Covering the progress Chinese companies are making as they move into international markets

Three Hurdles That Will Define CTrip

The OTA that recorded the strongest performance in 2015 was Ctrip, which grew by an impressive estimated 58%, to reach gross bookings of $27 billion, driven by the booming Chinese domestic and outbound travel markets. Ctrip is today the third global OTA player, and is forecast to be able to challenge Expedia Inc and The Priceline Group for global leadership by 2019.

Source: State of Online Travel Agencies: Ctrip Joins Priceline and Expedia as Global Giant – Skift

Ctrip has, it seems, now officially (and to us in China, somewhat belatedly) joined the ranks of the world’s largest online travel agencies.

In fairness, the company offers the most comprehensive travel agency service in China, and has worked hard to fend off challengers for the past 15 years, either crushing them with size or, when all else fails, buying them out or co-opting them.

Now China’s leader must master three new challenges that come along with its newfound status:

Build a Better Outbound Service. First, the Chinese challenger must figure out how to match the listings and relationships that Expedia and Priceline have built around the world outside of China. Offering a handful of cheap alternatives in major cities is not going to keep hold of China’s 125 million outbound travelers, in particular as many of those who can speak English are already skipping Ctrip for international journeys and going right to Expedia and Priceline.

Defend against tougher local competition at home. Second, it must fight a growing number of challengers at home, both hungry local players all seeking to grab part of the market; platforms like Airbnb and its local imitators that are increasingly offering shared alternatives to traditional travel; and Expedia and Priceline as they bring their challenge into Ctrip’s home market.

Break out of China. Finally, at some point Ctrip must figure out how to evolve beyond the core Chinese market. Massive the travel base in the PRC may be, but the world beckons, and continued growth will eventually depend on deft expansion abroad.

The extent to which Ctrip can address these three challenges will determine whether it will remain a specialized, local player, or whether it will one day be feasting on the remains of Expedia, Priceline, or both.



Friday Irrevrence: Labels are Important


My wife’s aunt brought this bottle of wine to a recent family dinner at the Liu Family Restaurant next to the National Art Museum of China (Meishuguan) in Beijing.

Nobody is happier than I to see Chinese vineyards jumping into the wine business. But someone should alert this particular winery that selling a wine without a year on the bottle makes it very hard for all but the utter tyro to trust what is in the bottle.

China: State Multinational or Global Superpower?

America fights, in other words, while China does business, and not only in Afghanistan. In Iraq, where U.S. troops brought down a dictator and are still fighting an insurgency, Chinese oil companies have acquired bigger stakes in the oil business than their American counterparts. In Pakistan, where billions in U.S. military aid helps the government keep the Taliban at bay, China has set up a free-trade area and is investing heavily in energy and ports.

via China succeeds by behaving more like a multinational company than a global superpower.
nne Applebaum
September 27, 2010

This was a clever observation when Anne Applebaum first made it five years ago, and there is still some validity to it. Nonetheless, one cannot help but wonder if things will stay this way much longer. China’s military posture overseas continues to rise, and its companies are beginning to discover that the easy fruit has fallen. We may well have witnessed either the high point of China’s overseas expansion, or, more likely, the end of China’s purely commercial overseas expansion strategy.


Making Crepes is Not Cultural Theft

US Jianbing Maker Accused of “Stealing Chinese Culture” | The Nanfang.

A young American goes to China. She finds out how to make jianbing, a popular local street food. She goes home to Portland, and she opens up a shop to make it.

And is promptly excoriated by Chinese netizens for “stealing Chinese culture.”

Leave aside unfathomable presumption (or cultural chauvinism) that would prompt someone to suggest that only Chinese should be allowed to make Chinese food (or that only French should make French food, or that only Italians should make Italian food.)  Those who have issues with Alisa Grandy making her living on making Chinese crepes miss the bigger point:

This is exactly the kind of cultural diffusion that the Chinese should be applauding as a natural result of China’s rise. The world is discovering Chinese culture, and in the process more and more aspects of China will wind up woven into the world’s cultural fabric.

If Chinese chefs can make hamburgers, pizzas, and fajitas (and I know more than a few who do, and some very well), American chefs should be allowed to adopt – and extend – Chinese cuisine.

New York’s Transparent Buildings

Full Bank Accounts, Empty Storefronts: The Economics Of High-Rent Blight.

Fascinating little story that somehow brings to mind places like Kings Garden Villa in Beijing, and much of the city of Ordos.

I would wager that at least some of the money that has found its way to Manhattan is coming from Chinese investors who would rather wait for tenants who can afford their desired rents than rent out at less and undermine the likely ridiculous sums they paid for the properties.

This is not a uniquely Chinese behavior, but it is a practice that is notably common among property owners in China. What is more, the sources of cash flowing out of China and into North American investment properties are certainly not limited to giant, high-profile developers like Wanda. So while it would assume far too much that Chinese money is the cause of High Rent Blight in New York, it is likely a contributing factor.


Lu Wei’s Facebook Gambit

Hutong West
Writing the Book
0935 hrs.

In all of the brouhaha around Facebook founder Mark Zuckerberg’s pandering comments to Chinese Internet czar Lu Wei recently, the China commentariat are lining themselves up on both sides. One side is morally outraged at what Jimmy Sonni at the Washington Examiner called “Zuckerberg’s efforts to ingratiate himself with an authoritarian regime – a regime that Facebook has an enormous incentive to placate…” The other side rejects the moral outrage. They believe that Zuckerberg should be applauded for attempting to position Facebook as a means to give Chinese more access to the global Internet.

Both sides (ostensibly) share a disgust with the regime in Beijing. One seeks to undermine it via isolation, another by assimilation. Yet both are naive; isolating China’s internet, thus compelling China to develop its own social media, will no more back China into a corner than did compelling it to develop its own newspapers and television networks; similarly, the belief that the Party will sit back and allow foreign social media to undermine its position belies history and underestimates the efficacy of the Party’s methods.

If Mark Zuckerberg wants to help Facebook make a fortune in China, all while serving the interests of the Chinese people over those of the Party, he start by asking himself a hard question. Why did Lu Wei really come visit Facebook?

Because it is entirely possible that Beijing needs Facebook almost as badly as Facebook needs China. Lu Wei is a good poker player, and he is surely not showing any of his cards, but it may be that in order to accomplish the Party’s goals, it needs Facebook’s cooperation and assistance, willing, witting or otherwise.

Zuck needs to pull his best, smartest people together and think this through. Because if they figure it out, they may not have to behave like lickspittles, handing over the keys to the empire in return for a handful of vague promises. Instead, they can improve their negotiating position and either stroll into China with heads high, or walk away knowing that it was the best alternative to doing so.

There is much more too all of this than meets the eye. Facebook’s founder has the wherewithal to suss this out. He should do so, and soon, before the company finds itself a pawn in somebody else’s game.


Wanda Arrives Arrives in Beverly Hills

“China Developer Buys Robinsons-May Site in Beverly Hills”
Julie Makinen
Los Angeles Times
August 8, 2014

The Times scored a win in picking up this story about how Chinese development giant Wanda is raising its bets on US real estate. Based in Beijing, Makinen can be forgiven, though, for not addressing what the real story is likely to be: the challenges the company is likely to face in gaining approval for its project.

Wanda has yet to reveal plans for the site, but the location has some particular challenges familiar to locals. Traffic is already very heavy going into the area on both Wilshire Boulevard and on Santa Monica Boulevard, which border the site, and during large parts of the day the proximity of Century City makes Santa Monica Boulevard a parking lot for several miles of its length. The development of a high-density complex on the eight-acre site would only exacerbate the problem.

That issue alone is likely to provoke public opposition to a sizable development. The NIMBY factor in the area is high. I know: I grew up three blocks away, and worked at the recently-demolished department store between college and grad school.

If Wanda is wise, it will embark on a campaign to woo local residents, most of whom live in homes with values far in excess of $3 million (and who are accustomed to wielding political clout with the local government,) as well as the Beverly Hills City Council. It will have architects focus on creating a site that integrates elegantly with the Century City, downtown Beverly Hills, with the Hilton, and with the elementary school and neighborhoods to the north.

If the project is clearly woven into the broader fabric of Beverly Hills, seeking to update an enhance rather than just plonking another Chinese multi-use center like it created in Beijing, Wanda will wind up with a flagship property and the respect of the business community in Southern California.

That costs money, of course. But Wanda has plenty of money, and it has every reason to make nice in the US as it diversifies its portfolio beyond China’s increasingly uncertain real estate market.

Electric Cars and China

“The mechanical value of the automobile is falling, but the electric value of the car is rising.”

— Amit Gattani, Micron Technologies

Let’s take Amit’s point one step further: the trajectory of automotive development is such that the car is evolving into an oversized piece of consumer electronics. If there is a single factor that inveighs in favor of China eventually becoming the automaker to the world, this is it.

China Goes West: The Coming Rise of Chinese Brands

China Goes West: Everything You Need To Know About Chinese Companies Going Global
Joel Backaler
May 2014

If there is one question that vexes many observers in China, it is this: how can Chinese companies begin to build – or become – global brands? Thirty-six years after the beginning of reforming and opening, only a handful of Chinese companies – Lenovo, Huawei, Haier, Tsingtao – have made the leap to global leadership in their sectors. This invites a rude comparison: 36 years after it was flattened by the US Army Air Corps, Japan had already produced dozens of leading consumer brands – Sony, Panasonic, Toyota, Honda, Canon, Nikon – that were disrupting industries around the world. Why has China not produced a similar – or even larger – crop of world leaders in the same time frame?

In an intriguing new book, China Goes West: Everything You Need To Know About Chinese Companies Going Global, author Joel Backaler offers us a glimpse into why there are so few Chinese global brands. And some of the reasons will surprise you. I won’t spoil it for you, but the reasons go way beyond marketing competency.

Backaler, who has spent the better part of a decade studying Chinese business and is the author of a highly respected blog on the subject, was given unprecedented access to the companies and their executives, and tapped the knowledge of some of the wisest observers of Chinese companies.

Through the stories of these firms, Backaler explains what drives Chinese enterprises to even consider going global in the first place. He describes the painful path that China’s pioneering Champions followed to get there. And he leaves you wondering why, despite the potential rewards, an more than a handful of Chinese companies would bother.

But Backaler pulls no punches – he clearly believes that we are on the cusp of a major change, one that will see a rash of Chinese companies go global, and in the process disrupt global markets much the same way the Japanese did in the 1980s. You may not agree – but Backaler’s makes a persuasive case, and he makes some pointed suggestions on what the rest of us should do in response.

China Goes West is not a marketing book, but it is a book all of us must read for a simple reason: it describes how China will build global companies, and it gives us the strategic insight we are all going to need to either help them – or to help their competitors stop them.

Enhanced by Zemanta

Setting the Stage for Chinese Innovation

Near People’s Square, Shanghai
Skyline in Silhouette 
0700 hrs. 

Walking the floor at both CES in Las Vegas and Electronica China in Shanghai within a ten-week space provides one with a clear view of how far Chinese enterprise has come, and, equally important, the degree to which international technology businesses have lost their former dominance in China.

One could conclude from these impressions that multinational tech companies are in a state of permanent decline in China: Beijing’s unstated but ongoing policy of import substitution has succeeded, and foreign companies are fighting a losing battle. You don’t need to go to trade shows for anecdotal evidence. Just look in purses and backpacks: ZTE, Huawei, TCL, Lenovo, and Yulong are five of the top ten mobile device brands, and they’re gaining on the global giants.

But if you dig a bit deeper, as you can at a show like Electronica, you find that the opportunities for foreign tech companies have not disappeared: they have evolved. To understand why and how, it is useful to start by looking back on how the tech business developed in China.

From Buy to Make

Since the beginning of reforming and opening in China in 1978, the nation has essentially gone through three phases of foreign involvement in technology-based industries.

The first phase was imports, when the government focused on bringing urgently-needed products like personal computers, telephone switches, automobiles, machine tools, and other technology-based products into China. The need for these products, most of which were essential to ease key bottlenecks in the development process, was so urgent that key ministries were permitted the use of precious foreign exchange to purchase those goods.

China’s leaders always expected, however, that the nation would begin producing these goods on its own, preferably in local companies, but realistically in joint ventures with global technology companies who would bring three essential ingredients: the products, with their component technologies; production know-how, with process technologies; and the capital to build the production facilities. This was the second phase: the shift to local production.

Fast Followers

By the mid-1990s, though, another shift began to take place. As the global tech giants ramped up production in China to a mass-scale, local firms began manufacturing their own technology goods. Local firms began to dominate production, using a “fast-follower” approach: “maybe we won’t be innovators, or even the first to market with a given innovation, but we will come to market so soon after the innovation leader that we will still reap our share of the market.”

By last year, the payoff of this shift had become apparent. Chinese high-tech companies were long past needing foreign manufacturers to teach them how to build high-tech products, to help them implement cutting-edge production processes, or even to finance the construction of factories. Those local firms unable to bootstrap their own capabilities and finance now had a vast stable of local and foreign companies ready to provide the necessary technology, and finance, thanks to cash flow and capital markets, was no longer a problem.

Innovation, however, remained a challenge. While a handful of local tech companies –  notably (but not limited to) Huawei, ZTE, Xiaomi, and Leovo – had begun to innovate, widespread innovation that would offer a more sustainable competitive advantage (and a larger share of profits) still seemed a ways off.

Enter the Innovation Platforms

And there it remains today.

This gap between efficient production and value-driven manufacturing is the heart of the next opportunity for foreign firms. While the days of foreign brands utterly dominating technology markets in China may be past, more than ever China’s manufacturers need a steady stream of innovations upon which they can base their own innovating.

Technologies that serve as the foundation that allows others to innovate are what we can call innovation platforms. Five factors make innovation platforms stand out from other technical advances:

Significant – The core innovation is a genuine advance that is both useful and relevant;

Substantial – There is a obvious, large, and diverse market for products based on the innovation that offer substantial profit potential, and the technology is easily commercialized;

Shared – The company promulgating the core advance is more interested in creating an ecosystem than a monopoly, i.e., it is content with focusing on supporting and enhancing the core technology and not getting into the business of its customers/licensees;

Stable – Any subsequent changes in the underlying technology are likely to be iterative, not major, for several generations of products. This makes it economically viable for companies to invest in R&D based on the innovation platform.

Supported – Rather than serving as a glorified patent troll, the companies that develop innovation platforms invest heavily in resources designed to assist product developers create viable commercial products, such as on-site engineering support, system validation labs, extensive documentation, or developer groups. In addition, the company continues to invest in improving the core technology.

Early Innovation Platforms

Many innovation platforms take the form of acknowledged industry standards. Examples like Wi-Fi, Bluetooth, and USB could be considered a form of innovation platforms, in that their technologies enabled the creation of products and even companies.

But when we talk of innovation platforms, we are really looking at products and technologies that spawn not only products, but companies and entire industries. Some illustrative examples:

The Xerographic Process: Invented by Chester Carlson and later commercialized by Haloid/Xerox, which begat the photocopier, the laser printer, desktop publishing, and many specialized sectors;

The Intel 8000 microprocessor family, that together enabled the creation of the personal computers, stand-alone video games, and a half-dozen major industries;

Qualcomm’s CDMA: CDMA enabled the commercialization of the internet, created the telematics industry, and is on its way to recreating the automotive, trucking, and healthcare industries, among others.

Each of these companies took an indirect lesson from the failure of Thomas Edison’s Motion Picture Patents Company, an industrial trust that tried to control the film business as well as the manufacture of cameras and film stock. It was, arguably, Edison’s greatest failure. By exercising a modicum of control over the core technology, supporting it, advancing it, and making it available on reasonable terms, Xerox, Intel, and Qualcomm each fostered the creation of immense economic value.

Platforms for the Future

In a world where industrial and engineering capability is a scarce quantity, the easiest way to make a return on a major innovation is to create a vertical industry around it, building the components, creating the product or system, and distributing it under your own brand. The Bell System did this for nearly a century with telephones, and IBM and a handful of other companies did this for the first three decades of the computer industry.

But when the ability to design, engineer, and industrialize complex products is widely distributed, as it is today, robust companies are built on either using innovation to enable industries, or in building on innovation to create industries.

For the time being, Chinese companies are (generally) comparatively better at building industries based on key innovations, and European and particularly US companies are (generally) comparatively better at consistently creating core innovations that can serve as the platforms for those industries. This does not mean that no core innovations will come out of China, or that the US is no longer capable of product development and commercialization.

But it does suggest that the richest opportunities in China for foreign companies, particularly those in science, engineering, and technology-based industries, lies in licensing and enabling Chinese manufacturers, rather than competing with them.

The question facing tech companies, then, is whether and how to make use of the company’s innovations – or an ongoing stream of them – in order to serve as a profitable and indispensable platform for Chinese innovation. And for those of us who watch this market, the pressing question is “in which industries will the next round of innovation platforms emerge?

I leave the first question to the companies themselves. For the second question, my early research points to transportation, healthcare and biosciences, construction, energy, and the environment. I know: I have my chips on a lot of spots on the roulette table. In the coming months, I look forward to sharing with you why I think things are going that way.

Walter Lippmann on China

“The small American businessman has long complained about how difficult it is for him to survive in the competition with the large American corporation,” [Walter] Lippmann warned. “What will he do when he has to face the competition of totalitarian monopoly organized on a continental scale?”

Alan Brinkley The Publisher: Henry Luce and His American Century

Lippmann was talking about the Soviet Union at the time, but his words do resonate today.

Happy New Year, everyone, from Silicon Hutong.

Five Predictions: China’s Business Environment in 2014

Hutong West
Sunday Afternoon Countdown to Morning in Beijing
1526 hrs. 

Much ink and focus has been given of late to understanding China’s political evolution. Too little, on the other hand, has been given to what it will all mean to those of us who must decide what role China will play in our business plans in the next two to three years.

Futurism is alchemy in the best of circumstances, and nowhere more so than in the case of China. Nonetheless, if we extrapolate from current events, it appears that China has embarked on a course of commercial nationalism, if not outright mercantilism.

In the spirit of the season, then, we offer our five predictions for 2014:

1. China will build a more protected environment at home for its state-owned, state-coopted, and “accidental champion” enterprises through an increase in the use of soft protectionism.

2. Those enterprises will thrive at home, but increasingly will be pushed abroad, seeking prestige, less competition, and faster growth.

3. Trade and industrial policy will test the absolute limits of what China can get away with under the WTO, and Beijing will conduct a propaganda campaign to try and undermine the Trans-Pacific Partnership.

4. Foreign brands will find it more difficult to gain share in China. In addition to soft protectionism, they will face the continued relative decline in the prestige of foreign goods/brands in a growing number of sectors.

5. In 2014 we will see the beginnings of a new crop of Chinese entrepreneurs, more of whom will be starting their companies from second, third, and fourth tier cities, or even overseas. The cost and complexity of doing business in China’s first tier cities – along with the declining quality of life – will shift focus away from Beijing and Shanghai.

I’ll be addressing these more in the coming year.

The Challenge of the State-Co-opted Enterprise

Hutong West
Santa Ana Fever
1124 hrs.

When we talk about broad categories of Chinese enterprises, we focus on ownership: state-owned enterprises, or those companies owned and guided by the government; private enterprises, or those companies owned by other companies or by individuals; and foreign enterprises, those companies legally or functionally owned by non-Chinese corporations or individuals.

You don’t need to work with this taxonomy for long to discover that it is inadequate. Hybrids abound, and there are a growing number of firms that do not fit neatly into these distinctions.

One type that we must address, even if it seems chimerical, is the “state-co-opted enterprise.” This is a private company, one not owned by the state, that has not only submitted itself to the modicum of government oversight mandated by law and policy, but also by intent or action has made itself an extension of state policy. Most often, this is done in order to secure a right to operate in a particularly sensitive sector.

The reason this phenomenon needs to be examined is that there is an implicit belief outside of China that many Chinese companies, while ostensibly not state-owned, are in fact controlled by the Party or some arm of the Chinese government. This is especially the case for large Chinese companies with a growing international presence and opaque ownership structures.

Huawei’s singular employee-ownership structure, for example, vexed US Congressional investigators. The ownership of Qingdao-based white-goods maker Haier remains obscure at best. Lenovo protests that it is “100% market oriented,” but the Chinese Academy of Sciences retains 36% ownership of the enterprise. And Tsingtao Brewery Group, the majority owner of Qingdao’s Tsingtao Brewery, has an ownership structure that remains unclear. These arrangements, unconventional and strange to western observers, seem tailor-made to hide the hand of government or military behind these enterprises.

But ownership is not the sole source of concern. There seems little question that China’s internet giants – Baidu, Youku/Tudou, Alibaba, Tencent, and Sina – are not state-owned by any measure. But their leadership in an industry where foreign participation is limited by government policy gives them the status of what Piper Jaffray analyst Gene Munster called “a state-sponsored monopoly.” Such a status could be seen as leaving these companies inordinately beholden to the government if the Party were ever to call in its chits. Worse, as we enter an era where cyberwarfare is becoming a core mode of international conflict, the capabilities encompassed by China’s internet giants offer the Party and PLA motive and opportunity to co-opt these companies.

None of this is to say that these companies dance to the government’s every pull on the string. But for each of these firms it is going to require more than bold assertions of independence under questioning to convince the world that they are not somehow in the thrall of the Party, particularly if Xi Jinping stokes commercial nationalism.

Those of us who work with, represent, or do business with China’s emerging non-state enterprises either need to be demonstrate their independence from the outset, or we need to address the relationship between these firms and the government proactively, so they are not “discovered” by accident.

Is it Too Soon for Xiaomi to Go Global?

Aluminum protective metal bumper case cover fo...
XIAOMI MI2S (Photo credit:

Hutong West
Wiping the floor
2117 hrs.

I had a long talk with Michael Kan at IDG recently about China mobile phone maker Xiaomi and its high-profile hire of Google refugee Hugo Barra to head up the company’s international expansion. The core of our discussion was around whether it would make a difference. Michael was circumspect about his opinion, but I wasn’t: Hugo is a great hire, but he will not easily solve the challenges to Xiaomi’s global ambitions.

Xiaomi has a strong market in China, built on powerful devices that sell at very modest prices, on a slightly patriotic appeal (buy Chinese!), and on some deft PR by founder and CEO Lei Jun. Where the company differs from other Chinese manufacturers of inexpensive Android phones is that it is attempting to build an ecosystem of its own that is meant lock in users and draw revenue on content and services in the same way that Apple has done.

Now that Barra is aboard, the bet in some quarters is that a major international push is in the offing. If it is, I wish Lei, Barra, & Co. best of luck. They are going to need it, because the minute they step outside of their China cocoon, things are going to get different for them very quickly. The three biggest challenges I see aren’t even marketing related. They boil down to distribution, strategy, and resources.

They Can’t Buy What They Don’t See

China is a retail-based mobile device market. This means that any mobile phone manufacturer can get counter space in a retail store and sell an unlocked phone to the public. The only challenge is to get people’s attention so they look for you. Lei has figured that out, which is what draws people into the stores.

Markets like the US, though, are carrier-based. This means that in order to be sold to the public, you must first win over one or more of the mobile network operators, who will then sell your device (locked) for their network both directly and through authorized retailers. As a result, there is a relatively modest number of devices available in the US, and breaking in is tough. Most carriers start out with new manufacturers (think LG and ZTE) in an arrangement where the manufacturer’s brand never shows up on the device: it is branded by the carrier. Over several years, that can change, but it will take time, and there are unlikely to be shortcuts for Xiaomi.

Cheap May Not Be Enough

Xiaomi is no stranger to competition: China’s mobile market probably has 70 handset manufacturers offering 800 devices on sale at any given time. In the US, however, it will face competitors who have the home-court advantage that Xiaomi is used to having. Apple, Samsung, HTC, LG, Google, Microsoft, Huawei, and ZTE bring more cash, technical muscle, marketing prowess, and corporate attention to the global markets than Xiaomi can afford.

Certainly there have been David-Goliath stories before: every company in the US mobile phone business with the exception of Motorola started out as an underdog. But against a particularly brutal array of competition – including Chinese rivals who can match and beat any cost advantage Xiaomi can bring to the table – Xiaomi is going to have to figure out what it can offer to non-Chinese users that its well-funded, technological-powerhouse rivals cannot. Will it be innovative, and how? Can it find a neglected niche? Will it grab onto a powerful partner, and if so, whom?

Or will the company try to duplicate its software and services ecosystem overseas?

To his credit, I get the feeling Lei understands that “cheap and cheerful” is not an option.

Going Too Many Places At Once?  

China’s entrepreneurs face great temptation. Once they are successful in one business, many of them begin to think they can be successful in other, unrelated lines. There are so many green fields and blue oceans in China that the urge to move into those new areas is almost irresistible. That siren song is too-often fatal. I have watched from the inside of two giant Chinese companies as these sideline businesses sucked capital and attention from the company, allowing more focused rivals (often foreign) to leap ahead.

Xiaomi is showing early signs of entrepreneurial attention-deficit disorder. The company is already in software and services in order to secure profits that it would be hard-pressed to make on its inexpensive devices. Now Lei wants to move into internet-ready televisions, a product line that has become much easier to make but no less difficult to sell to the public, and dozens of local brands already crank them out, undercutting prices. This means that Lei will need to get into a services and content business in order to make profits from any TVs he sells.

Then comes the globalization. Lei has said that he will turn to Barra to run international markets. That would be ideal if it would work. Chances are, though, that it won’t. The fundamental business decisions that will need to be made in order to turn Xiaomi from a Chinese company to a global one are going to draw on the valuable time of Lei and his lieutenants.

All of that distraction will take place at a time where Lei will need to shore up Xiaomi’s position and defend it against the onslaught of competitors keen to rip his market out from under him. The company is number six in China in smartphone sales according to some analysts, but that position is far from secure. One misstep in its core business and it could go very wrong.

Oh, and About that Name…

This is normally the point where I would bring up the fact that non-Chinese outside of China would be able to pronounce “Xiaomi.” The real issue, though, is not getting people to pronounce the name, but getting people to care enough to even try. Consumers around the world have no idea who Xiaomi is, or whether it is a creation of the Ministry of State Security in a plot to listen in on the world’s conversations. Beyond the technical, beyond the strategic, there is the simple issue of getting people to know and care about you. Chinese companies are notoriously bad at this, and as adept as Xiaomi has proven itself in China, it is a long leap to build that faith across the Pacific.

The good news for Xiaomi is that Barra gets all of this. When I saw him at the China 2.0 conference at Stanford earlier this month, he had no illusions. In his offhand remarks you could hear him honing his messages as much for external audiences as internal ones: this is going to be a long slog, and Xiaomi needs to be ready for it.  At the moment, though, it is unclear whether Lei Jun has the stomach or the war chest for a long battle against the established names.

The hard decision that the company will face soon is this: are we better off focusing that effort today on winning in China, engaging in a token overseas effort to seed long-term awareness and eventual trust; or do we go whole hog in both directions, aiming for the top spot in China and a dozen international markets at the same time?

If Lei Jun has is way, watch for Xiaomi to try to score some quick, modest wins overseas to generate buzz. The wise move at that point would be for Lei and Barra to start raising serious money to enable them to take on Samsung, Google, Apple, HTC, and Microsoft.

Either way, this is going to be both fun and educational to watch.

Branding and BRICs

“Brazil leads in BRICS’s brands”
Jerry Clode

Added Value – Source
March 17, 2013

BRICS summit participants: Prime Minister of I...
BRICS summit participants: Prime Minister of India Manmohan Singh, President of Russia Dmitry Medvedev, President of China Hu Jintao, President of Brazil Dilma Rousseff, President of South Africa Jacob Zuma. (Photo credit: Wikipedia)

In a thought-provoking article in AddedValue’s Source blog, Jerry Clode notes that Brazil’s brands are going global while China and India’s brands seem mired at home. Clode probes why, and believes he has found the answer: Brazil’s brands do well because they have creative Brazilian people who are confident enough in their culture to it in a way that is meaningful to people overseas. And, by implication, China does not.

He notes:

Looking at the two Asian BRICs, China and India, we see increasingly discerning and globally literate middle class consumers who are placing increasing expectations on local brands. But a lack of concomitant confidence to tell local brand stories that move beyond quixotic foreign stereotypes seems largely absent.

The answer to creating Chinese brands, he suggests, is simple: Chinese companies just need to be more confident and down-to-earth when presenting narratives to global customers.

It’s an interesting argument, but I am not sure it would do the trick. National provenence carries different baggage for Chinese and Brazilian brands. Chinese companies must operate against the unappealing background of China’s messy national emergence. China’s assertive geopolitics, cultural differences, and a reputation for producing poisonous foods and questionable quality in toxic sweatshops have left a deeper impression on the world’s consumers than panda bears, kung fu, and calligraphy.

This is a problem that extends far beyond the ken of marketers to solve. The status quo is our canvas, and the aura of Chinese-ness is and will be for the foreseeable future more a curse than a blessing for all but the most extraordinary of Chinese brands.

At a more immediate level, uncertainty around company ownership in the PRC means that Chinese brands are assumed to have some affiliation with the Chinese government and, by extension, its activities. Meanwhile Brazil carries much more positive images for global consumers, it’s government is not perceived as threatening, and it can capitalize on the common European cultural origins of its primary audience.

For the time being, marketers for China, Inc. must address this with the grand strategy followed by Japan’s most successful brands: deodorize. Back when Japanese brands began their global breakout, they did their research and discovered that their “Japanese-ness” was a liability, and behaved accordingly. Nissan used the “Datsun” marque in the US from 1960 to 1980 to avoid being associated with the brand name used on trucks the company made for the Japanese army in World War II. Matsushita picked out the name “Panasonic” for similar reasons.

Most Japanese brands did not go so far as to change their names, but their Japanese origins and essence were played down in all aspects of marketing and sales. Origin was incidental, neither positive nor negative. What was important was the product and the credibility of the company that stood behind it.

Until such time as China’s companies no longer struggle to free themselves of the constraints of the nation’s global image, they can rely only upon their own good work. For most, if not all, that will mean leaving Brand China behind in their quest for global markets.