cotton product. Perhaps they want a Chinese factory made non branded cotton T-shirt which suits their budgetary needs.

David Wolf

I agree with you to a point. It is entirely possible that cash-strapped Chinese consumers don’t need a brand or added value. But what about cash-flush wealthy or professional Chinese consumers? What about consumers who have bought no-brand products and have had horrible or even life-threatening experiences with them? I can tell you that Enfamil and Similac, two global brands of baby formula, are extraordinarily popular in China these days. Those labels are seen as a blessing by a lot of prosperous Chinese parents.

My point – and I framed it badly – was about Chinese brands catching on outside of China, and with a very few notable exceptions, it has not happened yet. For the record, Shanghai Tang was the brainchild of David Tang, a wealthy Hong Kong entrepreneur who I would argue was perhaps more British than Chinese. You can bet that Western consumers will hesitate to buy value-added products that lack the imprimatur of a marque – unless they’re buying for price.

Marketsensus Research and Innovation

There is no doubt that due to the cultural revolution and its limitations in teaching and economic growth, the Chinese are justifiably behind in building brands. The french are very good with luxury heritage as the Americans are with middle market comfort – when it comes to clothing.

I believe the Chinese with ‘catch up’. Just as the Japanese and Koreans did as their economies evolved, tastes and consumption moved up Maslo’s hierarchy of needs. China has and will continue to build brand that are distinctively Chinese for Chinese.
Shanghai Tang is a Chinese man who while spends his time between Hong Kong and the UK, is Chinese. The fact that he is rich only serves to assist in building the first Chinese luxury brand for modern times.

Luxury products and branded goods have a long history in China (desirability of these goods is directly related to the notion of face) and as China prospers this will again be established. Lets keep in mind the real demographics of China when contemplating the demand and supply of branded goods in China right now.

Marketsensus Research and Innovation

I don’t think the Chinese need to or really care about Chinese branded goods “catching on” outside China. Perhaps that is for another decade. Only 20 years ago I personally was considering whether refrigeration would “catch on” inside China. The country has come a long way and will go along way still. If we are patient, we will see all these things.

David Wolf

Good points all.

I don’t think the Chinese need to or really care about Chinese branded goods “catching on” outside China. Perhaps that is for another decade.

For the government and the Chinese people this is probably true, but for a growing number of Chinese businesses, it is not. I deal every day with Chinese companies who aspire to be global brands. Lenovo, Haier, Li-Ning, and a clutch of other Chinese companies are actually quite serious about their brands catching on outside of China, and for good reason: they understand that not only can success overseas and away from the hyper-competition inside of China offer the potential of greater profits, they also know that by competing and winning overseas they are better positioned to win at home in the long run. While most have a superficial understanding of what is required to reach that point and will do as little as possible to do so, they all recognize that as large as China’s market may be, they need to turn the outside world into a high-profit market in order to thrive.

That each of these companies are, at the moment, relegated to competing on price outside of China is a source of continuing frustration, especially as their costs rise to a point where they are approaching parity with their global competitors. Quality, innovation, and brand are the keys out of this spiral, and a growing number of Chinese companies understand this.